by: Lawyers Professional Liability Risk Control Quarterly

Are you wondering if you really need legal malpractice insurance? We have seen thousands of claims made against attorneys—the majority of which are claims where no mistake was made. The costs of defending even a frivolous claim might not only have a severe financial impact, but could also effect the professional reputation of you or your firm.

Even if your practice is small and you are extremely diligent in your work or you work in an area where ‘everyone knows everyone’ and you believe that your clients wouldn’t sue you, consider the following:

• It is estimated that 5-6% of all private lawyers will have allegations of malpractice against them each year.
• It is estimated that you face a 4-17% chance of being sued each year.
• It is estimated that during your legal career you have a 50% chance of having a claim or disciplinary complaint brought against you.
• Failure to make a mistake does not protect you from a legal malpractice claim.

As a leading provider of legal malpractice insurance for over 40 years, we have seen thousands of claims made against attorneys. Claims can be bucketed into just two different categories:

1. Claims where a mistake was made
2. Claims where no mistake was made

The majority of claims are in the latter category. In fact, according to the 2008-2011 ABA Profile of Legal Malpractice Claims, over 72% of claims are resolved without any indemnity payment.

You may think that those are great odds and therefore you do not need malpractice insurance. But consider that the costs of defending even a frivolous claim can quickly add up to well over a lifetime of insurance premiums. And if you think defending yourself is the answer, think of the lost income you will incur as a result of all the time away from your practice. Don’t forget the emotional toll and professional embarrassment you will experience by not having insurance. Insurance will not only pay for an objective defense attorney who is experienced in handling malpractice claims, it will also provide you with professional support and advice to help you through an undoubtedly challenging situation.

Some attorneys think that by having insurance they are inviting a malpractice claim. Not having insurance doesn’t mean you won’t get sued. It just means you will be on your own to defend yourself if a suit or disciplinary complaint is brought against you. Further, the reality is that mistakes do in fact happen. Even the best attorneys are human and occasionally make errors. Sometimes the mistakes are made by office staff or other attorneys in your office. Many times these errors are correctable. But sometimes these errors damage your clients. Think of the value of the cases you manage. Are you prepared to pay out of your own pocket potentially thousands and thousands of dollars to make your client whole if the unthinkable should happen? Even if the client doesn’t go after all of your personal assets as compensation for their loss, can your professional reputation survive if your actions damaged your client and you didn’t have adequate insurance?

The annual cost of insurance, especially when you haven’t been practicing long or practice in areas of low risk (e.g. criminal or family law) can be extremely affordable.

Further, many states now require disclosure when you do not carry malpractice insurance or have limits below certain thresholds. This flows from the fiduciary duty you have to your clients. For instance, Pennsylvania’s Rules of Professional Conduct, Rule 1.4(c) requires that you advise your clients in writing if you do not carry Professional Liability Insurance of at least $100,000 per occurrence and $300,000 in the aggregate. The rule further requires that you notify your clients in writing any time your coverage falls below those limits or is terminated. So if a claim was made against you and you had a $100,000 policy and defense costs were expended which depleted your policy by even one dollar, you would need to notify all of your clients.

There are currently seven states that require disclosure directly to the client: Alaska, California, New Hampshire, New Mexico, Ohio, Pennsylvania, and South Dakota. There are 17 other states that currently require attorneys to disclose their lack of malpractice insurance on annual registration statements which may be accessible to the public including Arizona, Colorado, Delaware, Hawaii, Idaho, Illinois, Kansas, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, North Dakota, Rhode Island, Virginia, Washington, and West Virginia.

It is important to understand what you are paying for when you purchase professional malpractice insurance. While every policy is different and should be read in its entirety, key aspects of a typical legal malpractice policy include the following:

1. Most policies provide coverage (defense and indemnity) for a claim of malpractice as well as the cost of defending disciplinary complaints up to a specific sublimit.
2. Many policies have additional coverage for subpoenas, pre-claim mitigation, cyber breaches and crisis management expenses.
3. Most malpractice policies are written on a “claims-made and reported basis” with “prior acts” coverage. This means that the policy in place at the time the claim is made will respond as long as the act that gave rise to the claim occurred on or after the policy’s “prior acts” date. A new policy will carry a “prior acts” date equal to the policy inception date and that date remains constant through subsequent renewals. This differs from your typical homeowners or auto insurance policy where the claim falls under the policy that was in existence at the time of the loss. Therefore, it is important to establish coverage early and maintain it without any gaps as a mistake you made years ago will generally be covered under your current policy—as long as your policy provides coverage for past work.
4. Most policies provide coverage for negligent mistakes made by non-attorney employees.
5. Most policies provide free “tail” coverage after you retire if you have been insured continuously with the Company for five or more years at the time of your retirement.
6. Many professional liability carriers provide free risk management services, including hotlines and continuing legal education courses.

Without insurance, who would you call for advice? How would you fund your defense? How would you indemnify your client should you make a mistake that causes them to suffer a financial loss?

So the question is not “do I need insurance” but “how can I afford to practice without it?”

Christine Blackstun brings 25 years of Professional Liability Insurance experience in all phases of underwriting, sales, marketing and educational services. Christine recently joined the team at Pearl Insurance, affording her the opportunity to better serve clients with access to exclusive professional liability insurance programs, state-of-the-art risk management resources, and competitive pricing. Contact Christine by calling 855.465.0199 or sending a message to christine.blackstun@pearlinsurance.com