Professional Liability Insurance: How much coverage do you need?
By Jack Witherspoon, Senior Associate/Product Manager at AMBA
Over the past few decades, technological advancements have been changing the way law is practiced. While technology makes your job easier in some ways, it also increases the risk of revealing information and creating other potential occurrences that could lead to a lawsuit against you or your firm.
There was a time when attorneys bought a minimal amount of professional liability insurance merely as a precaution, with the belief that they would never really need it. Or, if they did face a malpractice claim, it would be without merit. According to the ABA, however, four out five lawyers will be sued for malpractice at some point in their careers.Those odds are far too great to ignore.
When faced with a claim, you want to make sure you have enough professional liability insurance to protect your firm and both your professional and personal assets. In other words, if you have $1 million in assets, you want to make sure you have enough liability insurance to cover that amount. At the very least, you certainly don’t want to be underinsured. So how do you figure out how much coverage you need?
The simple answer: Buy as much as you can afford.
The amount of coverage you need depends on a variety of factors, including your area of practice, number of associates, and how long you’ve been in practice. Depending on your specific area of expertise, you may be exposed to greater risk than other firms. For instance, if you work with clients in the fields of real estate, commercial business, securities and trusts, and civil litigation, you face a higher probability of incurring a significant financial loss in a malpractice lawsuit.
Also, consider where you practice law and who you represent. If you represent clients in Los Angeles or San Francisco, for instance, they may have significant wealth and higher expectations. An attorney error (real or alleged) in these locations, or with a high-profile client, could result in alleged losses in the millions. The value of a claim is often proportionate to the net worth of the client.
That’s why attorneys and law firms may need more extensive professional liability coverage than other businesses. Insurance carriers typically offer a choice of coverage limits and deductible packages. The minimum coverage limits offered by most carriers are $100,000 per claim and $300,000 annual aggregate. The first number is the maximum amount the insurer will pay per claim during the policy period (usually one year). The second amount is the maximum paid for all claims during the same policy period. The average policy limit for policies we administer starts at $500,000 per claim and $1,000,000 in the aggregate.
An important point to keep in mind: the IRS categorizes Professional Liability insurance premiums as a business expense. That means you can deduct the cost of your premiums on your income tax return.
The right broker can help with your decision.
As is the case with any important purchase, it’s wise to do your due diligence when purchasing professional liability insurance. Start by contacting an experienced insurance professional who understands the product and the legal profession. A professional liability expert can assess your needs and help you find the right coverage based on the size of your firm, number of employees, your firm’s location, and your area of practice. The California Bar partners with AMBA to provide insurance solutions to California attorneys, including professional liability coverage. Please visit https://www.calbarconnect.com/insurance/ and select “Professional Liability Insurance” for more details. Additional options can be found on the State Bar website (http://www.mybarbenefits.com) or your local county bar website.
When shopping for professional liability insurance, make sure you’re comparing apples to apples. Look for insurance plans that have special benefits tailored for the needs of attorneys, such as protection against cyber-crime liability, data breach coverage, and access to free legal research. Be cautious of going with the lowest-priced policy; lower rates may mean higher deductible you must meet before any coverage is afforded and you may also find gaps in coverage compared to other policies. Quality matters when choosing an insurance policy, so it’s important to consider the policy details and services the carrier offers.
For more information on choosing the right policy, see our article, “What Should You Consider When Choosing a Policy?”
Keep in mind: risk management is a critical part of a law firm’s business plan, and the risk of facing a malpractice claim simply cannot be overlooked. Going without insurance — or not having enough — could have significant implications for your practice.
Jack Witherspoon has over 35 years’ of experience in the Professional Liability Insurance marketplace. He has developed his skills as a Carrier Underwriter, Program Manager, and National Sales Manager. Learn more about the State Bar of California Sponsored Professional Liability Program at mybarbenefits.com.