Legal Malpractice Insurance Explained
The purpose of malpractice insurance, is to provide a safety net, if law firms or lawyers are careless enough to make a mistake, then they can rely on their insurer to help fix their mistakes or cover the damages. It would be impossible for a law firm to survive without that safety net.
Legal malpractice insurance can do many things for you, it can cover the costs of defending a legal malpractice lawsuit, thereby freeing up the time and financial resources to devote to legal work, it can indemnify a client and pay the damages if a claim is successful, and it can even help you to better serve clients and provide better legal services. Sounds like a win-win proposition.
Today , most legal malpractice insurance policies issued in Florida provide only first party coverage for defense costs. Very few policies provide indemnification for damages at all, and if they do, it is for a minimal amount. And even if you can find a carrier willing to provide indemnification insurance, that carrier will invariably refuse to cover defense fees. For these reasons, the purpose of legal malpractice insurance becomes somewhat unclear.
While there are several different types of legal malpractice insurance policies and coverage options available to Florida lawyers, the truth of the matter is that they offer limited protection. If you are protecting your home or your business you probably want to make sure that you are making a smart choice, and one that will be there for you when you need it the most.
Why Floridians Need Malpractice Insurance
In the world of Florida law, there are a number of reasons why having malpractice insurance is important: Florida attorneys are also faced with malpractice threats as a result of: Without insurance, attorneys who are sued for malpractice are responsible for the full amount of any resultant judgment. In many cases, this can be ruinous. Attorneys in Florida are not required to have malpractice insurance or errors and omissions insurance. Attorneys can choose to go uninsured, as some attorneys in other states that require it do. However, without malpractice insurance, you could face the possibility of losing your professional license, being disbarred and having a court order you to pay a former client tens or hundreds of thousands of dollars you don’t have. It is much better to be safe than sorry, and carry a malpractice policy.
How You Get and Use Legal Malpractice Insurance
Legal malpractice insurance, also known as professional liability insurance, is a type of insurance that provides coverage to attorneys for claims that they have committed legal malpractice. Legal malpractice occurs when an attorney fails to perform competently and causes harm or injury to a client. Legal malpractice insurance is important for both the attorney and the client. For the attorney, it provides peace of mind and financial security. For the client, it ensures that they will be compensated in the event that their attorney’s incompetence causes harm.
Legal malpractice insurance works by providing coverage to an attorney for claims that they have committed legal malpractice. The policy is triggered when the attorney’s alleged act of legal malpractice is committed, and a liability claim is made against them. The liability claim typically comes from a client, but can also come from a third party in certain situations. The insurance company then investigates the claim and determines if it falls under the scope of the policy. If it does, the insurance company will provide a defense and pay for damages up to the policy limit.
There are two types of legal malpractice insurance policies: claims-made and occurrence-based. A claims-made policy provides coverage for claims that are made during the policy period, regardless of when the alleged incident of legal malpractice occurred. An occurrence-based policy provides coverage for claims that are based on incidents that occur during the policy period. An occurrence-based policy provides coverage for incidents that occurred during the policy period, regardless of whether a claim is made within the policy period.
Most legal malpractice insurance policies are claims-made policies. This means that they only provide coverage for claims that are made during the policy period, regardless of when the incident of legal malpractice occurred. When purchasing a claims-made policy, an attorney should be aware of the retroactive date and discovery provisions. The retroactive date is the earliest date that the policy will cover. The discovery provision states that claims that are made after the policy has expired will be covered if they occurred during the policy period, but only if the policyholder purchases an extended reporting period endorsement, also known as a tail policy.
When purchasing legal malpractice insurance, an attorney should consider the type of policy that best fits their needs. They should also consider the limits of coverage, the retroactive date, the discovery provision, and the deductible. It is also important to shop around and get multiple quotes before making a decision.
It is important for both attorneys and clients to understand how legal malpractice insurance works. It provides peace of mind and financial security for the attorney, and ensures that the client will be compensated in the event that their attorney’s incompetence causes harm.
Legal Malpractice Insurance Cost in Florida
The cost of legal malpractice insurance depends on the size of a law firm and the corresponding risk profile. According to a survey published by Marsh, a global leader in insurance broking and risk management, found that four out of five firms would keep errors and omissions insurance — even if it cost 10 times more than what they currently pay. "Lawyers value their insurance policies and would keep coverage at virtually any price, according to a new Marsh survey, although they expect increased pricing in 2019. Survey respondents also expect insurance premiums to continue to rise for both corporate and commercial/institutional firms." Law firms spending under $1 million annually on professional liability insurance had a median premium of $8,000 and law firms with a net revenue of at least $10 million annually saw their average premium increase to $442,000, up from $400,000 in 2017. Median premiums for large law firms ranged from $390,000 for $10-$25 million, to $850,000 for $225-$450 million annually in net revenue. For example, "two of the largest firms, Skadden, Arps, Slate, Meagher & Flom and Baker McKenzie held the second- and third-largest premiums, at an estimated $2.35 million each. Both firms earned a C letter grade, which indicates above-average pricing for large and midsize firms by Marsh."
Picking the Right Malpractice Insurance Company
When it comes to Florida malpractice insurance, it is essential to select an appropriate insurance provider. A good place to begin this process is with the insurer’s reputation. There is a wide variety of malpractice insurance carriers, but they are not all created equal. An insurer that has been consistently in business for many years is less likely to leave Florida’s legal community in a lurch, for example, than a brand new company without any history or track record. Also, a company whose officers and directors are well known and respected among the legal community is more likely to be trustworthy and good to do business with than an unknown company that does not have highly reputable directors. Another factor to consider when selecting an insurer is the type of policy being offered . As touched upon at the beginning of the article, some insurers offer flat-rate policies, while others fluctuate according to the firm’s claims history. Those with several claims on their records may find that their insurers do not renew their policies due to their history. In such a scenario, aside from having to find another insurance provider, the reputation of the firm would also be adversely affected, making it even harder to find a suitable replacement insurer. Finally, customer service is essential when dealing with an insurer. Is someone always available on the phone, or must claims and questions be submitted in writing and awaited sometime in the future? Does the insurance company require copious forms be filled out before issuing a claim check, or can it be taken over the phone? Such questions should all be asked before retaining a new insurance provider.
Making an Insurance Claim on Legal Malpractice
Should you face a claim against you stemming from a legal malpractice lawsuit, doesn’t it make sense to file a claim with your malpractice insurance carrier? Will the insurance company defend you or just pay it off if you lose? Can you put the files in the trash and take a vacation to Europe? Should you hide everything or be open, honest and cooperative? These are some of the questions we answer for Florida attorneys. Legal malpractice insurance is liability insurance, with most carriers using the "claims made" policy and coverage is effective through the date of payment (whether in settlement or judgment). The insurance covers only the claims against you made while your policy is in effect, so extended discovery whether a claim arose during the term of coverage is critical. A claim must be first reported to your carrier during the period of coverage, and the carrier is obligated to answer and defend you in the covered claims. Although it is the attorney’s choice, we strongly suggest that all letters, correspondence, pleadings, lawsuits and complaints received be forwarded to your malpractice carrier immediately. Failure to report a claim may prejudice rights under the policy. Note that the policy usually has a deductible for which the attorney is responsible, ranging from $5,000 to $25,000 in claims U.S.A. Some of the smaller boutique firms require the deductible upfront, depending on the claim, and then will pay additional defense costs above the deductible. It is also important that the claim be analyzed and separated from any malpractice committed by others, i.e., the defendant client and/or the real estate title insurer, etc.
Current Trends in Legal Malpractice Insurance
As the legal industry evolves and the risks that attorneys face become more complex, legal malpractice insurance is rapidly evolving to meet those new demands. One of these new developments is the addition of new insuring forms for in-house counsel. In-house legal departments are no longer viewed as separate from their firms when it comes to coverage; they have the same risk factors and thus need the same coverage. In addition, the market is seeing coverage for affiliated companies, which allows pooled in-house and outside counsels to get access to better coverage. Related is a trend toward more broad coverage for director and officer coverage , which protects attorneys against personal liability relating to their administrative and managerial functions. Insurers such as Aon Risk Solutions are also pushing legal malpractice insurers to offer anti-money laundering and economic sanctions in their legal malpractice policies, especially since the government has taken a tougher stance on lawyers who make improper transactions or handle improper funds on behalf of their clients. Understanding these trends is critical for Florida attorneys who purchase legal malpractice insurance. There are many competing forms of coverage available, and attorneys should look for coverage that matches their needs and the needs of their individual practices.