FAQ’s on Malpractice Insurance for the New or Suddenly Solo Attorney

DISCLAIMER: Nothing in this FAQ is intended to be legal advice, or is intended to apply to all circumstances. Every situation is unique and requires an individualized analysis and approach.

Are there areas of practice that are generally riskier than others?

Yes. Some of the higher risk areas may include transactions involving securities, intellectual property, trusts and estates, plaintiff’s personal injury cases, and newly emerging areas such as loan modifications. In the intellectual property area, most carriers consider patent work a high risk area of practice, but, when considering an application for insurance, will take into consideration the percentage of time devoted to the patent work, the level of experience, and the risk management procedures in place. In the trusts and estates area, there may be more risk because under certain circumstances non-client beneficiaries have standing to sue for malpractice, and the statute of limitations may not begin running until the death of the client, which could be many years after the estate plan was prepared. With regard to plaintiff’s personal injury cases, the risk comes from failing to properly calendar deadlines and /or accepting clients who have unrealistic expectations about the value of the case. In the area of loan modifications, the potentially high volume clientele and heavy governmental regulation makes it higher risk.

How do I find legal malpractice insurance?

Legal malpractice insurers are licensed by the insurance regulating authority in each state in which they write coverage. One source of information on the carriers that write legal malpractice insurance in the state where you primarily practice is the Insurance Information section of the website of the  ABA Standing Committee on Lawyers’ Professional Liability.

The web resource includes a non-exhaustive directory of “admitted” carriers by state. Each company name in the directory is a link that will take you to a description of essential features of that company’s standard policy features, including the size of firms covered, coverage limits, and other coverage terms. If you are part of, or plan to start, a solo or small-firm practice, look for those companies indicating they write for firms with as few as one lawyer. The Insurance Information web resource also contains helpful resources you may wish to review before shopping for insurance, such as the “Checklist for Purchasers,” and articles on “Costs” and “Coverage Gaps”. When shopping for legal malpractice insurance, it is good to contact at least three carriers, in or to compare costs, deductibles, coverage limits (per claim and aggregate), other coverage terms.

If you are in the market for legal malpractice insurance for the first time, you may want to check with your state insurance regulating agency to ensure that a particular carrier remains in good standing in your state.

Do I need an agent or broker to purchase malpractice insurance?

It depends. While many insurers are happy to work directly with attorneys, others will only accept business through an agent. The key is finding the right coverage and the right company for you.

I am only working part time. Can I still get legal malpractice coverage, and what is the difference from full time coverage?

Most carriers do provide some form of coverage for part time attorneys, but some may exclude certain areas of practice, or require other restrictions or limitations by endorsement.

How much insurance do I need?

This is different for every lawyer and is dependent upon the number and types of cases you handle, and the potential amount of damages and defense costs should a claim arise. A consideration is the nature and extent of both your business and personal assets, since, if you are liable for malpractice, your personal assets are potentially subject to collection under a judgment.

Another consideration in determining your appropriate limit is whether you want a per claim limit for a given policy period for multiple claims. One policy, for example, may have a $1M/$1M limit, meaning you have $1 million per claim, and $1 million in the aggregate, available to you for claims made within that policy period. Another policy may have $1M/$3M, meaning you have $1M per claim for the policy period. If you have three claims in a policy period, $1 million is available for each, for example. While it would be a unique circumstance where you get sued three times in one year, it does happen.

Finally, keep in mind that almost all malpractice policies “deplete,” meaning the fees and costs for your defense are paid from the limit available for the claim. If you have a very low limit ($100,000, for example), then it may be possible that you do not even have enough available to defend the case through trial (leaving nothing left to satisfy a potential judgment).

I recently accepted a job as in house counsel for a small start up company. Do I need malpractice insurance if I only have this one client?

There are special policies available for in house counsel. You can explore the different options with your employer and/or a professional liability insurer or broker. This coverage is generally called “Employed Lawyers Coverage” and may or may not cover moonlighting and/or pro bono work.

What is a “retro date,” and why is it important to me?

While your policy is “claims made,” it will usually specify the date after which the allegedly negligent act must have occurred. For example, your policy period may be 8/15/2009-8/15/2010, with a retro date on 1/1/2003. This means the claim must be made against you between 8/15/2009-8/15/2010, and that the acts complained of (missing a statute of limitations, for example) must have occurred on or after 1/1/2003. If it did not, then you may not have coverage. The “retro date” should, as if possible, extend back to the date you began practicing as an attorney, but at a minimum cover the entire time period of your work at your current firm. Coverage for work done while employed at a prior law firm is discussed in an earlier question and answer.

Do all insurance policies define "legal services" or "professional services" the same way? Why do I care?

The definitions differ from policy to policy, so you should review your policy to ascertain the exact language. This is important because the way these terms are defined will, at least in part, determine the scope of your coverage. You want to make sure that whatever it is you do at your firm, in terms of providing services to clients, falls within the definition.

This application for malpractice asks me if I am aware of any potential claims. One of my clients wrote me a letter saying I screwed something up, but he hasn’t filed a lawsuit or demanded money. Do I need to disclose that?

It is extremely important to be as candid and truthful as possible on the application, and answer the questions asked. The failure to do so could have serious consequences, such as denial of a claim. If there is a question that asks if there is a potential for a claim, or facts and circumstances that could give rise to the claim, then disclosure should be made. This situation may also give rise to a duty to report under the policy currently in place.

I just learned that I missed the statute of limitations for a client. I told him about it, and he says he does not want to sue me. Do I still need to tell my malpractice carrier?

All policies have a section that discuss what you need to report to the insurer and when. These “reporting provisions” differ from policy to policy, but virtually all require immediate reporting when a client or former client makes a demand for money, or files a proceeding against you. Other policies may require reporting when you become aware of facts which may reasonably give rise to a future claim against you. The consequences of not reporting a potential claim or claim under the reporting requirements within the policy period can be severe and ultimately lead to a denial of coverage if you need it later. It is very common for a law firm to be threatened by a client with a malpractice lawsuit, and report the threat to the carrier, but not be sued until a year later. In that case, the later lawsuit is likely covered under the policy under which the initial report of claim or potential claim was made.

If an attorney in my firm does something wrong but fails to report it and I didn’t know anything about it, am I covered?

Most policies provide “innocent insured” coverage that may give some protection. However, reporting requirements and other conditions vary among policies, so you should read your policy carefully.

What do I need to worry about in terms of malpractice coverage if I leave a law firm, and open my own shop?

You are generally covered for the work you did at the law firm under the law firm’s policy, even if the malpractice claim is not made until after you have left the firm, since most policies are “claims made.” This means that the policy that covers the alleged negligent act is the one in place at the time the claim is made, not the one in place at the time of the allegedly negligent work. However, if your prior firm dissolves or ceases carrying coverage, you would no longer have coverage for your acts at the firm (prior acts coverage). In that circumstance, you should explore purchasing Extended Reporting Coverage, otherwise known as “tail coverage” for the work done at the prior firm.

Do all policies cover pro bono work?

If your pro bono work is done under the purview of your firm (the named insured), it is most likely covered. If it is your own law firm, check at the time you are considering purchasing the policy. If you are an employee at a firm, consult with the managing partner on the firm’s policy on pro bono work, and confirm there is coverage for your activities under the firm’s existing policy. Sometimes pro bono work may also be covered under a policy purchased by the pro bono organization (a volunteer lawyer society or a bar association, for example).

I work for a law firm, but moonlight on the side. Does the law firm’s malpractice policy cover me for this?

It may not, since work done for someone other than the law firm (the named insured) may fall outside the parameters of coverage. You should check with your law firm as to whether its policies allow moonlighting; if so, under what circumstances; and to what extent the firm’s policy provides any protection. In the event it does not, you may need to purchase your own policy for this separate work.

I am recently associated with another firm as “of counsel.” Am I protected by that firm’s policy?

This is a circumstance where you would need to check the explicit language of the policy. You should specifically examine the definition of “named insured” and the definition of “professional services.” Do not assume coverage.

I am doing “contract work” for a big firm. I am paid hourly for working on their cases. Does their policy cover me in this instance?

This is a circumstance where you would need to check the explicit language of the policy. You should specifically examine the definition of “named insured” and the definition of “professional services.” Do not assume coverage.

I am an attorney, but I am also licensed as a real estate broker. If I complete a sale under my broker’s license, and the client sues me, will my attorney malpractice policy cover me?

If you are intending on providing services under another license, you should check with your insurance carrier to see if your acts as a real estate broker are covered. You should not assume that your lawyers’ professional liability policy covers you for work done under another license, even if that other work could also be considered the practice of law.

Do most policies provide coverage if I am a mediator or arbitrator?

Many legal professional liability policies do provide coverage for an attorney’s services as a mediator or arbitrator, but the answer is dependent on the specific language of the policy in question. The answer can generally be found in the section defining “legal services” or “professional services”.

Do most policies cover the legal work I do for companies for which I am also aboard member or officer?

The answer to this question is dependent on the language of the policy in question. The nature of the claim asserted (i.e, whether the claim is related to your actions as board member or officer as contrasted to mere legal services provided to the entity as an attorney) will also be important. The key language of the applicable policy is often contained in the business entity/capacity and business ownership exclusions of the policy.

What risk management issues in particular face a new or recently solo attorney?

This topic goes well beyond this FAQ, but all attorneys should always be focusing on risk management in their practices. Many malpractice insurers in fact offer risk management resources (hotlines, seminar, newsletters) to their insureds. Take advantage of these if offered.