Professional Liability Insurance: What Should You Consider When Choosing a Policy?
By Jack Witherspoon, Senior Associate/Product Manager at AMBA
Choosing a professional liability insurance plan is not something to be done lightly. Making a decision based solely on cost is not always wise. You need to ensure that the coverage is provided by a reliable source — one that will be there when you make a claim — and includes benefits that meet your needs.
Not all insurance companies provide malpractice insurance, and some companies specialize in protecting professionals — including lawyers. There are some important factors to consider when looking for professional liability insurance. Make sure the company you choose is solid on these attributes:
Financial Strength. A.M. Best, the nation’s leading independent insurance company analyst, reviews insurance companies on their financial assets and ability to pay claims. You want to choose a company with an “A” or better rating.
Experience and longevity. It’s advisable to only do business with a company with a proven track record and will be there for you. It’s wise to seek out a company for whom professional liability insurance is a specialty. Ask how many years they have been providing this type of coverage and if they are endorsed by a trusted association or group. In California, many insurance carriers enter the professional liability market for four to five years, then leave policyholders behind once they experience too many claims.
Credentials. Choose an “Admitted” company by the California Department of Insurance (DOI). Admitted status means that the DOI has reviewed and approved the company’s financial strength and underwriting guidelines. If the company is non-admitted, keep in mind that they are exempt from many regulations and the cost of the policy might fluctuate over time.
First step: Get a quote
To receive quotes for professional liability insurance, you must complete an application specific to whichever company you have selected. Be prepared to complete multiple applications if you want to compare the policy details of one company to another. A few points to keep in mind:
- The information you provide will directly impact the cost of the policy. The underwriter will consider several factors — such as the location of your practice and your area of expertise — to determine premiums.
- If you have a website, make sure its content matches what you provide in the application, such as your practice specialty.
- Insurers typically offer various limits of coverage and deductible packages, so it’s wise to compare multiple coverage options. The minimum coverage limit offered by most carriers is $100,000 per claim/$300,000 annual aggregate, but higher limits are available. The average deductible is $5,000.
You’ve received your quote. Now what?
Review the policy for what is and isn’t covered. Start with the “Definitions” section of the policy to explain what types of events and occurrences are covered. Then review the “Exclusions” section to see what is not covered. For instance, many carriers have an exclusion for work involving the Securities and Exchange Commission (SEC), which would be a concern if your firm handles those types of cases.
Also, look for provisions in the policy that work to your advantage, such as a reduced deductible if you agree to arbitration or mediation to resolve a claim. Regarding cost, when you consider the coverage limits of a policy, a reasonable rule of thumb is to buy as much as you can afford.
Another approach would be to consider your worst potential loss, and then buy what you can afford within that coverage limit.
Additional words to the wise.
When shopping for professional liability insurance for yourself or your firm, be aware that there are certain actions or circumstances that are frowned upon by most underwriters:
- Suing clients for fees due
- Having a large percentage of staff-to-attorney ratio
- Being a beneficiary of a trust that you prepared
- Ownership in a client’s company or accepting interest in lieu of fees
To be safe, it is always best to work with an experienced broker that understands this type of insurance and the coverage needs of the legal profession. You can also shop around by looking at bar-association-sponsored professional liability programs.
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.