Insuring your car, home and family is a no-brainer. You need these things, you love these things, and you insure them to protect them. What do you do about your law practice? With legal malpractice insurance, prior acts coverage and extended reporting endorsements – or extended reporting options – you can protect your practice at any phase of your career.
Everyone Else is Doing It
Just as medical malpractice protects doctors from an unforeseen circumstance resulting in some type of injury to a patient, legal malpractice insurance protects you in the same way. You're not doing surgery on your clients - so there's no slip of the scalpel. But you could miss a deadline, file late and overrun the statute of limitations, or a host of other things. Legal malpractice insurance shields you in these situations.
Types of Insurance
Statistics suggest up to six percent of all lawyers will have a legal malpractice suit brought against them this year, and as many as one third of all attorneys are unprotected. The protection provided by legal malpractice insurance is for the current coverage period (generally a year) for any acts performed as an attorney, notary public, title agent, trustee or executor/executrix. This runs the gamut of duties lawyers perform while they practice.
- Legal Malpractice Insurance. This coverage guards against an instance of malpractice, generally accidental, during the current coverage period. But what about cases brought before the current period or after you have retired and no longer carry legal malpractice insurance? Prior acts coverage and extended reporting endorsement policies protect you in these cases.
- Prior Acts Coverage. This type of insurance does just that – covers you for any acts occurring before the current coverage period. How long before the current period depends on the level of coverage you buy (most are sold in 1-5 year increments), where you buy and the specific terms of your policy. The value in prior acts coverage comes with knowing you are protected from any of the hundreds of cases you worked, as long as you took them during the coverage period.
- Extended Reporting Endorsement Policies: Commonly called "risk tail" or "tail coverage," this type of insurance covers your professional tail after you've left practice for retirement, a new firm, or another type of employment altogether. What’s more, tail policies protect you in the future for cases you handle now, no matter what you are doing down the road. Often, if you are leaving a larger firm for another firm or to start your solo practice, your prior employer may provide tail coverage for you, extending back to cases you worked for them. Remember, they want to cover their tails too, so ask.
The Run-Down on Insurance Types
Legal malpractice insurance, prior acts coverage and tail coverage all protect you in the many phases and functions of your career, but how do they work?
The first thing to consider is your deductible. With these types of insurances, deductibles come in several types: per claim, aggregate, "damages only" or "loss only." Per claim deductibles apply to each claim separately, while the aggregate deductible tallies the deductibles for the year into one payment. With damages only or loss only deductibles, you pay the deductible only in the event of a settlement or judgment.
Next come the terms of coverage, which vary from provider to provider. Commonly these include any exclusions (dishonest, fraudulent, criminal or malicious acts), terms dictating your right to select defense counsel or not, terms of settlement indicating who – insured or insurer - must consent to settle a claim, and liability limits. There also may be a set of conditions to meet in order to secure the services and protections offered by the insurer. These include a timeline of notice a claim has been made, arbitration provisions and cancellation notices by either party.
Where You Get It
Like anything else, comparison shop for legal malpractice, prior acts and tail coverages. Prices and terms will vary from insurer to insurer, and the right fit for you is out there. One place to start researching is your state Bar Association. In North Carolina, log onto ncbar.com; in South Carolina, visit scbar.org. The national Bar Association website contains links to information regarding insurance, as well as links to the state Bar Associations. The state level groups often have done much of the research and can find deals for their members.
When shopping for coverage, keep in mind that several factors affect the cost of coverage: claim history, area of practice – some areas are higher risk than others, geographic location, deductible amount and coverage amounts.
How much coverage do you purchase? That depends largely on two factors: First, how much do you need to protect your assets? Second, how much do you need to protect your clients? Many legal malpractice insurance holders seek $300,000 to $1 million and up per lawyer in their firm.