Abstract

Legal malpractice insurance is a necessity for running your practice, and yet most lawyers dread the task of purchasing lawyers’ professional liability (LPL). This article uncovers why the process for purchasing malpractice coverage is outdated, what options are available, and what you can do to be confident you’ve avoided the major pitfalls and purchased the right insurance to protect your firm. Additional questions and concerns are also addressed.

Why Do Lawyers Hate Insurance?

For as long as it has existed, insurance has been difficult for people to navigate. There is a high cost and lack of transparency involved, making it a time-consuming and confusing process. It requires tedious applications (some take hours) and several days of back and forth fraught with more questions. Only then do you get your quote, and if you want different options, it could be more of the same. For law firms whose time is valuable, you shouldn’t have to waste your time, or your administrators’ time, for the privilege of spending thousands of dollars on insurance you may not even need for the year. 

Adding to the difficulty of purchasing insurance is confusing coverage. A policy will regularly include Insuring Agreements; Conditions; Definitions and Exclusions. Additionally, almost every policy will modify coverage with additional endorsements. While Definitions and Exclusions appear straight-forward, a careful read will uncover exclusions within definitions and clawbacks to certain exclusionary language creating more confusion. Endorsements are added to amend the existing insurance contract in order to modify coverage. This can work towards the benefit or detriment of the law firm and will be issued at the time of purchase, mid-term, or at renewal time.

You might expect to find items excluded or outlined plainly in the Exclusions Section. However, something like Punitive Damages coverage or Investment Advice is often removed from the Definitions Section. Better policies will allow for Punitive Damages where it is insurable, and even allow for most favorable jurisdiction to trigger coverage to the benefit of the policy holder. Other policies may try to exclude investment advice, which should be reviewed with a watchful eye. Some carriers preclude any advice related to investments while others merely try to ensure the law firm is not acting in the capacity of an Investment advisor. These terms and nuances are overly confusing for how they impact your firm. You wind up spending not only money, but also much more time than you should going over policy and application questions. Any good lawyer knows a contract needs to be clear and understandable—but insurance policies are often impossible to understand. Finally, there are many types of coverage out there, making the choices more complicated. The service provider should be doing much more of the work for you.

What Are the Most Common Concerns Lawyers Have When Purchasing Insurance?

Insurance is a peace of mind product. Strong coverage and the ability to make claims—and ideally a painless purchasing process—are some of the most common concerns you may want to address. If the insurance is painful to buy, it’s probably going to be painful to make a claim. The magic combination for most law firms is a broad policy + competitive pricing + good advice + easy to buy. Piece by piece that looks like the following:

A quality policy: A broad policy is one that has your firm and assets covered in a variety of circumstances. Many policies have hidden exclusions and embedded language that allow the carrier to get out of a claim. For example, there are policies which include an exclusion if ever the lawyer was consuming alcohol while providing legal advice, which could occur over a business dinner. While this may be true for low cost providers, quality carriers want you to have comprehensive coverage. This starts with making sure you have a broad policy. You are making a purchase with the expectation that if something goes awry, the policy is there to back you up. You expect to have the carrier backing you up and an excellent defense counsel at your side. You want to be confident you have the right coverage for your firm and staff. 

Competitive pricing: Getting the right insurance is a major concern for most lawyers—and getting it at the right price. Carriers actually maintain very lean margins with key cost factors of a policy being (1) Claims Payments; (2) Distribution Costs (brokers & intermediaries); and (3) Administration (employee salaries, operations). The best ways for carriers to provide a more cost-effective policy can be by reducing costs in one of these categories.

Using outfits that harness technology can also help you achieve cost savings as the technology offsets traditional expensive overhead. If your firm is more complex or has had claims, partnering with an expert broker who can navigate insurance carriers will keep costs down.

Good advice: Ideally, you should have a broker/advisor who can consolidate all of these things and offer you a simplified insurance experience and give you the confidence you’ve bought the right product. Similar to law, insurance brokers run the gamut on expertise. Having a broker/advisor who specializes in law firms will pay off. 

A specialty broker can provide you with substantive policy comparisons, insights on carrier reputation, and advice on navigating claims. That straightforward, simple way of doing business is critical because your time is valuable. 

Easy to buy: Finally, trusting that your broker will get back to you as fast as possible and not waste your time filling out applications or asking more questions should always be part of your insurance relationship. Beyond the annual purchasing, a good broker will help you determine when to report claims, and the impact on your firm for items like new attorneys, practice area changes, or new locations. You are far too busy to chase down answers, and your provider should work for you to get the information you need. Having one resource to manage all of your risk cuts down on the time and effort you need to spend.

How Can Insurance Buying Become Easier?

Law firms can make purchasing LPL incredibly difficult on themselves by involving multiple brokers, completing multiple applications, and comparing multiple quotes. Some firms go through this same painstaking process annually looking for the best option, which rarely works. CEO of Embroker Matt Miller explains,

“Insurance can protect more than 80% of lawyers who end up being sued for malpractice. A poor insurance experience can leave lawyers exposed. Our mission at Embroker is to make it radically simple for lawyers to get the right coverage at the best price. Through a combination of predictive analytics, tech automation, and superior customer service, Embroker can provide lawyers the protection they need in minutes.” 

Find a good advisor/broker. Remember the formula of broad policy + competitive pricing + good advice + easy to buy. The advisor/broker is providing a professional service. If your firm can find someone who specializes in law firms and offers great service, the broker can advise you on a broad policy at a great price. Purchasing insurance from a provider that specializes in law firms will also give you the confidence that you’ve found the right broker.

Further, technology is making its way into law firms and into insurance. Certain providers like Embroker have harnessed technology to achieve this formula. The technology allows law firms to easily purchase and keeps costs down while buying a broad policy and expert advice. Companies like Embroker also provide cost savings for quality firms who use practice management software and adopt quality risk management techniques.

What Types of Coverage Should Lawyers Have?

In addition to LPL, most firms also benefit from other policies that provide coverage and mitigate risk. Worker’s compensation is often a requirement for law firms if you have employees, and you are required to have a business owners’ liability in addition to that. These policies lay the groundwork for basic protection of your law firm. 

Cyber liability Insurance has quickly become a policy most firms view as a requirement.  A few years back, this was predominantly purchased by larger firms only over concerns of data breach or leak of Personally Identifiable Information (PII). As cyber criminals have become more savvy, they can now target professional firms of all sizes with ransomware, extortion, wire fraud, and other tactics. Cyber policies protect you and your law firm against unexpected cyber attacks and exposure which even good lawyering cannot prevent. Some LPL policies have thinly veiled language that sounds like cyber is covered when it really doesn’t do enough. Many experts believe cyber liability policies are actually quite underpriced right now, making it a bargain for law firms. Furthermore, your employees and lawyers who rely on sound firm management may believe it is foolish for your law firm not to have that protection these days.

Employment practices liability insurance (EPLI) is another area of coverage that many firms are unaware of. As a law firm grows, it becomes increasingly difficult to understand the personalities of employees and what they might allege. It is very easy for today’s employees to allege wrongful termination, harassment, toxic work environment, or failure to promote. With strong personalities prevalent at law firms, this usually increases risk. EPLI becomes important as your employee base grows and especially if you operate in employee-friendly states like California. Having an EPLI policy will not only cover you for damages or settlements, but for the legal fees that quickly accumulate if you want to defend yourself from employment claims.

What Questions Should Lawyers Ask About Their Coverage?

When you are ready to purchase malpractice for your firm, overall coverage and limits should always be top of mind. Appropriate limits are determined by the clientele, type of work performed, and your tolerance for risk. When considering how to protect your firm, You should also consider asking the following questions:

1. What is covered by the policy?

2. What is excluded? 

3. What is the quality of the group actually handling the claims?

4. What is the reputation of the provider?

5. How well does the policy stack up in the marketplace?

6. How are prior liabilities covered?

7. Holistically, what risks does your law firm face?

8. How is your firm covered if there is cyber extortion or a faulty wire transfer?

9. How is your firm covered if someone alleges they were fired just before a maternity leave or were harassed by a firm litigator?

10. Will the policy actually respond when I need it to? Or will the insurance company just be going to find a way to deny coverage?

11. What am I actually paying for?

Your broker can help you with all of these questions. Most legal malpractice/professional liability policies out there are fundamentally good. The upper echelon of coverage, however, will provide extra benefits and coverage that are worth making a change for. In addition to the policy, the service you get from the broker is extremely important. You’re buying two things: the insurance policy and the experience from your broker. The insurance policy is merely a contract of a Promise to Pay, and a broker will help you understand the ins and outs of what that insurance will do for you, when to trigger a policy, how to file a claim, mitigate risks, and make the whole process simpler. A good broker will help make your life easier and save you a lot of money in the long run.

How Can Lawyers Be Confident They Have the Best Insurance Policies?

A good service provider will help you understand the best policies for your practice, as well as knowing your limits. You need to think through what could go wrong with your clients and have the right coverage in place. Any scenarios that could lead to a client suing you are areas you want coverage. 

A great way to be confident you’ve chosen the right policies is by trusting your agent or broker with their advice. Or by using a company who carries an excellent reputation for advising lawyers on protecting their risk. Of course you could spend hours reading through the details such as the coverage grant, definitions of “professional services,” and “who is insured,” but that only adds to the complexity. You should also do proper due diligence on the provider and insurance carrier. Low cost options do exist and have had their fair share of problems, which are often uncovered by internet searches.

Conclusion

Depending on your state, there will be different requirements for how you can practice law, and similarly, different LPL requirements. Not all policies will allow you to work in different states, or even have attorneys in different states, which is very outdated. You need a new and modern policy that works for you, not against you. With the right service provider for LPL, you can expect expertise, swift response, and someone to be there anytime you have questions. On top of that, it’s great to have cutting-edge software so that you can access your documents on the go, whenever you quickly need the information. Expertise, time savings, and cost savings should be as valuable to your insurer as they are to you.