Legal malpractice insurance is a vital tool for any lawyer or law firm in order to protect their business and reputation in the event of a malpractice claim. The cost of legal malpractice insurance can vary greatly depending on a variety of factors, such as the size and scope of the practice, the type of insurance purchased, and the provider chosen. In this blog post, we’ll take a closer look at the cost of legal malpractice insurance and how it can be estimated in order to find the best coverage for your business.
Legal Malpractice Insurance
Legal malpractice insurance is the best way to cover your practice against the near-inevitability of a malpractice claim. Malpractice lawsuits are just as common with small firms as large, and if your client feels wronged, your close relationship with them will not matter. Defending these cases is expensive and time-consuming; malpractice insurance covers the defense costs and the damages if you are found liable.
Lawyer Malpractice Insurance is a type of insurance coverage that protects your law firm from a claim that could put a financial strain on your business. It ensures that your business is financially protected from mistakes or misunderstandings that could lead to claims that cost a lot of money.
Why Do You Need Legal Professional Liability Insurance?
The legal profession is highly regulated, and there are clear professional standards and expectations that all attorneys must adhere to. If a client loses their case and feels that their legal representative has failed to meet those standards, they can take legal action and allege that they were victims of legal malpractice.
Should the client prove malpractice and win, the attorney would be required to repay them for all the potential funds they would have received had they won the original case. However, even if the allegations are entirely baseless, merely dealing with a claim can eat up a lot of time and money.
In the event of an expensive lawsuit, the damages incurred could easily lead to the bankruptcy of your firm. Legal malpractice insurance precludes that possibility by covering both the costs of legal defense and possible damages awarded.
This is why, when dealing with potential legal malpractice claims, one can never be too cautious. It’s always a good idea to invest in lawyers professional liability insurance should you ever find yourself on the wrong side of a lawsuit.
Some states also require attorneys to carry legal malpractice insurance or disclose to clients that they do not have a policy.
What Does Lawyer Malpractice Insurance Cover?
When considering Lawyer Malpractice Insurance, it’s important to know exactly what the policy covers. A common way to describe the coverage is that it covers any professional legal services that the named insured does for a fee. This means that any individual lawyer who works on behalf of the named insured is covered, and the law firm’s assets are protected. So, it is very important to review your policy to ensure that all of your firm’s needs are covered.
The best possible representation is always the goal when a client is being represented. Even so, mistakes can still happen, no matter how hard a company tries, because, let’s face it, we’re all human and make mistakes.
Lawyer malpractice insurance gives your business the protection it needs to pay for damages and legal fees if a claim is made against it. This gives you peace of mind and keeps your business in good financial shape.
Legal malpractice insurance is slightly different from other kinds of insurance because it is called a “claims-made policy.” This means that the policy covers the event when a claim is made against an insured, not when it happened. With a claims-made policy, your current policy will cover the claim even if the event in question happened many years ago as long as you have kept your coverage going.
What does Legal malpractice insurance cover?
The details of your malpractice insurance coverage will depend on your provider and the policy you choose, but many plans protect your firm and individual attorneys against the following claims:
- Professional negligence
- Claims that go back
- Physical harm
- Damage to the property of a third party
- Loss or damage to business property
- Injury to the person
- Lost money from a business
- Coverage for equipment failure
- Leak of data
- Damage from third-party advertising
- Network trouble
- Loss of paper documents or devices
Even though legal malpractice insurance can protect you in many situations, it won’t cover the following:
- Acts that are fraudulent, illegal, dishonest, or mean
- Services are given to businesses that the insured firm or attorney owns or runs
- ERISA outlines the duties of trustees for retirement plans.
- Claims or lawsuits between two lawyers at the same insured firm
- There are unrevealed old cases that could lead to claims.
What does Legal malpractice insurance not cover?
Legal Professional Liability will only provide insurance coverage for your firm in legal capacities. This means that attorneys acting as board members, business partners, or occupying other roles won’t be covered for their errors and omissions, which is why looking into directors & officers insurance is also a good idea.
Employment-related lawsuits related to discrimination, harassment, failure to promote, and wrongful termination are to be covered by employment practices liability insurance (EPLI), and therefore don’t enter the scope of legal malpractice coverage.
Legal malpractice policies will typically exclude claims arising out of bodily injury and property damage, as these claims are typically covered by general liability insurance. One important aspect to note is that breaches of fiduciary duty will also be excluded from a legal professional liability policy.
Also, any claims where the insured firm was aware of a potential claim but didn’t disclose this information before the policy took effect won’t be covered.
Legal Malpractice Insurance Cost
One of the key questions related to attorney malpractice insurance is that there are many different factors that go into determining the premium a law practice will have to pay in order to secure the right lawyers professional liability insurance. How much does lawyer malpractice insurance cost? Not every insurance is the same. Learn the most important things that affect your costs. Many things affect how much an average policy for attorney costs, so please keep in mind that these numbers can vary a lot from one part of the country to another and from one type of attorney to another.
The average cost per lawyer can be as low as $500 for a lawyer with no prior acts and as high as $6,500 for a lawyer who works in a riskier area of law or has wanted coverage for many years in the past. In general, lawyers can expect to pay between $2500 and $3500 for a full policy with generally accepted limits. Factors that play a role in determining the cost of your legal professional liability insurance:
Size Of the Company
One of the critical factors that will determine your premium is the size of the firm, specifically the number of attorneys it employs.
Step Rating
The length of time each attorney has been with the company will affect the cost of legal malpractice insurance. This is called the step rating, and insurers use it to measure the potential exposures that occur as lawyers handle more and more cases for the firm. A lawyer’s premium will be at its lowest during the first year with a firm, and it will reach full maturity in the sixth year.
Prior Claims
Any claims that your firm had in the past will increase your premiums. Keep in mind that insurers won’t just look at the number of claims you’ve had but also at their severity and the degree to which you were at fault in these claims.
Additionally, firms that haven’t had a single malpractice claim filed against them in the past five years are eligible for admitted policies, which will typically drive the cost of insurance down.
Areas Of Practice
It’s no secret that certain areas of practice have more risks than others. Attorneys working on potentially volatile cases involving securities, medical lawsuits, international law, or intellectual property can expect to pay a lot more to be adequately protected. If your company has diverse clients and areas of practice, insurers will consider all your cases when calculating premiums.
High-risk law firm practices:
- Class action lawsuits
- Personal injury cases with large damages sought
- Complex commercial litigation with significant financial stakes
- Defending clients in criminal cases with severe potential penalties
- Representing clients in high-profile and controversial cases
Low-risk law firm practices:
- Preparing standard legal documents such as contracts and wills
- Providing routine legal advice, such as on employment law or real estate transactions
- Assisting with incorporation and business formation
- Representing clients in relatively simple and straightforward civil litigation cases
- Offering legal support services, such as document review or discovery assistance.
Examples of practices that are covered include:
- Professional staff
- Acquisitions/Mergers
- Collection/Repossession
- Entertainment
- Estate/Trust/Probate
- Medical Malpractice
- Oil/Gas
- Real Estate – Development & Land Use
- Securities
- Real Estate Commercial
Location
Lawyers practicing in metropolitan areas such as New York or Los Angeles can expect to pay a lot more for insurance when compared to those located in less-populated areas.
It’s important to note that cheaper isn’t better when it comes to legal malpractice insurance coverage. Given the potentially crippling costs of malpractice claims, what’s most important is to ensure that your insurance fully covers the activities of your practice.
Another critical factor in determining the cost of insurance is how much time you need to spend on the process of getting insured. If the process takes weeks and occupies hours of your attention, then that will directly impact your bottom line.
How To Find Out If A Lawyer Has Malpractice Insurance?
You can find out if an attorney has malpractice insurance in a few different ways:
- Ask the lawyer immediately: Most lawyers will tell you openly and honestly if they have malpractice insurance so that you can ask them.
- Check the lawyer’s website: You can check an attorney’s website to see if they have malpractice insurance because of many lists of information about their insurance coverage there.
- Talk to the bar association in your state: The state bar association in your state may have information on file about an attorney’s insurance coverage. You can call them to determine if an attorney has insurance against mistakes.
- Talk to the lawyer’s insurance company: If you know the name of the insurance company, you can try calling them to find out if the lawyer has a policy still in effect.
Remember that just because an attorney has malpractice insurance doesn’t mean they are good at their job or have good morals. It just means they’ve done something to protect themselves from lawsuits.
How much Legal Malpractice Insurance do I need?
This is different for every lawyer and is dependent upon the number and types of cases you handle, and the potential amount of damages and defense costs should a claim arise. A consideration is the nature and extent of both your business and personal assets, since, if you are liable for malpractice, your personal assets are potentially subject to collection under a judgment.
Another consideration in determining your appropriate limit is whether you want a per claim limit for a given policy period for multiple claims. One policy, for example, may have a $1M/$1M limit, meaning you have $1 million per claim, and $1 million in the aggregate, available to you for claims made within that policy period. Another policy may have $1M/$3M, meaning you have $1M per claim for the policy period. If you have three claims in a policy period, $1 million is available for each, for example. While it would be a unique circumstance where you get sued three times in one year, it does happen.
Finally, keep in mind that almost all malpractice policies “deplete,” meaning the fees and costs for your defense are paid from the limit available for the claim. If you have a very low limit ($100,000, for example), then it may be possible that you do not even have enough available to defend the case through trial (leaving nothing left to satisfy a potential judgment).
How to Buy Lawyer Malpractice Insurance
Before choosing how much does lawyer malpractice insurance cost, keep the following in mind:
- Identify your risks: Carefully look at your firm, considering its size and the types of law it practices, to find any possible risks. After that, pick the right limits and add all the coverages that apply.
- Work with an independent agent: An independent insurance agent can help you find providers with the best rates and the most experience with legal malpractice insurance that fits the needs of your practice.
- Compare quotes: Prices for policies vary between insurers. Think about a few different quotes to find the best rates and coverage.
Best Attorney Malpractice Insurance
ALPS Legal Malpractice Insurance
This Insurance is considered the nation’s largest direct writer of legal malpractice insurance. ALPS provides three of the most comprehensive policies available to the private practice firm including: Legal Practice Liability, Cyber Breach Response Insurance, and Employment Practices Liability Insurance–which isn’t typically part of your standard insurance policy. ALPS offers lawyers a choice in coverage and its associated cost. Many plans are structured by a low, per-attorney rate, making it a great choice for solo or small firms.
ALPS Insurance provides coverage for solo firms up to $2,000,000 per claim/$4,000,000 aggregate with deductibles ranging up to $25,000. For multi attorney firms you can expect coverage up to $10,000,0000/$20,000,000 limits with deductibles ranging up to $100,000.
360 Coverage Pros
360 Coverage Pros knows that the impact of a data breach can be devastating for law firms. Their Cyber Liability and Data Breach Insurance program has pricing that starts as low as $199 annually and quoting can take place in just a few minutes. This coverage plan has to be purchased in addition to general malpractice insurance.
Embroker: Best Directors and Officers Insurance
Directors & Officers, D&O, Insurance protects the assets of your board of directors from lawsuits related to various accusations including misuses of company funds, misrepresentations of company assets, a breach of fiduciary duty, and general non-compliance. We like Embroker for this coverage because they make it easy to get a quality D&O policy–you won’t need to provide equity ownership or financial statements to receive a quote or complete a purchase.
Embroker’s D&O policy contains three insuring agreements – commonly referred to as Side A, Side B, and Side C.
- Side A: Covers directors and officers when the company refuses to or is unable to provide indemnification. This is most commonly seen in cases of bankruptcy.
- Side B: Will cover companies that make the decision to indemnify their directors and officers. The D&O policy, in this case, will reimburse the company for defense and other related costs.
- Side C: Covers the company itself. If the company is being sued for financial mismanagement, the D&O policy will provide coverage.
Chubb: Best Employment Practices Liability insurance
This is a major insurance provider known for their wide variety of insurance options, high consumer ratings, and excellent claims handling and risk management services.
Chubb offers their own standalone EPL Insurance for Law Firms that has been designed exclusively for the law firm community. It offers broad coverage for claims brought by partners and for claims for failure to make partner; it also includes: Punitive damages coverage, advancement of defense expenses, coverage for actual or alleged wrongful termination, discrimination, harassment, retaliation, third-party discrimination, third-party harassment and other workplace torts.
Further Chubb also offers an early claim incentive endorsement. If policyholders notify Chubb within 15 business days of an employment claim they’ll receive a 10% reduction (up to $50,000) in their deductible.
Do all legal malpractice insurance cover pro bono work?
If your pro bono work is done under the purview of your firm (the named insured), it is most likely covered. Where it is your own law firm, check at the time you are considering purchasing the policy. If you are an employee at a firm, consult with the managing partner on the firm’s policy on pro bono work, and confirm there is coverage for your activities under the firm’s existing policy. Sometimes pro bono work may also be covered under a policy purchased by the pro bono organization (a volunteer lawyer society or a bar association, for example).
Arizona Legal Malpractice Insurance
Arizona does not require attorneys to carry malpractice insurance. Other requirements for Arizona attorneys are that they must be members of the State Bar Association, submit annual registration fees, and maintain a good standing status with the Bar association. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance Colorado
Colorado lawyers in the private practice of law are not required to carry but they are required to report to Colorado Supreme Court Attorney Registration Office whether they carry coverage on an annual basis. Other requirements for Colorado attorneys are that they must be members of the Colorado Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Florida Legal Malpractice Insurance
Florida does not require attorneys to carry LPL, but the state does require lawyers to report whether insurance is carried or not each year when they register. Other requirements for Florida attorneys are that they must be members of the Florida Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Legal Malpractice Insurance California
California does not require liability insurance already, California’s Rules of Professional Conduct merely require that any lawyer who does not have insurance disclose that fact to his or her clients. According to the State Bar of California, there are no mandatory insurance requirements (except for limited liability partnerships or law corporations, as presently required by statute).
Indiana Legal Malpractice Insurance
Indiana does not require attorneys to carry legal malpractice insurance. Other requirements for Indiana attorneys are that they must be members of the Indiana Bar Association, submit annual registration fees, and maintain a good standing with the Bar association. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance Illinois
Illinois does not require that attorneys carry malpractice insurance. However, in 2018 Illinois Supreme Court moved to encourage law firms to carry malpractice insurance by amending Rule 756. The state requires lawyers to answer questions about their professional liability insurance every other year at the time they renew their authorization to practice law.
Other requirements for Illinois attorneys are that they must be members of the State Bar of Illinois, submit annual registration fees and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance Maryland
Maryland does not require attorneys to carry malpractice insurance. Other requirements for Maryland attorneys are that they must be members of the Maryland Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Legal Malpractice Insurance Massachusetts
Massachusetts does not require attorneys to carry malpractice insurance. Other requirements for Massachusetts attorneys are that they must be members of the Supreme Judicial Court of Massachusetts, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance Michigan
Michigan does not require attorneys to carry malpractice insurance. Other requirements for Michigan attorneys are that they must be members of the State Bar Association, submit annual registration fees, and maintain a good standing with the Bar association. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance New Jersey
New Jersey does not require attorneys to carry malpractice insurance for private practitioners. That being said, Limited Liability firms must carry $100k in coverage (multiplied by the number of Attorneys) and are required to register the evidence of the coverage carried.
Other requirements for New Jersey attorneys are that they must be members of the New Jersey Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance New York
New York does not require attorneys to carry malpractice insurance. Other requirements for New York attorneys are that they must be members of their district Bar association, submit annual registration fees and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Legal Malpractice Insurance Ohio
In Ohio, a lawyer needs to have legal malpractice insurance or inform a client that they do not have malpractice insurance at the time of the client’s engagement or at any time subsequent to the engagement if the lawyer does not maintain such insurance. This insurance must be in the amounts of at least $100,000 per occurrence and $300,000 in the aggregate. The lawyer also must inform the client if the lawyer’s malpractice insurance is terminated.
Other requirements for Ohio attorneys are that they must be members of the Ohio State Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Attorney Malpractice Insurance Pennsylvania
Pennsylvania does not require attorneys to carry malpractice insurance, but firms must notify clients if they carry less than the $100/$300 limits (or if coverage drops below this at any time). Other requirements for Pennsylvania attorneys are that they must be members of the Philadelphia Bar Association, submit annual registration fees, and demonstrate good moral character. The law firm is also required to have its status on file with the Bar association.
Texas Lawyer Malpractice Insurance
Texas requires attorneys to carry malpractice insurance if they are not appointed by the Federal Government or do not practice federal law. LLPs are required to have $100k if they do not set aside this amount to satisfy judgments. Otherwise, there are no requirements to carry or inform clients. Other requirements for Texas attorneys are that they must demonstrate good moral character, be members of the State Bar Association, submit annual registration fees, and must have their status on file with the Bar association.
Wisconsin Lawyer Malpractice Insurance
Wisconsin does not require attorneys to carry malpractice insurance. Other requirements for Wisconsin attorneys are that they must demonstrate good moral character, be members of the State Bar Association and submit annual registration fees. The law firm is also required to have its status on file with the Bar association.
How to apply for Attorney Malpractice Insurance
The malpractice insurance application process is broken down into 5 phases:
1. Select an agent
2. Obtain quotes and review your coverage options
3. Complete an application
4. Review your offers and bind coverage
5. Pay your premium
The quickest way to get malpractice insurance is to go straight to the company that you want to buy from.
Conclusion
Legal malpractice insurance can be a necessary expense for attorneys and other legal professionals, but it doesn‘t have to break the bank. The cost of legal malpractice insurance varies depending on factors such as the size of your firm, the type of practice, and the coverage limits you choose. Ultimately, the cost of legal malpractice insurance is well worth it for the protection it provides.
