Your clients count on your law firm to provide superb service. Unfortunately, mistakes are possible in any industry, and mistakes in the legal field can lead to significant losses and costly lawsuits. Professional liability insurance for attorneys and lawyers can offer protection against lawsuits alleging negligence, errors or oversights.
What is professional liability insurance for attorneys and lawyers?
Professional liability insurance for attorneys is also known as legal malpractice insurance, professional indemnity insurance or errors and omissions (E&O) insurance. It is a type of professional liability insurance coverage that’s designed to protect lawyers from some of the most common risks they face.
When legal professionals make mistakes, their clients may suffer financial loss – and when clients experience financial loss, they may file a lawsuit to seek compensation. Professional liability insurance can provide coverage for claims such as these that involve negligence, omissions or errors in professional services. Professional liability insurance helps cover defense costs, awards and judgments, and, depending on your policy terms, it may include coverage for additional services like pre-claim assistance to help prevent lawsuits.
Is professional liability insurance the same as commercial general liability insurance?
Although commercial general liability (CGL) insurance and professional liability insurance can both provide coverage for third-party lawsuits, the types of lawsuits covered are usually very different.
While general liability insurance can provide coverage for claims involving property damage or bodily injury, professional liability insurance provides coverage for claims involving financial loss. For example, if a client falls in your office, you’ll likely file a claim under your general liability policy. If a client loses money because you forgot to file a form, you’ll likely file a claim under your professional liability insurance policy.
This means that, as an attorney, you may need both commercial general liability insurance and professional liability insurance.
Is legal malpractice insurance required?
Some states require lawyers to carry legal malpractice insurance, but these requirements may not apply to all lawyers. If coverage is required, the state will mandate a minimum amount of coverage. See your state’s licensing agency for details.
Even if your state does not require coverage, obtaining it can be a smart way to help control potential exposures. Lawsuits can be expensive and, without coverage, law firms of any size may not survive. Additionally, clients may feel more comfortable working with lawyers who are covered.
What doesn’t professional liability insurance cover?
Professional liability insurance provides coverage for financial losses that are experienced by clients and stem from professional services. Anything outside of this scope will not be covered. Some of the most common exclusions include:
- Bodily injury
- Property damage
- Auto-related incidents
- Claims related to employment practices
- Incidents stemming from executive decisions
- Acts of intentional wrongdoing against clients
- Criminal acts against clients
Professional liability policies may have additional exclusions that can vary depending on the insurer and policy terms. Review your policy carefully with your insurance advisor to make sure you understand precisely what is and is not covered.
Professional Liability Insurance Claim Scenarios
Professional liability claims against law firms can occur under various circumstances. The types of claims that you are most likely to encounter will also vary depending on the area of law you specialize in. However, these are a few examples of potential professional liability claims against law firms:
- A lawyer is filing a trademark for a client. The lawyer makes a mistake on a form and accidentally puts the wrong word in the trademark application. This error is not noticed until later, when another company uses the term that was supposed to be trademarked. At that time, the client files a lawsuit against their lawyer.
- A lawyer is representing a client who was injured in an automobile collision. The defendant is a large company with significant legal resources. The defendant offers a good settlement, and the client wants to accept. However, the client’s lawyer forgets to send the acceptance and misses the deadline. The defendant does not grant an extension or make another offer. The case goes to trial and the defendant wins. The plaintiff files a lawsuit against their lawyer.
- A lawyer is representing a client who wants to file a medical malpractice lawsuit. The lawyer believes the client has ample time to file and works on building the case. However, the lawyer was incorrect and the statute of limitations in the state in question runs out before the lawsuit is filed. The client files a lawsuit against the lawyer.
How much professional liability insurance do you need?
Any type of lawyer could face a lawsuit but, according to the American Bar Association, some areas of law have higher risks than others. Lawyers dealing with securities, intellectual property, trusts and estates, personal injury cases and emerging areas like loan modifications may be particularly vulnerable to lawsuits due to the risk of financial loss.
Another thing to consider is the size of the cases you take on. For example, if most of your clients are small businesses, the potential losses may be relatively minor compared to what’s possible if you’re serving large companies.
When assessing your level of coverage with your insurance advisor, it’s important to consider both the occurrence and aggregate limits. The occurrence limit is the maximum amount the policy will pay for a single claim, while the aggregate limit is the maximum amount a policy will pay for all claims within a coverage period.
Questions to Ask About Your Practice’s Coverage
- Do you have professional liability insurance protection? If you work for a law firm, your firm may provide coverage. Verify that coverage is in place. If you own your own practice, you will need to obtain coverage for yourself, your business and any employees.
- Do you have sufficient coverage? Review the per-occurrence and aggregate limits, as well as any exclusions or restrictions, with your insurance advisor to confirm that you are satisfied with your coverage.
- Do you have a claims-made or occurrence-based policy? Professional liability insurance typically works on either a claims-made or occurrence basis. A claims-made policy only provide coverage for claims that are made during the coverage period, while occurrence-based policies provide coverage for events that occur during the coverage period, even if the claim is made when the policy is no longer in force.
- Do you have coverage gaps? Claims-made coverage could create gaps for lawyers who retire or switch practices, but it’s possible to secure tail coverage to close these gaps. If you’re buying coverage for multiple lawyers at a firm, determine if coverage will apply to both current and former lawyers.
To make the most of your coverage, make sure you report all potential claims to your broker as soon as possible, even if a lawsuit has not been filed against you yet. Most policies require timely reporting, so if you fail to notify your insurer of a potential claim, your coverage could be jeopardized.
Is your legal practice covered?
Protecting your legal practice requires more than just exceptional service – it means having the right coverage in place to help safeguard your reputation and financial stability. At Higginbotham, we understand the unique challenges lawyers face and are here to help you navigate your insurance needs. Talk to a professional liability insurance specialist today to learn how Higginbotham can help you find tailored coverage solutions.
