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?
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.
Read the next post in this series: "The Most Common Advice on Starting a Firm."