Attorneys are usually comfortable handing out lawsuits and defending their clients in court, but no lawyer wants to be on the receiving end of a summons and complaint. Unfortunately, a reality of the legal business is that practicing law opens one up to liability for malpractice, and even the most fastidious attorneys can become the subject of malpractice claims made by disgruntled clients who didn’t get the results they were hoping for.
Because of the ever-looming threat of malpractice lawsuits, many attorneys opt to cover themselves by purchasing legal malpractice insurance, also known as Errors and Omissions (E&O) or professional legal liability insurance. Malpractice coverage insulates attorneys from potentially significant judgments as well as the costs of defending a malpractice suit, which can get out of hand even when a claim is meritless. If you are weighing whether to buy legal malpractice insurance or wondering what to look for in a policy, consider the following points.
Common reasons behind legal malpractice claims
Legally speaking, a malpractice claim simply alleges negligence on the part of the lawyer, which harms their client. According to the American Bar Association (ABA), the following are the top five attorney errors leading to malpractice claims:
● Failure to know and apply the law: This error occurs when an attorney fails to do adequate research on the law or fails to properly apply the law to the facts of the case. In other words, poor lawyering.
● Strategy and planning errors: This type of claim results when an attorney knows the law and facts but makes a poor judgment call regarding the overall strategy of the case, leading to unfavorable results.
● Insufficient investigation or discovery: These claims arise when an attorney’s investigation or discovery efforts are inadequate, leaving material facts undiscovered.
● Failure to file documents without a deadline: Certain filings have no set deadline but must be made in a timely manner to preserve the client’s rights. Failing to do so may constitute legal malpractice.
● Failure to calendar: This surprisingly common attorney error occurs when a lawyer forgets or declines to put significant client dates on the calendar. (Also on the ABA’s list are the “failure to react to calendar” and “failure to know or ascertain deadline correctly,” highlighting the importance of staying alert to deadlines.
The ABA has also noted that in a given year, between five and six percent of attorneys will face a malpractice claim of some kind, and solo practitioners and small firms are especially vulnerable.
Legal malpractice insurance requirements by state – Jurisdictional requirements relating to professional liability insurance
Are you required to have legal malpractice insurance? Currently, Oregon is the only state that mandates its attorneys must carry malpractice insurance–anywhere else you are free to go without. Many states do, however, have mandatory disclosure laws requiring lawyers to tell their clients if they do not have a malpractice policy in place. Some state bar associations have other programs to encourage attorneys to cover themselves, like Illinois, in which all attorneys without insurance are required to obtain additional continuing education credits on the topic of professional responsibility.
Non-monetary incentives for obtaining coverage
If you do not practice in Oregon, and your state’s disclosure or other requirements have not convinced you to buy malpractice insurance, consider the effect of an E&O policy on your sales pitch to clients. Typically, clients want to feel, more than anything else, that their legal matters are in safe and trusted hands. Having a million-dollar legal insurance policy in place may raise prospective clients’ comfort level when dealing with an attorney they have not worked with before.
The financial calculation
For most attorneys, the decision of whether or not to buy attorney legal malpractice insurance will come down to weighing the best legal malpractice insurance cost of the premiums with the risk of loss. This will vary from one attorney to another: lawyers in particularly risky practice areas, like personal injury and real estate, face a greater threat of a significant malpractice judgment. Another consideration for attorneys is what assets they have to lose, and whether (or to what extent) the entity they practice law under is “judgment proof.”
Another economic consideration is the amount of coverage provided by a particular policy. An attorney who specializes in small claims and traffic tickets may not need a policy with hefty limits, while those lawyers who regularly take on cases involving large dollar amounts may want to max out coverage. One aspect of coverage to look out for is whether a particular policy will pay for defense fees on top of any judgment, or whether legal fees are taken out of the overall coverage amount.
New lawyers who are shopping for malpractice insurance must also keep in mind that premiums typically go up each year for the first five to ten years of an attorney’s career, even if no claims are made and the insured has a perfect record. Although this system seems counterintuitive at first glance, the reason is that attorneys pick up more and more cases as they continue to practice, and each additional case represents increased potential malpractice liability down the road.
It is never too late to buy legal malpractice insurance
If you have been practicing law without insurance for some time, you are still able to protect yourself from liability, both past and present. That is because legal malpractice insurance companies typically cover mistakes that may have occurred in the past, if the resulting claims have not yet been made. This type of retroactive coverage is termed Prior Acts Coverage.
Conclusion
The above represent some of the primary considerations when reviewing a legal malpractice insurance quote. If you are an attorney looking into a professional liability policy, it is important to assess your own financial outlook as well as your area of practice and types of cases you take on. Other factors to look into include the premiums paid by similarly situated attorneys, the bar association rules in your jurisdiction, and the rates of malpractice defense lawyers in your area. You may ultimately find that the peace of mind provided by a solid insurance policy is worth the premiums.
