As a lawyer, if someone files a malpractice lawsuit against you, then this can be a nightmare to deal with since they’re basically putting your ethics and competency under the microscope. Even more, a lawsuit also puts a massive financial toll on you. Even though there are many companies that have malpractice insurance, only a small number of them know what questions to ask to learn more about what their specific policy covers.
Based on information from the ABA, approximately five to six percent of all private lawyers have to deal with malpractice litigation every year. Based on the scope of the legal malpractice policy, the costs associated with the lawsuit may be entirely covered by the insurance company.
On the other hand, until someone files a complaint, only a few companies actually scrutinize the language in their insurance policy. As such, below we’re going to take a closer look at the questions you need to ask as a solo practitioner about your policy before it’s too late.
What Are the Coverage Limits?
For many, this may seem like a basic question, but the truth is that it’s essential for attorneys to know the aggregate and per-claim insurance limits their policy includes. Those who are not aware of them may eventually find themselves in a situation where their policy won’t be able to cover the costs associated with the lawsuit.
When it comes to determining the right limits, they all depend on the area of law the attorney practices in. For example, if you’re an attorney and you work on securities or patent infringement cases, then this means you need to carry a lot of coverage. If you deal in less complex cases, then, you can certainly get a policy that comes with less coverage.
In the end, what’s important is the type of litigation and transactions you work on, including the risks associated with them. After all, law firms should not only think about the fees to charge their clients, but also analyze the types of risks they subject themselves to.
According to experts, attorneys need to also learn more about whether the cost of defending a malpractice suit counts against their policy’s total limits. These types of eroding limits or depleting policies may cause a lot of problems, such as surprisingly high defense costs that may easily go beyond the liability limits. In a fact intensive litigation, this can very well be the case, so be sure to get appropriate coverage to avoid such scenarios.
If a judgment or settlement goes beyond the policy’s limits and the defense costs have already been paid, then the insured is liable for paying the difference out of pocket.
It’s true that a lawyer or a law firm can pay a bit more in order to get a policy that allows for incurring defense costs outside the policy’s limits. However, even though they do pay an extra fee, that fee can actually make the difference between having to pay a lot of money out of pocket and having the insurance company cover it.
Most legal malpractice policies offer coverage that can be defined as a professional service, yet if the work the lawyer does cannot be included in the same definition, then that lawyer may risk having no coverage at all, says Polsinelli PC’s chair of commercial litigation group and shareholder, Stacy Carpenter.
Claims that almost exclusively arise out of professional services are generally excluded by a wide range of malpractice policies, yet they are intentional torts, like defamation, abuse of legal process, and the wrongful use of civil proceedings. Because of that, law firms need to check and see whether their policies provide coverage for such claims. If they do not, then they may be at risk of possible settlements, judgments and even defense costs.
After all, no law firm would ever want to deal with a policy that basically disclaims all intentional tort coverage, especially when it comes to claims that arise out of the previous of legal services.
What Are The Insurance Company’s Reporting Requirements?
The majority of legal malpractice policies are claims made, meaning that as the insured, once you become aware of a potential claim you need to report it to the insurance company. Lawyers need to understand what actually make a claim based on their specific policy and when it comes to reporting it they should steer on the inclusiveness side. There are cases though when lawyers may not know whether a claim was made or not. When this happens, it’s best that the claim is reported.
Even in situations when a certain event may not immediately lead to a claim, the insured lawyer or company should still inform the insurance company. For instance, if a law firm didn’t get to join a 3rd party to an action and later on is not allowed to do so anymore, then that may not immediately lead to a claim. However, in the future it may lead to one.
The majority of policies are clear and a large number of insurance companies do not want to negotiate that kind of language. Even in the absence of actual prejudice to the insurance company, strict notice requirements are usually enforceable.
When can a policy be cancelled by the insurance company?
A legal malpractice policy can be easily cancelled for obvious causes by the insurer at any time, with some examples including fraud by the lawyer or law firm on the cancellation of the insured’s license that allows him to practice law.
A policy though can also be cancelled by the insurance company for inadvertent actions. Because of that, as an insured individual or company, it’s important to be aware of the type of notice that an insurer needs to provide before it cancels a malpractice policy.
In some cases, for various reasons, law firms may not be able lot pay the premium on time and depending on the insurance company’s terms of service, they may be able to cancel the policy right away. As a law firm, it’s not recommended to enter into a policy that allows the insurance company to cancel coverage due to failure to pay the premium on time. On top of that, law firms should get coverage from insurers that give them notice in advance.
Those looking to get insurance coverage should carefully analyze the questions in the application. They also need to consult with the lawyers the policy will cover. For instance, one of the most common questions found in policy applications is whether the applicant is aware of potential circumstances that may lead to a claim. If the lawyer who filled the application says no, yet later on a claim is filed against another lawyer in the practice who was aware that a claim may arise at the time the application was completed, the law firm may find itself in the situation of having no coverage for the claim since it was not disclosed. There are cases when the insurance company may even cancel the policy if the law firm was not being totally honest in its answers, even if it was unintentional.
Therefore, it’s highly recommended that you don’t risk coverage by providing partial disclosure of all relevant facts that an insurer needs to be informed of when filling an application.
Are There Coverage Gaps Between Policies?
When planning to make the switch to another malpractice policy, lawyers and law firms need to make sure there aren’t any resulting coverage gaps that may leave them vulnerable. When buying a policy, be sure to check its retroactive dates, but also the reporting date from your old policy. If you want claims to be covered, then they need to be incurred and reported before the expiration of your old policy or after the new policy starts. When buying new insurance, your coverage amount needs to be enough for the claims you incurred under the previous policy, yet possibly reported under the new policy.
When it comes to the options you have for bridging gaps, they include getting an extended reporting period on your old pre-inception date or policy. Depending on the insurer, some may offer free tail coverage which is great, since it simply prolongs the time you can report claims that arise from acts which took place during the older policy’s period. Other carriers though, may charge you extra for this service, so keep that in mind. Based on information from the IRMI, tail coverage only applies for a short period of time, usually 12 months.
Who Can Choose Counsel And Control Settlement Talks?
Whether a lawyer or a firm can control the tactics and strategy use in a legal malpractice suit is highly influenced by a few factors. For instance,
The law firm’s or lawyer’s reputation may be on the line, yet if such provisions aren’t included in their malpractice policy, then they will not be able to choose defense counsel or have the last word on settlement.