Wow, I should have had professional liability coverage. I remain amazed at how many lawyers forego such coverage. I do not understand that rationale since they would never risk their assets with an uninsured car or house. Yet, they think this cost of doing business is too high or it somehow is not needed.
Even a totally bogus claim costs real money to defend. It takes time and work to get these dismissed, with no return of the costs. Lawyers always seem surprised at the legal costs for such work when they send out similar bills each day. Then if there is a meritorious claim or even a colorable claim, coverage is very much needed.
When I last looked, only one state required legal malpractice coverage as a condition of licensing. Many states annually require you to disclose whether or not you have such coverage for consumer knowledge. I wonder how many clients ever really check that, or if they even care. If you err in their case, they will sue you regardless. Do not think they will not, just because you have no insurance. You certainly do not want to explain to family members that they now need to take the bus, since your cars were attached to pay a malpractice judgment. Just treat this like a business expense and get coverage, and get the right coverage.
You should shop for coverage with brokers and agents as well as Bar groups. Be totally forthcoming in any applications so there is no reason for any carrier to later deny coverage. Price varies with the amount of risk you are willing to take by way of the deductible. Sometimes that is just cost pricing with lower annual premiums for higher retention levels by you. Sometimes in order to get big policy limits for some specialty work, you are required to have a big deductible. Bigger firms are used to that, but smaller firms must always be mindful of the amount of risk they can absorb and how much they can promptly pay for a defense. Usually the deductibles are for both losses and for the defense of the claim.
At one time, professional liability policies were like your auto policy — occurrence based. Were you insured when you had the wreck or act of malpractice, or not? By the 1970’s, that type of coverage disappeared and all are usually claims-made, eliminating the open-ended coverage concerns. So, now a lawyer needs to be covered when a claim is made and must therefore avoid any gaps in coverage.
Since claims can arise well after the act or occurrence, prior acts coverage was needed to cover such matters forward when changing carriers or policies. A tail (extended reporting endorsement) or an endorsement for prior acts must be considered carefully when charging firms. Someone either closing a firm or making a lateral move needs to consider this carefully. See, “A Primer on Prior Acts Coverage”, Mark Bassingthwrighte, ALPS 411, May 27, 2014.
For example, working in a mid-size regional firm, it made no sense to take in a lateral lawyer and provide them with prior acts coverage under the firm’s policy. There had been no quality control by the firm and there were totally unknown risks involved with the lateral’s prior work. With a large deductible, it was just bad business to assume that liability. Accordingly, all laterals were told to look to their prior carriers or firms for coverage up to the day that they just started at our new firm. Going forward they were covered, even when they left, as long as our firm was viable and still covered. A tail may be needed by them from their prior work, but if they were likewise leaving a viable ongoing firm with good coverage, maybe nothing was needed.
Complicated to some degree, but it is just a part of doing business as a lawyer. You need certain things to practice and this certainly is one of them. Just like paying the rent on the office, paying for the coverage in a timely manner, and getting the right coverage is kind of important. Don’t be the person who thinks they will not be sued by their clients.
Be advised that most are loss and claim deductibles for any expended fees and costs, as well as claims payouts. Also, it is customary for you to have to pay your full deductible before any carrier pays anything. So pick a deductible you can afford and then escrow the funds for it as soon as a claim surfaces. By the way, give notice of claims promptly, again to avoid coverage issues. See ALPS 411, Claims-Made Reporting Requirement, February 15, 2012.