Too often the purchase of insurance – sometimes even legal malpractice insurance – is treated like commodity shopping, weighted heavily on price. Many policyholders only read and research their coverage when faced with a claim, only to find they are unsure how their policy will work. But what should you evaluate when reviewing/comparing lawyers professional liability coverage? Let’s go through the basics.
1. What should my limit of liability be?
The limit of liability question is perhaps the hardest to exactly determine, as there is not a specific formula to apply. That said, there are factors we can review, including primary areas of practice (which will give us an idea about the likelihood or frequency of claims), as well as approximate and maximum case values (which will give us the severity possibility or PML – possible maximum loss).
2. How much does legal malpractice insurance cost?
The cost of professional liability insurance is impacted by a number of things, not the least of which is the limit of liability and deductible. Obviously, the most expensive limit is the minimum (lowest) limit, which is true in most any line of coverage. However, doubling the limit does not double the premium. Make sure you examine the cost/benefit of the next higher limit, as you may be surprised by the minimal difference in cost.
3. What is my step rating and how does it impact cost?
Because of the nature of legal malpractice insurance claims, the underwriting risk for an attorney does not fully mature until there is approximately six full years of prior exposure that is insured. Therefore, for your first six years, your premium is less because of this limited exposure. This is called step rate methodology.
4. Is the insurer financial sound?
Obviously, the financial strength of your insurer is very important. Remember to look at the full picture when you’re evaluating your options. Many people see a big number on the asset side and assume financial adequacy. However, you must also look at liabilities and financial ratios. Often companies with large assets also have extremely large liabilities.
5. Are my prior acts backed up?
If pricing or coverage seem too good to be true, it may actually be. You also might be comparing two policies that are not apples to apples. Make sure the prior acts date remain on your new policy so that coverage is not cut off behind you. This is imperative for claims-made policies.
6. Does coverage extend to both lawyers and nonlawyers?
Does your policy cover everyone in your office, including paralegals and secretaries? Or is it just for attorneys at law?
7. What is contained in the policy itself?
A professional liability insurance policy is actually comprised of several elements: the application, the declarations page, policy (insuring agreement), exclusions, definitions, conditions, etc. and endorsements. Many people are surprised to learn the application actually attaches to and becomes a part of the policy. For this reason, it is important to complete the entire application and provide all relevant information. In addition, the more information we have, the more we learn about the firm, the better we can make suggestions to specifically tailor coverages to fit the firm’s needs.
8. Is tail coverage available?
Even if you don’t plan to retire for a few years, it’s good to know what the options are for an extended reporting endorsement, commonly known as tail coverage. Specifically, you should ask about the time period options, as well as price.
9. Will I have input selecting my defense counsel if I do have a claim?
Large national carriers are more likely to utilize systematically assigned claims adjusters. Other carriers utilize attorneys who are familiar with the laws of the state in which a claim is filed. This seemingly small detail can make or break a case.
10. Is my consent required to settle a case?
Some carriers need your permission to settle a case on your behalf and others don’t. Make sure you know the answer to this question and are comfortable with it.
Remember that your insurance policy is an intangible product and you should only buy from a source that is competitive, easy to work with, and most importantly, is one in which you have trust and confidence. Your insurance company is an extension of your law office.
Author
Phil has been at OAMIC since 1989 and has served as president and CEO since 1993. He is past-president of the National Association of Bar Related Insurance Companies (NABRICO) and currently serves as secretary of the organization. He also serves as secretary of the Bar Plan Surety & Fidelity Company, is a board member of the National Association of Mutual Insurance Companies (NAMIC) and is a member of the Professional Liability Underwriting Society (PLUS). Phil has a Bachelor’s degree from Central State University (now University of Central Oklahoma) and is chair of the Edmond Economic Development Authority.