Legal Professional Liability Insurance

1. 800. 973.1177

SKILL SHARPENER

Legal Professional Liability Insurance [by Rachel Daniel] So you just graduated law school, passed the bar, and are about to step into the legal field as an official, licensed attorney. Soon you’ll realize that there’s much more to legal practice than research, briefs, and court appearances. You must protect yourself and your future against any possible malpractice claims, legitimate or not.

Here we’d like to help you understand the

looked upon in a more favorable light than

practice may provide. Negotiating coverage

complexities of the professional liability

the insurance company, if you should contest

for these services offers necessary.

insurance policy by explaining policy basics,

any aspect of your policy at a later date.

Exclusions

what you can do to limit your exposure, and how to protect yourself against future un-

The Claims-Made Policy

This section precludes coverage for enumer-

certainties. It’s a stark possibility that if you

Legal professional liability policies are

ated acts. Standard exclusions include acts

spend the majority of your working life as an

claims-made policies. Claims-made policies

with a specific intent, such as: fraudulent,

attorney in any practice area, you may face a

provide coverage to claims reported during

malicious, dishonest, and criminal acts.

claim of malpractice.

the policy period. However, if a claim oc-

Other common exclusions include: punitive

curred prior to the enactment of the policy,

damages, sanctions, prior acts, discrimina-

Policy basics

but was reported during the policy, there

tion, harassment, injury, property damage,

Your basic insurance policy consists of: a

might be a prior-acts exclusion, limiting

advertising, investment or financial-services

declarations page, definitions, basic cover-

coverage. Understanding your policy is vital

advice, giving advice outside the scope of

ages, exclusions, limits of liability, defense

to preventing gaps in coverage.

your specific practice area, and claims deriving from acts committed in other capacities,

provisions, settlement provisions, conditions, and finally, any endorsements or riders. Each

The Declarations Page

such as wrongful acts committed as a direc-

section is discussed more fully, below.

This page contains the basic terms of

tor or officer.

coverage. It is an outline of who and what is Venturing back to first-year contracts and

covered.

Meticulously study your exclusions. If you want coverage for an enumerated exclu-

the parole evidence rule for a moment, I’m sure we all faintly remember that informa-

Definitions

sion, you may have to negotiate its inclusion

tion contained in a final, integrated contract

The definitions section specifies the in-

or add an endorsement to your policy. This

rules, with some always-present exceptions

sureds. Check the definitions closely, making

may up the cost of your policy, but it will pay

of course. This is true with malpractice in-

sure that everyone and everything you want

off in your knowing that you are adequately

surance, as well. Your contract will consist of

covered is actually protected. The definition

protected.

what is included in your final integrated writ-

of “insured” is important because it lists

ing. Why does this matter? Because unless

all covered parties. Also, make sure that

Liability Limits

your policy expressly states otherwise, your

the definition of “legal services” covers all

The limit of liability is the maximum amount

insurance application will not be included

the services you provide. If a specific legal

the insurer is liable for under your policy.

in your contract materials. So to protect

service is not covered, you may need to add a

It may include per-claim limits and/or ag-

yourself, you may want to make sure that

coverage endorsement.

gregate limits. Per-claim limits set a specific dollar amount for each claim brought. Aggre-

your application is physically included with your contract materials. The same applies to

Basic Coverage Agreements

gate limits set liability for the total amount of

any other materials you may want included in

Generally, most policies provide coverage

claims brought during your policy period.

your final contract.

for malpractice claims arising from alleged wrongful acts occurring during legal

Depending on your practice area, you may

There is no set standard malpractice policy.

representation. Also included in your basic

require higher-than-average limits. For

Therefore, it is vital that you understand

coverage are acts or services that are natu-

example, if you are dealing with multi-mil-

every agreement and loophole before you

ral offshoots of your practice, such as: notary

lion-dollar real estate ventures, then you

finalize your contract. As a contract of adhe-

public, title agent, pro bono, or trustee ser-

may want to make sure your liability limit is

sion, however, you as the insured may be

vices. Think about what extra services your

in line with your potential liability.

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continued on back

1.800. 973. 1177

SKILL SHARPENER

Liability Limits & Defense Expenses

deductible only in the event of a judgment

include coverage for a service your practice

It is important to understand whether the

or settlement award. Thus, you would not

provides (trustee services, for instance)

costs associated with defending a malprac-

be required to pay the deductible for claims

then you may want to add coverage with an

tice claim are included within your liability

expenses or defense costs.

endorsement.

consume your entire liability limit. Thus,

Reducing deductibles are insurer-driven

Conditions to Coverage

if you are found liable, you may find your-

incentives that encourage early reporting of

Here the insurer lays out the conditions

self with no insurance to cover any loss or

potential claims. If you believe a client may

that must be met under the policy. Common

judgment. This could prove devastating if

bring a claim and if you report this to your

conditions include: prompt notice of claims,

you do not have the resources to cover such

insurer, the insurer will reduce your deduct-

reasonable notice of acts or circumstances

amounts. However, your policy may provide

ible up to 50% if the claim is filed.

likely to lead to a claim, cooperation, full

limits. Your defense costs could potentially

disclosure, and reporting requirements. Also

you with an expense allowance to offset this potential problem.

When choosing a deductible, it is important

included are notice of cancellation and notice

to take stock of your finances. If a claim

of nonrenewal conditions.

Some policies state that claim expenses are

should arise, how big of a deductible check

outside of the liability limits, allowing the

could you realistically write? Most insurers

What to do if you have a claim?

limit to cover only potential losses. Such a

require a minimum deductible of $1,000 per

Although you may be angry, embarrassed,

policy might still place a limit upon defense

attorney, per claim. Many insurers also set

or frustrated, you cannot ignore any claims

expense allowances. Pay close attention in

a maximum deductible, which varies from

filed against you or your practice. You should

this regard.

insurer to insurer.

contact your insurer immediately. Your policy

Settlement Provisions

Prior Acts Coverage

and the steps you should take regarding the

Many policies do not require the insurer to

Most policies are claims-made policies, but

claim.

gain your consent before settling your claim.

often prior acts are excluded from coverage.

It may make good business sense for the in-

Adding extra coverage can provide protec-

Further, if you think a potential claim could

surer to settle a case early, but you may want

tion for claims arising out of acts occurring

be filed, contacting your insurer is also a

to fight the allegations of malpractice. Often

before your policy period began. You will pay

good idea. Your insurer may be able to pre-

if your consent is required and you refuse to

extra for this coverage, but closing up any

vent a mistake from turning into a full-blown

settle, then there will be an additional limit

liability loopholes is worth every cent.

malpractice claim.

will contain any reporting requirements

of liability upon any judgment.

Different prior-acts coverages are available.

Taking the time now to understand all the

Right to Choose Defense Counsel

Full prior-acts coverage is the most inclusive

details of your malpractice policy may prove

Faced with a malpractice claim, do you want

and protective. However, read your policy

frustrating and time consuming, but it is time

the right to choose your own defense coun-

language carefully because full prior-acts

well spent if it protects you from a potential

sel? Many policies do not grant you this right.

coverage doesn’t necessarily grant you full

landmine in the future. After all, a compre-

This is another important aspect to take into

coverage. Insurers often place limitations

hensive policy eases your conscious and

account when choosing a policy.

upon this coverage for certain exposures.

allows you to focus on what you love - the

Deductibles, Loss-Only Deductibles, & Re-

Prior acts coverage can also start at a set

ducing Deductibles

retroactive date. You may decide you only

Deductibles require insureds to bear the

need two years of coverage, for example, so

cost of claims, up to a certain value. Larger

your coverage would include the two years

deductibles decrease the overall cost of your

prior to the inception of your contract.

practice of law.

policy, as they transfer liability for smaller claims to you, as the insured.

Endorsements Endorsements are any additions to your basic

Loss-only deductibles require you to pay the

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policy. For example, if your policy does not