Legal Professional Liability

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What Is Legal Malpractice Insurance?

Also known as lawyers professional liability and legal malpractice insurance, this is typically the most important insurance policy a lawyer or law firm can purchase.

Legal malpractice claims happen when an attorney is alleged to have failed to perform their duties according to the proscribed standards of professional and ethical conduct. Additionally, even if such breaches of standards have not occurred, many clients may view a negative legal result as reason enough to bring a malpractice claim against your firm. It’s an unfortunate fact of life that even the most diligent law firms are vulnerable to such costly claims.

The potential exposures are numerous and include misinterpretations of the law, offering bad advice, missed deadlines, or conflicts of interest.

Given how commonplace legal malpractice lawsuits have become, having the right insurance program is a wise investment for any law firm.

Who Is It For?

All attorneys need legal malpractice insurance, even though they hope to never have to use it. However, certain areas of practice carry a considerably greater amount of risk.

Attorneys practicing in fields of intellectual property, loan modification, trusts, and personal injury cases are considered to be at higher risk by underwriters.

Working with trusts and estates invariably involves sensitive and personal matters, which makes attorneys who practice in these areas open to claims of legal malpractice from unhappy family members and non-client beneficiaries. Additionally, while malpractice claims are subject to statute of limitations in most jurisdictions, many contain an exception specifically applicable to trusts and estates attorneys. (The statute of limitations is extended until the death of the original client).

Personal injury cases carry the risk of missed deadlines or “failure to calendar.” Additionally, clients often have extremely unrealistic expectations about the potential payouts they’ll receive.

Attorneys working on loan modifications typically work with a very great number of clients. This fact, combined with stringent government regulations, means they are at a significantly higher risk of being sued for alleged malpractice.

Why Do You Need It?

The legal profession is highly regulated and there are clear professional standards and expectations that all attorneys must adhere to. If a client loses their case and feels that their legal representative has failed to meet those standards, they can take legal action and allege that they were victims of legal malpractice.

Should the client prove malpractice and win, the attorney would be required to repay them for all the potential funds they would have received had they won the original case. However, even if the allegations are entirely baseless, merely dealing with a claim can eat up a lot of time and money.

In the event of an expensive lawsuit, the damages incurred could easily lead to the bankruptcy of your firm. Legal malpractice insurance precludes that possibility by covering both the costs of legal defense and possible damages awarded.

This is why, when dealing with potential legal malpractice claims, one can never be too cautious. It’s always a good idea to invest in lawyers professional liability insurance should you ever find yourself on the wrong side of a lawsuit.

What Does Legal Malpractice Insurance Cover?

There are clearly defined limits to what even the most extensive legal malpractice policy will cover. At its core, legal malpractice insurance will protect your firm from errors and omissions that occur during the course of providing a professional service.

The policy will cover both the firm itself as well as individual attorneys. It will cover the legal defense costs associated with malpractice lawsuits as well as damages and settlements potentially awarded against your firm. A preferred policy will also provide legal defense in cases of fines and penalties being alleged against your firm.

However, it’s important to note that if the claim arises out of criminal, malicious, or fraudulent acts, your firm won’t be covered by any legal malpractice insurance policy. Additionally, most policies will also have an insured vs. insured exclusion, meaning that policy won’t respond to claims or lawsuits between lawyers who both work for the insured firm.

What’s Not Covered?

Legal Professional Liability will only provide insurance coverage for your firm in legal capacities. This means that attorneys acting as board members, business partners, or occupying other roles won’t be covered for their errors and omissions, which is why looking into directors & officers insurance is also a good idea.

Employment-related lawsuits related to discrimination, harassment, failure to promote, and wrongful termination are to be covered by employment practices liability insurance (EPLI), and therefore don’t enter the scope of legal malpractice coverage.

Legal malpractice policies will typically exclude claims arising out of bodily injury and property damage, as these claims are typically covered by general liability insurance. One important aspect to note is that breaches of fiduciary duty will also be excluded from a legal professional liability policy.

Also, any claims where the insured firm was aware of a potential claim but didn’t disclose this information before the policy took effect won’t be covered.

What Does Professional Liability Insurance for Law Firms Cost?

One of the key questions related to attorney malpractice insurance is that there are many different factors that go into determining the premium a law practice will have to pay in order to secure the right lawyers professional liability insurance.

Some of the key factors insurers use to determine premiums include the size of the firm (number of attorneys), step rating (how long individual attorneys have been practicing), areas of practice, and the law firm’s geographic location. Of course, your prior claims experience will also be taken into account. Insurers won’t just look at the number of claims you’ve had, but also at their severity and the degree at which you were at fault in these claims.

It’s important to note that cheaper isn’t better when it comes to legal malpractice insurance coverage. Given the potentially crippling costs of malpractice claims, what’s most important is to ensure that your insurance fully covers the activities of your practice.

Another critical factor in determining the cost of insurance is how much time you need to spend on the process of getting insured. If the process takes weeks and occupies hours of your attention, then that will directly impact your bottom line.

Check out our recent guide if you want to learn more about the specific factors that go into determining the cost of legal malpractice insurance.

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