Cost Of Legal Malpractice Insurance
What Determines The Cost Of Malpractice Insurance
Elements of Cost for Legal Malpractice Insurance
There are several variables that come into play when figuring out how much malpractice insurance will cost. One of the first is geography. Because the incidence and type of claims varies by state depending on various factors—complexity of legal work, types of work performed, environment of practice and even the economy—location has a significant impact on the cost of coverage. The fact that malpractice claims are so heavily concentrated in major cities means that lawyers who practice in places like New York or Los Angeles will likely see higher premiums, whereas those who practice in rural areas may spend less. Also, while the trend in malpractice for some sections of the country is downward, in regions where claims do continue to rise, lawyers will face higher premiums.
Another variable comes in connection with the lawyer’s area of practice—the type of work they do, the complexity and duration of that work , the size of the firm and who the clients are…. Firms engaged in litigation may have a greater chance of a malpractice claim being made against them than their transaction-oriented counterparts. This is because certain kinds of adverse outcomes, such as a motion or order being denied, are more likely to occur in certain kinds of litigation. Transactional lawyers, on the other hand, typically deal with relatively routine legal work such as estate planning, wills or avoiding conflicts of interest, all of which are less likely to incur claims. The reason is simple—that is the nature of the work itself. In addition, large firms are more likely to prevail in claims than smaller ones, as they have established protocols in place.
Then there are pure personal characteristics such as years in practice, size of staff, and years as a partner or shareholder—all used to assess the risk inherent to the insured. In this category, being older rather than younger makes a difference—due to expertise and overall experience; similarly, being a partner is a positive factor.
The Average Cost Of Malpractice Insurance For Attorneys
Legal Malpractice Insurance costs an average of $9,000 per lawyer. This varies significantly with law firm size and other metrics. Average costs for a solo is $2,739. A two to five member firm pays on average $8,998 per lawyer, while a six to ten member firm costs $13,710 and a 11 to 20 member firm costs $22,715. When firms reach the 21 to 50 member level, costs rise to $29,353 per lawyer and the 51 to 100 member firm cost $37,976 per lawyer. Scaled to up to 100 lawyers, the cost of insurance for firms of that size is $143,000. These are average costs as North Dakota is a higher priced state, at an average of $15,361 per lawyer for 2007 to 2008. Other states are right in line. New York’s costs are around $14,500 per lawyer; Nebraska is $4,900; Michigan is about $10,000 per lawyer. No matter how you slice it, Legal Malpractice Insurance is not a bargain.
The Many Ways To Lower Malpractice Insurance Cost
To assist lawyers in lowering the costs of malpractice insurance, many carriers offer services aimed at managing risk within the firm. These services can vary based upon firm size and the specific insurer. Certain carriers provide resources for developing risk management policies and procedures. In addition, many firms are provided with access to online legal compliance resources. For lawyers interested in determining whether a firm’s compliance procedures limit an insurer’s exposure, review the firm’s conflicts-of-interest and client billing policies. Compliance with these policies can lead to reduced liability exposure and decreased premiums.
Insurance companies also provide policyholders with both live and recorded risk management seminars. These programs deliver a variety of educational materials designed to protect against malpractice suits before they happen. Attendance at live programs hosted by insurers may be limited to a firm’s insured, whereas some on-line programs are offered to the public. Participation in these programs may reduce premiums as a "good lawyer" endorsement.
Continuing Legal Education (CLE) is offered by carrier provided seminars and is required in most states to maintain law licenses. In addition to offering courses for CLE credit, most carriers also extend discounts for participation in programs sponsored by outside organizations. A significant number of firms target no-cost courses for which the cost of attendance is discounted from the insured’s premiums. In some cases, participation in these "preferred programs" can yield premium discounts while also fulfilling CLE requirements.
The choice of insurance provider can also serve as a means to lowering malpractice premiums. All premium discounts are based upon insured risk and firm size. As a result, small firms tend to have higher premiums than larger firms. Some carriers offer insurance at discounted rates for small firms that also require mental health evaluations or provide claims-made coverage to specialized industries. Other providers have targeted firms of 20 attorneys or less with reduced premiums. Many do not have any minimum attendance or program participation requirement and simply provide lower premiums as long as the firm meets the minimum size. Like many discounted programs, this category does not apply to full-service firms of any size. Some insurers target particular industry practice groups, such as intellectual property, criminal, or ERISA lawyers with reduced premiums for these firms. A few carriers have begun to "piggyback" with existing state bar functions, offering premium discounts for firms whose attorneys volunteer with these programs. In some states, participation in a peer-review program can be used to obtain premium reductions. Similar to premium discounts in many fields, participating in low-risk practice areas can also signal a lower risk.
The Purpose of Malpractice Insurance For Attorneys
In the competitive field of law, every client expects and deserves competent legal representation. When clients feel they have received incompetent or negligent legal advice, they expect the firm to make it right by either refunding fees, not collecting on the bill or other means acceptable to them. For this reason, legal malpractice insurance is essential protection for law firms. Without it , your firm would be fully responsible for the adverse financially and reputational effects of a claim. Legal malpractice insurance provides a financial safety net so that your law firm is protected from legal malpractice claims. Most clients will ask about your legal malpractice insurance and it is becoming more and more common for clients to expect their attorney to carry this form of insurance. Lenders often require the law firm to carry legal malpractice insurance as well. Carriers who have paid legal malpractice claims have suffered the adverse consequences to their own reputation from being associated with the firms covered. For these reasons, clients have an increasing expectation of your law firm or solo practice to be covered by legal malpractice insurance. To further support the need for legal malpractice insurance, here are additional reasons:
How Attorneys Can Find The Right Malpractice Insurance Policy
When shopping for a legal malpractice insurance policy, what are some of the important considerations one should look to? Each state bar association has a process where information about legal malpractice insurance can be obtained. They list the companies who provide malpractice insurance and brokers within the state as well as who is no longer writing policies in that jurisdiction. Many of the big name providers of legal malpractice insurance such as AIG and Travelers, among others, are usually rated A+ (Superior) or A (Excellent) from A.M. Best. A.M. Best is an independent agency that ranks the insurance providers according to their creditworthiness.
Another aspect to consider is the different types of exclusionary clauses that are contained within the policy. One is the prior acts clause which excludes coverage for any actions taken by the insured prior to the retroactive date so it is important to remember when purchasing your malpractice policy to check the retroactive date and make sure you are comfortable with it. Some policies have an exclusionary clause for claims related to bankruptcy. Other common exclusions include coverage for claims arising from personal injury, such as defamation or employment claims as well as claims involving business as opposed to legal services. Business services can include providing advice about investments, taxes, collective bargaining, etc.
Legal Malpractice Insurance Requirements
Some states have made malpractice insurance mandatory, and some do not. From an insurance point of view, a lawyer with good malpractice insurance is a lower risk than one without, and is entitled to a lower premium. So, states that require professional liability insurance certainly help themselves and the public by the effect of lower premiums for insurers. Lawyers can be paid lower insurance premiums by their insurer, or may be offered a certain amount of coverage for free. In either event, there is an incentive for the lawyer to obtain and retain this insurance in order to "keep a lower profile" as a lawyer, since a claim is already being paid by an insurer . When insurance is not available, the allegations die with the insured, and the playing field is leveled, making the plaintiff from a former $100 per hour lawyer on equal footing with a law firm charging $500 per hour.
So, the presence of mandatory insurance, in addition to lower costs for insurers also helps the bar to truly help those paying for it. In New York, Section 97 has existed for over 30 years, and has resulted in steady improvements in legal malpractice as compared to other states.
Section 97 requires lawyers to obtain $100,000 each occurrence and $300,000 aggregate coverage, subject to exceptions and waivers.