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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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