Things to Consider When Buying Coverage for Your Law Firm
A lawyer’s premiums go up as their exposure to risk and claims increases.
A new attorney has a short legal history and therefore is less likely to have a claim made for past legal services. Experienced lawyers, on the other hand, tend to be more vulnerable to errors due to a complexity of cases, a longer history of cases, and generally higher stakes. According to the American Bar Association, lawyers in private practice for five years or less are targeted in about 3.5 percent of malpractice claims, compared to 37 percent for attorneys with 11-20 years of experience. This surprises many lawyers as they view themselves as a more competent attorney after experience.
When you recruit an experienced attorney to work at your firm, expect your firm’s insurance rates to increase. Also, the attorney billing 1,500 hours is far more prone to claims than the Of Counsel (OC) billing 600 hours. Some insurance carriers might even covered your part-time attorneys without charging you for the coverage.
Eventually, your rate per attorney becomes “mature” and each additional year of experience does not affect the premium. But don’t wait for that to happen. You can reduce premium costs right away by having a broker negotiate with carriers so that you are certain you’ll achieve the best deal year after year with little work involved on your end. A savvy broker who understands carrier underwriting is able to work these nuances in your favor.
Lawyers can be highly exposed to gaps in their insurance coverage for professional liability and other lines. Leaving gaps in their coverage is one way in which brokers often fall short of serving their clients, especially if they are inexperienced when it comes to finding the right insurance for legal professionals.
Is your broker willing to handle all lines of coverage for your firm? Having a broker who specializes in law firms provides you the confidence of leaning on them to properly cover all insurable risk factors at you firm. Make sure your broker can identify the gaps on your behalf with multiple insurance carriers and appropriate policies.
What Insurance Policies Do Law Firms Need?
Every law firm has a specific set of insurance needs depending on its size, profile, and other factors. However, there are certain insurance policies that most firms should consider as a mandatory parts of protecting their assets:
General Liability Insurance & Property / Business Owners Policy (BOP): A staple coverage that will be able to protect you from most types of lawsuits, general liability insurance includes the very important premises liability, which covers injuries that could possibly occur on your property. General liability is often minimal for law firms since almost all business is conducted in the office and most communication with clients is handled via telephone and email. Property insurance covers your personal property including computer hardware and furniture. This policy provides protection in the event of a fire, flood, or other unexpected circumstance which can affect the building, your property, and ability to work. General liability and property are often combined into a Business Owners Policy (BOP).
Professional Liability Insurance: Also known as errors & omissions insurance and legal malpractice insurance, this is typically the first insurance policy a lawyer or law firm will purchase. It is easily the most important type of insurance for law firms as this is the most likely area for a claim. Unfortunately even the best of attorneys are vulnerable to a legal malpractice suit. The scenarios are wide-ranging, from misinterpretation of the law, bad advice, missed deadline (statute), conflict of interest, to merely disgruntled clients looking to sue. Given the incredible ease of bringing a malpractice suit, it is astonishing that some lawyers do not carry this line of insurance or let it lapse.
This coverage will be able to cover your legal defense costs and expenses related to trials (e-discovery, expert witnesses, etc.), as well as damages or settlements awarded against your firm. Notably, the policies rarely cover fines and penalties, but better policies may provide a defense in the event fines and penalties are being alleged.
Cyber Liability Insurance: Law firms deal with a lot of sensitive information, so it’s no surprise that they are constantly being targeted by hackers. According to a recent report, 22 percent of law firms in the U.S. experienced a cyber attack or data break of some kind in 2017. Hackers are very interested in the type of highly sensitive data that law firms have at their disposal since this type of information can easily be sold to opposing legal parties, the media, or anyone else who could use this type of data to their advantage.
More recently, law firms have become targets for cyber crime and phishing scams. Cyber crime often involves a criminal trying to trick the law firm into sending funds to a fraudulent account or hijacking the email of an attorney and directing clients to send funds someplace illegitimate. You may also hear this referred to as “social engineering.” This is covered under cyber or a crime policy.
Employment Practices Liability Insurance (EPLI): The need for this coverage grows in concert with the size of your firm. If you’re a solo attorney, then you obviously won’t need this one. However, as a firm adds employees, the issues become more complex and the personalities are less predictable. Any law firm that has employees, no matter how many, should get some EPLI coverage.
EPL insurance will protect your firm from potential employee-related claims, including discrimination, harassment, failure to promote, and wrongful termination. Professional services firms are also strongly encouraged to get third-party coverage to protect against claims from outside the firm. If you are a large law firm with a high turnover rate, there is absolutely nothing to consider, you need to have EPLI.
Directors & Officers (D&O) Insurance: As in most other businesses, D&O insurance for law firms will protect the firm against suits related to the mismanagement of the firm, causing financial harm.
Law firm officers have a unique risk as the attorneys inside the firm could be amongst the most likely to bring a suit against the directors and officers of the firm. A policy must be tailored for a law firm as a normal D&O policy would not cover this exposure. Additional exposures include a botched acquisition, over-extending on partner lateral hires or tortious interference.
Workers’ Compensation Insurance: Since this type of commercial insurance is required in just about every state, there’s not much to think about – your law firm needs to have it. Thankfully, workers’ compensation probably won’t cost your law firm a lot, since a law office is not a high-risk workplace. However, accidents will always happen and workers’ compensation will cover your firm if your employees ever sustain any type of injury at work (whether it’s at your office, at the courthouse, or anywhere else they may be representing your firm in a professional capacity.
Highly-Publicized Examples of Insurance Claims at Law Firms
- A prominent global law firm, DLA Piper, struggled to recover from vicious computer attacks despite touting themselves as cybersecurity experts.
See: Law Firm DLA Piper Reels Under Cyber Attack, Fate of Files Unclear
- After representing Cesar Cabrera, a former U.S. ambassador to the island nations of Mauritius and Seychelles, in a 2016 legal malpractice suit, well-known law firm Kasowitz was sued by Cabrera who claimed that Kasowitz mishandled his malpractice case.
See: Kasowitz, After Suing Another Firm, Faces Its Own Malpractice Claim
- K&L Gates LLP faced a $100 million legal malpractice suit from a Texas semiconductor company, Quantum Materials Corp., over an alleged conflict of interest.
See: Texas Malpractice Suit vs. K&L Gates Claims Firm Abandoned, Then Sued, a Client
- A former client of New York lawyer Aaron Schlossberg filed a lawsuit claiming his viral video rant harmed its reputation. The Niche Music Group says Schlossberg had a duty to refrain from conduct detrimental to clients, and his recorded rant amounted to breach of the engagement contract as well as legal malpractice.
See: Lawyer’s viral video rant amounted to malpractice, ex-client alleges in lawsuit
The Cost of Insurance for Law Firms
Not sure if you’re getting a fair deal?
A frequent question we hear — and a common problem with insurance underwriting in general — is that no one really knows how an underwriter arrives at a premium.
A law firm’s premiums are usually determined by number of attorneys, areas of practice, location, and claims. Most firms acknowledge this, but they still rarely understand how the price is actually derived.
It’s important to note that cheaper doesn’t mean better and the only thing that is important is that your insurance program is covering the activities of your practice in the best possible way.
Your prior claims experience is another factor that’s important when it comes to determining your law firm’s premiums. Here it’s not only just about the number of claims but also how much your claims cost, the nature of the claims, and the degree at which your law firm was at fault in these claims.
It’s easy to calculate the cost of your insurance merely by premium dollars. But what about time spent on applications and the process itself? Or what the true cost will be if your claim or defense isn’t covered? Embroker’s technology will make buying far easier and our brokers will ensure your quotes come from the most well-respected carriers.
Lawyers and their firms require unique insuring expertise and experience from their brokers in order to make sure that they are getting the proper coverage and that all possible gaps are being covered.
Embroker’s combination of dedicated, expert brokers with years of experience finding the right coverage for law firms and industry-leading technology can help you get the best coverage at the best price. Beyond that, we also offer advice on risk management challenges such as loss control and risk financing.