Lawyer professional liability insurance is not something a lot give much thought to.
And yet, every day, attorneys handle delicate issues that directly impact people’s lives, finances, and futures. More often than not, those issues are also rife with emotions like stress, anger, fear, and worry.
Consequently, even a relatively minor misstep – like having a filing rejected on a technicality – could lead to angry clients filing costly lawsuits that can damage a lawyer’s reputation.
That’s where professional liability insurance (aka legal malpractice insurance) comes in.
While most large-firm lawyers never have to think about liability insurance (the firm takes care of it), many solo practitioners and small law firm attorneys are forced to swim in an ocean full of confusing information.
In this post, we’ll try to help those folks out by reviewing the basics of professional liability insurance, what it covers, and how you can make the best choice for your practice.
What is lawyer professional liability insurance?
Lawyer professional liability insurance is a specialized form of coverage designed to protect attorneys from claims related to their professional services.
Unlike general business liability insurance, which covers common risks like slip-and-fall incidents, professional liability insurance shields lawyers from lawsuits alleging negligence, errors, or omissions in the course of their work.
For example, if a client claims they lost their case solely because of their lawyer’s mistake, this insurance can help cover legal fees, settlements, or judgments – all while ostensibly keeing the lawyer’s practice and finances intact.
Do you need lawyer professional liability insurance?
While all lawyers aim to practice law flawlessly, mistakes happen. Sometimes, even a misunderstanding between a lawyer and a client can lead to claims of malpractice.
Here’s a closer look at the reasons attorneys need liability insurance:
Common risks
Small oversights, such as a consequential typo in a contract or a deadline missed due to unforeseen illness, can have significant (and negative) impacts on a client’s case. These minor issues can quickly escalate into legal claims.
Claims happen
Legal malpractice claims are fairly common. In fact, according to the ABA Journal, 80% of lawyers will face a malpractice claim during their career.
The risk is especially high for solo attorneys, who may have fewer resources to double-check every detail or delegate tasks. Having liability insurance gives attorneys a safety net if a claim arises.
Avoid awkward conversations
While California doesn’t mandate lawyer professional liability insurance for attorneys, its rules, specifically Rule of Professional Conduct 3-410, require attorneys to notify clients in writing at the time of engagement if they don’t have current malpractice insurance.
I don’t know about you, but this is not a conversation I’d want to have with a new or potential client.
What professional liability insurance covers
For the most part, your professional liability policy will cover claims related to negligence, mistakes, or oversights made in the course of practicing law.
Here are some of the key faux pas that are typically covered by malpractice insurance:
Negligence
These policies generally cover unintentional failures to provide services to the standard of care expected in the profession.
For example, if a lawyer misses a crucial deadline or misinterprets a law, it could lead to financial damage for the client – and that could lead to a malpractice claim.
Errors and omissions
E&O coverage protects the things you forget to do that negatively impact a client.
For instance, forgetting to put a Jurisdiction and Venue clause in a client’s contract with another party in another state could expose the client to unexpected costs and liabilities.
Intentional misconduct
Don’t let the sub-heading fool you – it’s actually important to remember that professional liability insurance generally does not cover intentional misconduct or criminal acts.
That’s something to think about when your favorite client asks you to perjure yourself.
Understanding policy terms and options
As a lawyer, you know that the words in a contract matter – the same goes for your malpractice insurance policy. Indeed, it’s important to understand some of the policy’s specific terms, as they can impact your coverage.
Here are a few to consider:
Claims-made vs. occurrence-based policies
The difference between claims-made and occurrence-based policies is subtle but important.
A claims-made policy covers claims only if both the incident and the claim take place while the policy is active.
In contrast, an occurrence-based policy covers incidents that happened during the policy period, regardless of when the claim is filed.
Most professional liability policies for lawyers are claims-made, but given how significantly this difference impacts your long-term protection, it’s worth taking the time to understand.
Coverage limits and deductibles
Policies come with a per-claim and aggregate coverage limit, which is the maximum the insurer will pay per claim and over the policy term.
Solo practitioners and small firms may find lower limits are sufficient for typical claims, but assessing your caseload and types of cases can help ensure you have adequate coverage.
And, as with any insurance policy (like your health or auto policies, for example), you want to understand your deductible – which is the amount you have to pay out of pocket before your coverage kicks in.
Retroactive dates and tail coverage
When it comes to legal malpractice insurance, you don’t just need to worry about your policy period. Although it may seem counterintuitive, you also need to consider things like retroactive dates and tail coverage.
In a nutshell, your retroactive date is the point in time from which your coverage begins, meaning any incident occurring before that date won’t be covered.
Tail coverage allows you to extend your coverage for claims made after your policy ends. This type of coverage can be crucial for lawyers closing their practice or switching careers, as it offers ongoing protection against potential claims.
Key pain points and solutions
Lawyers looking into professional liability insurance often encounter a few recurring concerns. Here’s a look at some common issues – and solutions to help navigate them:
Cost of coverage
Lawyer professional liability insurance can be expensive, especially for solo attorneys and small firms operating on tight budgets.
That said, insurers offer different rates and policy structures, so shopping around is always a good idea.
Also, some providers offer premium discounts if the firm has a record of low or no claims, which can be beneficial for attorneys with a clean record.
Coverage gaps
Like most insurance policies, legal malpractice policies often have exclusions that leave certain areas uncovered.
One common gap for California attorneys is “prior acts” coverage, which may exclude incidents that occurred before the policy’s retroactive date.
If you’re switching insurers or newly purchasing coverage, reviewing any exclusions for “prior acts” can ensure there are no unexpected gaps in protection.
Frequency of claims
Even minor errors can lead to malpractice claims, so taking proactive steps to reduce risk is key.
Keeping thorough records, double-checking critical documents, and communicating clearly with clients about case expectations can all help lower the risk of a claim.
If it isn’t required, do you need it?
As noted above, California law does not require attorneys to carry professional liability insurance. Still, the State Bar does require lawyers to disclose to clients in writing if they lack this coverage.
For solo attorneys and small firms, this disclosure rule is especially important; informing clients about insurance status can impact a client’s confidence and decision to retain an attorney.
Let’s face it: you may not have the brand recognition and trust that large firms receive (whether that’s fair or not).
You also may not have their large bank accounts in the event a claim does arise.
Thus, making the choice to carry at least a basic policy will not only give you peace of mind but may increase client trust in your firm.
Tips for choosing the right coverage
Choosing a professional liability policy that fits your practice is about more than just price. Here are some tips for selecting the right coverage:
Evaluate your risk level
Consider factors such as your years of experience, areas of practice, case volume, and the financial stakes of your cases.
High-risk practices may require higher coverage limits, while lower-risk practices might do fine with lower coverage.
Ask about additional endorsements
Many insurers offer optional endorsements or policy add-ons. Some common add-ons give coverage for things like cyber liability or employment practices.
If you manage sensitive data or have employees (and who doesn’t?), these add-ons might be worth exploring.
Compare providers
Policies can vary widely from one provider to another. Comparing quotes, reviewing coverage terms, and reading reviews can help you find an insurer with a reputation for reliability and fair claims handling.
Conclusion
Lawyer professional liability insurance is an important tool for lawyers, particularly for solo practitioners and small firms looking to protect themselves and their clients from the unexpected.
While insurance doesn’t prevent mistakes, it offers a large safety net that can keep a practice stable, even when facing a claim.
If you haven’t reviewed your liability coverage recently, consider reaching out to an insurance professional to ensure you’re fully protected.
