Legal Malpractice Insurance

Among the many subjects that could go into the book “100 Things that Law School Did not teach me” (that is a book we really should write), here we are facing a very threatening matter since this one relates to legal practices or lawyers unintentionally making mistakes. And yes, everyone makes mistakes. The problem here is that when you cause damage to a client’s case (unwillingly), clients are in their right to make accusations against you. Which causes added litigation.

This is when Legal Malpractice Insurance, Lawyer’s Professional Liability Insurance, or Errors and Omissions Insurance (whichever you prefer; they all mean the same) comes into play to protect lawyers and their clients from the financial repercussions of legal malpractice claims.

What is a Legal Malpractice Insurance?

In simple terms, legal malpractice insurance is a specialized form of professional liability insurance. These are employed for coverage when a lawyer or legal business makes a mistake that damages a client’s case (without ill intention) and said client decides to present an allegation against them. These claims typically occur when a client believes that a lawyer’s negligence, omissions, or errors have resulted in them suffering damages, such as financial loss or missed opportunities, in addition to harm to their cases.

According to Hub, Legal Malpractice Insurance is one of the most important types of liability insurance that a law firm or practicing lawyer should have. It does not matter whether you are a small law firm just starting or an experienced legal practice; you must have liability insurance.

Although legal malpractice insurance is not required in all of the states,
There are 26 states in the U.S. where lawyers are required to disclose non-coverage to their clients.

Contrary to what you may think, chances are that, as a lawyer, you will face malpractice claims at some point in your life. The American Bar Association states that 4 out of 5 lawyers will have at least one malpractice claim in their careers.

Bear in mind that these “errors or omissions” that end up causing such mayhem can perfectly be things such as failing to file paperwork by a deadline, not doing enough research, lack of knowledge about the law, or just refusing to communicate with a client. Not everyone starts as an expert in the legal field, but omissions and mistakes are expensive here.

Do I need to buy Legal Malpractice Insurance?

Generally, the answer to that question lies in how risky the legal service that you provide is. For example, law professors, licensed lawyers who are pursuing other careers, and in-house lawyers do not tend to need legal malpractice insurance since the risk they face of facing a liability claim is minimal.

For those who do not fit this category, the answer is more complex.

As Protexure Lawyers explains, while most jurisdictions do not require solo practitioners to carry professional liability insurance, most do require practices structured as some sort of limited liability organization (like a PC, LLP, or LLC) to do so.
So, in some jurisdictions, while you may choose not to purchase insurance, you will be required to comply with mandatory training requirements.

Knowing that insurance is not mandatory, some lawyers would be tempted to not buy it. The problem is that this could damage your business and, very possibly, go against you.

How? Well, if your practice is a small one, lacking legal malpractice insurance will not stop potential claimants from making allegations, and this could put your assets at risk in case you make a mistake. Additionally, several clients may not want to hire a legal practice that does not have insurance.

And, according to Protexure Lawyers, it may also be unethical to leave your clients at risk when your professional duty (and oath) is to look out for their best interests and protection.

Simply put, though maybe not mandatory, the truth is that getting legal malpractice insurance is very necessary and crucial for a lawyer’s risk management strategy, as it benefits the financial health of your law firm.
By investing in this type of liability, legal professionals can protect both themselves and their clients from the financial and reputational impact of legal malpractice claims.

Some Considerations for Coverage

When you are ready to invest in legal malpractice insurance, there are a few considerations to take into account:

✅Coverage Limit:

The limit on the amount that your insurance policy covers is crucial.
It will determine the maximum amount that the insurer will pay per claim or per year and should be evaluated based on the lawyer’s areas of practice and their potential risk exposure.

✅Retroactive Date:

This represents the point at which the coverage under the policy begins, and it is essential to ensure that it extends to the lawyer’s entire claim history. This will ensure that past errors or omissions are covered too, even if the claim is made after the policy’s effective date.

✅Policy Exclussions:

It is important to carefully review the policy’s exclusions to understand the types of claims or circumstances that may not be covered. This will help lawyers ensure that they have proper protection against potential liabilities.

Additionally, you will also need some advice when you are buying your legal malpractice insurance.

Here we present some that may be useful to you:

1. 🎯Assess your Coverage Needs:
   Before anything, you should evaluate your specific practice areas, potential risks, and client volume to determine the appropriate coverage limit for your malpractice insurance policy.
2. 🤔Understand Policy Exclusions:
   As we stated above, it is important that you thoroughly review the policy to understand what is being covered and any specific circumstances (or types of claims) that may be excluded.
3. 🔍Find the right legal malpractice insurance provider:
   According to Clio, professional liability insurance providers are jurisdiction-specific, so it is essential that you find one that is authorized to cover claims in your state or province.
   In the U.S., the American Bar Association offers a Professional Liability Insurance Directory, while state, local, and practice area bar associations may have recommendations for providers.
4. 📝Choose carefully when applying for malpractice insurance
   This means that you should avoid submitting incomplete applications, as they may be considered a warranty or representation of the insurance policy contract. Clio suggests that you investigate insurers thoroughly and only submit your applications to the top contenders. Try asking about the policy period, limits of liability, deductibles, and coverage for all parties involved. You can check the NYSBA’s comprehensive Checklist for Purchasers of Professional Liability Insurance for more information.
5. 📖Evaluate Policy Limits:
   In other words, and related to the above, consider the policy’s per-claim and aggregate limits to ensure that they align with the potential risks and damage you may be facing in the future.
6. 📆Consider the Retroactive Date:
   This part is essential for you as it specifies the coverage’s start date. Make sure that it covers your entire claim history, protecting you from past errors or omissions.
7. ⚖️Know the Four Crucial Areas your Malpractice Insurance should cover:
   You should know the specifics of coverage, as law firms can have trouble with four areas that standard professional liability insurance may not automatically cover: Prior acts coverage (“Will your insurance carrier cover claims from professional activities undertaken before purchasing your current policy?” is a question you should ask yourself, according to Clio), non-firm legal activities (“Will your policy cover claims relating to pro bono services or solo volunteer legal work?”), business activities (more often than not, law firms will need to seek a separate insurer to provide coverage for risks related to workplace activities), and cybersecurity (risks associated with technology, as per example, loss of files, are usually not covered by these kinds of insurances). It is essential that you ask insurers about these provisions and confirm if you will need an additional policy.
8. 👩🏻‍⚖️Prepare yourself for when a legal malpractice claim arises:
   You need to know what to do first when an inevitable client complaint claim occurs: notify your malpractice carrier immediately, regardless of the claim’s viability. “It doesn’t matter whether you believe the claim is viable or not; if a client brings a claim, notify your carrier. Insurance companies can deny coverage for a claim that you failed to report in a timely fashion,” as Megan Zavieh, lawyer with an expertise in discipline disputes, says. Insurance companies can deny coverage if not reported timely. The carrier will guide you on seeking counsel, suggesting steps to mitigate damages, and provide advice on analyzing the issue.
9. 💬Compare Multiple Quotes:
   When deciding on an insurer, try to obtain quotes from different insurance providers in order to compare your coverage options, rates, deductibles, and policy terms. In the legal field, it is crucial that all the decisions that you make are informed decisions, hopefully with a thorough investigation and search behind them.
10. 💼Seek Professional Aid:
    As with many other subjects associated with your law firm’s needs, it is important that you also consider seeking out and consulting an insurance expert or broker who specializes in malpractice insurance. They can provide genuine and valuable guidance and help you navigate through the intricacies of policy terms, as it is not an easy subject. Remember that the more informed you are, the better decisions you will make regarding your law firm’s financial health and reputation.

Remember that the majority of lawyers will face a malpractice claim at least once in their lives. Do not lose your mind over this; instead, know that choosing legal malpractice insurance may protect you from the risks that, more than likely, will arise. If you do your research, evaluate, and understand your policies, you will find that the benefits will outweigh the issues associated with them.

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