Legal malpractice insurance renewal: When treview and update your coverage

The answer: it depends. While many believe that insurance is a “set-and-forget” type of investment, that isn’t always the case. Depending on your area of practice, location, and more uncontrollable factors, your insurance coverage may go “out of date” sooner than you think. That is, if you aren’t setting up a proactive legal malpractice insurance renewal.

It’s imperative that once you get an insurance policy as a legal practitioner, you don’t sleep on staying in the know about your coverage. Getting a legal malpractice insurance renewal done proactively, and beyond the standard annual renewal period, can expose potential pitfalls and new advantages.

But while that all sounds fine and good, you may be thinking to yourself, “How am I going to find the time to check in on my policies so frequently? I’m a lawyer! I have a lot to do!” And, you’d be right. In this article, we’ll go through the reasons why it’s important for you to check in on your policies more frequently, and how to make the process as painless as possible.

Why do I need to keep legal malpractice coverage up-to-date?

Legal malpractice coverage, also known as lawyers’ professional liability insurance or errors and omissions insurance, protects attorneys and law firms from financial losses and reputational damage stemming from claims of negligent legal advice or actions. 

Social inflation has become the main growth driver of US liability claims, according to Swiss Re Institute‘s new Social Inflation Index. Primarily due to a rising number of large court verdicts, social inflation increased liability claims in the US by 57% in the past decade. So, consistently ensuring that your policy limits will cover all of your potential expenses is vital. No one wants to be underinsured.

Beyond the financial, there are some reasons why you may be legally required to keep your malpractice insurance coverage up-to-date: 

• Clients may require their legal counsel to maintain a specific coverage limit in order to act as their representation 
• Depending on your state, you may be legally required to disclose your insurance coverage status to the government as well as to your clients

There are also other reasons why you should keep your LPL coverage up-to-date:

• Peace of mind: Working as an attorney or running your own firm comes with enough stress as is, you don’t need another thing keeping you up at night. Knowing you have adequate financial protection against potential professional liability claims can be one less thing to worry about.
• Uncover potential gaps in your current coverage in advance of making a claim and finding out the hard way. Especially as new circumstances and risks emerge and evolve, you or your business may encounter an issue that your policy doesn’t, or never did, cover.

How often do I really need to review my policy?

An insurance renewal is the process in which an insurance policy is extended for another term, typically under similar or the same conditions as the original policy. This typically occurs for the same duration as the original policy term.

While annual renewals are standard, waiting for them to address significant changes or emerging risks can leave you and your firm vulnerable. In life — and in practicing law — things are always changing and evolving, making the need for a more agile approach to insurance a must-have. 

While the standard review cycle is yearly, it may be wise to check in on your coverages at the halfway point if possible. As well, if you experience significant changes at your firm, it’s probably a good time to review. We’ll go over a few of those potential changes below.

There are some changes within a law firm that could immediately prompt a legal malpractice insurance renewal. It’s easy to assume your current policy still covers all your needs, but changes in your role or responsibilities might introduce new risks that your old policy doesn’t address. 

Here are some changes that could prompt a review of your current policies:

1. Significant changes in staffing 

If your firm has recently hired a large number of new attorneys or let go of a number of staff, you should take a look at your current policy and ensure it still covers what you need. Further, an increased reliance on “of counsel” contract attorneys may also require some changes in your coverage plan. As well, the departure of key partners may also be cause for a policy review.

Solution: Having a policy with a broad definition of “Insured.” If your policy doesn’t specify exactly how many staff are employed by your firm, you may not be required to amend your policy in this circumstance. However, review your policy to ensure that this is the case.

2. Insurance policies and regulations change

Insurance policies and regulations change to adapt to evolving risks, protect coverage holders, and ensure financial stability within the industry. It’s important to stay informed about any modifications to your policy to avoid misunderstandings or gaps in coverage, it’s not uncommon for regulations to change and you may need to adjust your coverage in turn. 

Solution: Your insurance company will notify you of these changes ahead of time. If there are anticipated or known changes in the terms of your coverage, you will receive a conditional legal malpractice insurance renewal notice.

3. You have changed practice areas 

Regularly reviewing your policies helps ensure compliance with relevant regulations and industry standards, especially in the circumstance that you change your practice area. Perhaps you are entering a new, higher-risk practice area or scaling back other practice areas. These changes can impact your coverage and the cost associated with it. 

Solution: Handle this at your next legal malpractice insurance renewal. Your insurance policy is signed in the previous year for a year’s worth of activities. You can reach out to your insurance provider, but it will not adjust costs or coverage until your yearly renewal date.

4. Changes in your firm’s business operations or structure

Similarly, if your business location has changed or if you are opening locations in new jurisdictions, you’ll need to update your policy to reflect those changes. Firm ownership or beneficiary designation changes should also be considered. As well as expanding to hybrid work models, mergers or new partnerships would also merit an update to your policy. Additionally branching out to pro bono or contract work outside of your regular role and responsibilities should also prompt a coverage review. Being underinsured or having inadequate coverage due to changes in your firm’s place of business or overall structure can leave you vulnerable to unexpected losses.

Solution: All of these changes, including relocations, mergers and acquisitions and more, are all changes that can be made mid-term. These changes should be reported to your insurance provider. It may not change the cost of your policy at the time, but it can be noted for an upcoming legal malpractice insurance renewal.

5. Changes in your professional financial health or client portfolio 

Life changes, such as starting a new business, changing positions, or buying a new property, can affect your insurance needs. Similarly, business changes, like expanding operations or introducing new services, can bring new risks. Substantial growth or reduction in revenue may also merit a change in coverage. Be sure to take note of developments as they arise and check in with your insurance agent if you’re not sure if these new circumstances could impact your policy. 

Solution: Talk with your insurance agent. If you are concerned that a change to your business might negatively impact your coverage, or worse, that you may no longer be covered, your insurance agent can help clarify.

How do I proactively review my legal malpractice insurance?

It is good practice to periodically review your existing professional liability policy before a claim is made to confirm that the policy provides coverage that meets your needs. Further, if no claims have been made and no changes have taken place on your end, twice a year is a safe benchmark for policy reviews. The midyear review will allow for an opportunity to refresh your memory, look at industry changes, and start thinking about what you may need to update or change in advance of your legal malpractice insurance renewal date. 

Ready to start your review? Here’s how to better understand your insurance coverage: 

Review your coverage by following these five simple steps: 

1. Refresh your memory on key terminology including terms like premium, deductible and wrongful act. Grasping the full definitions of these words and others will ensure your review is comprehensive.
2. Get started by looking at your policy’s declarations page. The declaration page summarizes your policy which can make it easier to brush up on your coverage without having to read the entire policy document.
3. You’ve read the summary, now it’s time to read the fine print. Be sure to take a look at any insuring agreements and exclusions. 
4. Finally, you can assess what options you have for renewal. Do you want to change providers? Do you want to add or omit coverage? You should feel equipped to answer these questions once you’ve completed your review. However, if you are still unsure, now is the time to tap into your agent for guidance. 

It’s also important to note that not all insurance policies automatically renew and you may need to be an active participant in your renewal. While insurers are required to send a notice of upcoming renewal, it is important to be prepared with questions on your current and potentially changed coverage. So, mark your calendar.

If there’s a gap between the expiration and your new policy’s effective date, you may not have insurance coverage for that time because insurers are generally not required to back-date to close the gap. 

The early bird benefits of midyear policy reviews 

Changes in business operations or the legal landscape in general can make your existing policy inadequate. Regularly reviewing and updating your policy ensures it remains aligned with your current needs and helps you avoid costly gaps in coverage. 

There’s more to gain than lose with a midyear policy review.

Knowing your insurance coverage is up-to-date and tailored to your specific needs provides peace of mind, especially in case of unexpected events. Proactively setting up a legal malpractice insurance renewal beyond the standard annual renewal is crucial for maintaining adequate protection and mitigating potential risks. 

If you’ve completed your review and are looking for an insurance provider that understands law firms and their needs, get a quote and get started on your legal malpractice insurance renewal journey with Embroker today.