Purchasing Malpractice Insurance

Malpractice insurance is the first thing we purchased for the law firm. Even before we did some barter work to get our logo, we had our malpractice insurance squared away.But how did we know what to ask for? What is a good rate?

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Know the Options

Before we started calling any insurance companies, we spoke to numerous attorneys in the area to see who they used. Surprisingly, every single person we spoke to used USI Affinity, the company the Pennsylvania Bar Association ‘recommends.’ The tenth attorney I spoke to used a different company called C&R Insurance, who we eventually signed with. We were able to contact one or two other providers that I found from Google searches, but overall I was quite surprised at the lack of diverse companies that different lawyers in southwest Pennsylvania use.

The Application Process

We ended up starting two different applications. The third company, whose name I unfortunately didn’t keep a note of, never returned my call, so we never got an application. For the other two, the applications couldn’t be more different. USI wanted to know every stock and bond that each of us owned, everywhere we had worked in the last few years, and a host of other information. Now, I understand, to some extent, the need for them to get a full picture of our scope of liability. But this application seemed a little over the top. I called the representative for USI and talked to him about it for a few minutes, then asked him to ballpark a figure. With a little information about our practice he said the cheapest policy I would get was around $700 for the year.

In contrast, C&R’s application was very straightforward. They wanted to know if we had worked at any other law firms which would expose us to liability. They also wanted to know where we worked now, and what the breakdown of our practice would be. We filled the form out in under twenty minutes and sent it back to the representative. Later that day they had a quote for us of $698. The next, and most important step, before deciding on a provider was to take a look at the coverage plans.

Things I Learned About Malpractice Insurance

The most helpful resource I found on malpractice insurance was this free lecture on Solo Practice University. It was a terrific intro to a somewhat confusing topic. There is a lot to look for when reviewing an insurance policy.

Prior Acts Coverage

Prior acts coverage allows you to get a new insurance policy that will cover you for any prior acts that you committed which result in future claims. But watch out. If you weren’t insured at the time of the alleged malpractice, prior acts coverage generally won’t cover the claim. To me, this means that no practicing attorney should go without malpractice insurance. Maybe you think that in your first year you won’t be doing complex cases, so you don’t need insurance. The problem with this approach is that five years down the line, if one of your clients sues you for something you did that first year, you won’t be covered. Even with prior acts coverage.

The Per Incident & Aggregate Amounts of Coverage

In Pennsylvania, the Rules of Professional Conduct require attorneys to disclose to clients in writing if they don’t have at least $100,000/$300,000 of insurance. The first time I saw that I had absolutely no idea what it meant. But some research revealed that the first number is the per incident amount, and the second number is the aggregate amount of required insurance. We went with the minimum coverage for now. Our agent told us that we can always raise the coverage down the line.

But what do “per incident” and “aggregate amount” of coverage mean? There’s no trick here. It’s exactly what it sounds like. For any individual claim, the insurance company will pay out a maximum of $100,000. Over the course of a year, they will pay $300,000. The next question to ask is whether that amount includes the cost of your defense.

Inside the Limit vs Outside the Limit

If you have an “outside the limit” policy, this means that the costs of your defense don’t deduct from the limit of your coverage. As I’m sure you can deduce, an “inside the limit” policy subtracts the cost of defending your lawsuit from your insurance limit. That means if it’s a costly case to defend and ultimately settles for a high amount, you’re more likely to owe money beyond your insurance coverage. For us, it was only about fifty dollars more to get outside the limit coverage, so that’s what we went with.

Right to Control the Case

In the Solo Practice University lecture I listened to, they discussed something I found very troubling. A client sued an attorney, and the attorney wanted the lawsuit to go away quietly. The insurance company thought the case was defendable and insisted on going to trial. This was exactly what the lawyer didn’t want, but his policy didn’t give him final say in the case.

It looks like most insurance carriers will advertise that they don’t force you to settle. But this just means that you can opt for trial. It doesn’t mean that you can opt for settlement if you want to avoid a trial. That’s how our policy is worded. It’s something I’m not entirely comfortable with, but I plan on addressing it in the upcoming years. I didn’t think it was incredibly important right away.

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  • http://blog.simplejustice.us shg

    Good nuts and bolts post, but one thing surprises (shocks, actually) me. Don’t they teach insurance law anymore? The language and concepts you discuss are basic insurance law stuff, which I would have expected every grad to know. Obviously, that’s no longer true, and hence you are forced to rely on the internet for basic information. And we all know how reliable the internet is.

    Given that lawyers are often entitled to collateral licenses, such as real estate and insurance broker, when the are admitted to the bar, this is disconcerting.

    • http://lawyerist.com/author/joshcamson/ Josh Camson

      I think insurance law was offered one or two semesters when I was in law school, but I didn’t take it. 20/20 hindsight I guess.

      • http://blog.simplejustice.us shg

        Don’t feel bad. I hear evidence is no longer required at many schools. I wonder when Con Law will be an elective.

        • http://lawyerist.com/author/aaronstreet/ Aaron Street

          Scott,

          My “top tier” law school, Minnesota, separates out the First Amendment from the rest of Con Law. Con Law is a required first year course, but First Amendment is an elective (and not a particularly popular one), which means that the vast majority of my classmates and I graduated from law school without ever studying the First Amendment.

          Sad, but true.

          [I apologize to readers for participating in hijacking the thread from its original purpose of discussing malpractice options].

  • Guest

    Great post.
    I would also suggest that you have bar grievance defense coverage. Since you handle mostly criminal defense, grievance coverage is among the most important coverage to have.

    In my jurisdiction, proving malpractice in a criminal case is very difficult. If appellate courts started allowing malpractice claims for bad strategic advice (go to trial, take the offer, etc), then they would have to increase the standards for ineffective assistance of counsel past the ridiculously low Strickland standard, which they are not willing to do. It is also difficult to commit gross negligence since the client has constitutional rights that are, at least on paper, protected. If a CDL forgets that he has a case up for trial, the judge will not default convict the client. He will later yell at the lawyer, but will continue the trial.

    But any criminal client can write a letter to the Bar from prison. If the Bar takes the jail letter seriously, you need a lawyer to help you get the grievance dismissed.

    Also, its a good idea to write letters to your clients and have them sign them. Letters that explain the sentencing range, the offer, the risks of trial, that the client has the right to make all decisions, etc. These are good because the client can read them over and over and hopefully better understand the situation. And if you get a suit or grievance, these letters will protect you.

    • http://ethicsmaven.com/ Eric Cooperstein

      This is a good point. Some insurers cover for ethics defense, some don’t. For the ones that do, the coverage amounts that I’ve seen range from $5,000 to $15,000. It is treated more like a “no fault” benefit of your policy, so you don’t pay your deductible first.

      It is important to read your policy; most lawyers don’t.

      If your premiums are too high or you want to increase your coverage amounts, ask about increasing your deductible, which should reduce your premiums. Because most lawyers do not have claims filed against them, a higher deductible is a risk they are willing to take.

      When selecting an insurer, ask whether they provide resources to their insureds. Some insurers provide booklets, forms, guidelines, blogs, advice lines, etc. Others, nada.

  • Jane Nosbisch

    The American Bar Association Standing Committee on Lawyers’ Professional Liability maintains an online national directory of lpl insurance carriers and has other free resource materials about lpl insurance, e.g. when to report a potential claim, checklists etc. You can find the directory at http://apps.americanbar.org/legalservices/lpl/directory/home.html. For much more detail (at a price), the ABA recently produced a teleconference on what was behind the questions asked on an insurance application. That can be purchased at http://apps.americanbar.org/abastore/index.cfm?section=main&fm=Product.AddToCart&pid=CET12ALMCDR

  • https://www.alpsnet.com:443/ Kiffin Hope

    Full disclosure: this commenter works for ALPS, a malpractice insurance provider. —Ed.

    A couple of great articles on lawyers’ professional liability insurance and malpractice claims can be found on the Resources tab of the http://www.alps411.com law blog.

    Ask the Right Questions When Purchasing Malpractice Insurance: http://www.alpsnet.com/media/97026/risc-lpl%20buyer%20beware.pdf

    The Opportunity that comes with a Malpractice Claim: http://www.alps411.com/blog/managing-your-practice—musings-of-a-risk-manager/the-opportunity-that-comes-with-a-malpractice-claim

  • Roger J. Salmon

    How does this relate to that bill that Obama just passed? Do you think your $698 charge will go up or down once that bill is put into action?

    • http://lawyerist.com/author/joshcamson/ Josh Camson

      Roger,

      Which bill would that be?

      • Roger J. Salmon

        You know that bill that Obama passed like a year ago. The one that had everyone in an uproar. I remember hearing about it a lot of Fox News. How does that effect you here, in this article? I was thinking that it might hurt you from what they said. But I wasn’t sure? Thanks for the future advice.

        • http://lawyerist.com/author/samglover/ Sam Glover

          Do you mean the so-called ObamaCare bill? It has nothing to do with legal malpractice insurance.

  • Roger J. Salmon

    If you are talking about the health care bill, I obviously don’t mean that. Who do you mistake me for? An ignoramous? I recall Obama passing a legal malpractice bill? Anyone???

  • Tom

    One thing that’s starting to get overlooked is the financial stability of insurance carriers. A lot of new markets have entered the space in the last few years and have pushed prices down to the point that many of the established players have started to pull back on their writings.

    AM Best is the big rating company for Insurance Carriers, most insurance brokers recommend an A or A- at the minimum. If someone offers you a good deal make they’ll be around to pay when the claim comes due in five or more years.