For most lawyers, malpractice insurance coverage is something they need but hope to never use.
But JoAnn L. Hathaway, author of "Legal Malpractice Insurance in One Hour for Lawyers," thinks lawyers should be well-informed about their coverage needs and protection.
In her book, Hathaway, Michigan State Bar practice management advisor, licensed insurance agent and registered professional liability underwriter, walks through how to choose deductibles, select the right coverage limit, choose an insurance carrier, learn about the claims process and protect your practice.
Although the 134-page manual is of obvious value to solo and small firm lawyers, Hathaway says it’s just as important for attorneys in large firms. Although large firms typically purchase and choose malpractice policy coverage options for the entire entity, coverage needs in a large firm, with its many departments and practice areas, represent a whole host of varying risks. Accordingly, she says it is imperative that all the firm’s lawyers and staff understand their obligations, risks and coverages under the policy and, if need be, work with the firm to ensure they obtain the coverage they need.
YourABA caught up with Hathaway to find out more about lawyers’ professional liability (LPL) needs.
One of the biggest mistakes is choosing based upon price alone. Pricing should be a factor, but trying to compare quotes from various carriers can be a daunting task, at best, and this is where an experienced insurance broker can help.
Among the factors that influence pricing are policy limits, retentions/deductibles, claims history, geographic location as well as others a carrier may view as either elevating or lowering your risk to them as an insured.
Lawyers can and should expect excellent customer service when shopping for a policy and when dealing with their carrier thereafter. It pays to do some research on a carrier’s reputation before signing on the dotted line. While the research process can be rather subjective and time-consuming, there are resources available to get the answers needed.
When selecting a carrier, a prospective insured should ask about the claims-handling process. Specifically, will they be working with one claims adjuster or with a call center during the claims process? If working with a claims adjuster on a one-on-one basis, is that adjuster local and, if so, will the insured be meeting with the adjuster personally or by telephone?
Some carriers try cases more frequently than others, taking a tough defense stance. Others may settle for nuisance value if provided the opportunity. It is well worth an insured’s time to inquire about claims-handling processes and a carrier’s history.
If malpractice insurance is so important, why does just one state — Oregon — require it?
That is an excellent question. I am not aware of any repository that collects information on the efforts states have undertaken to mandate coverage and, if unsuccessful in their attempts, why this was so. However, I am aware there are currently a few states trying to pass this requirement.
Notably, some courts do require it and some clients will not retain a lawyer or firm until they provide proof of adequate insurance coverage. In addition, some states require that lawyers without coverage place their clients on notice of this.
The ABA Standing Committee on Client Protection has a wonderful table called State Implementation of ABA Model Court Rule on Insurance Disclosure. This valuable resource has captured how the various states have required, reacted to or attempted to require disclosure directly to clients; require disclosure on an annual registration statement; if they are considering adoption of the model rule; if they make information available to the public; and/or how various states have otherwise reacted.
Notably, a recent update to this table reveals that effective Jan. 1, 2018, Idaho licensed lawyers representing private clients must show proof of malpractice insurance.
What are the most important factors in choosing a malpractice insurance carrier?
While there are many, two highly important factors are fully understanding and evaluating the coverage options offered in a carrier’s policy(ies) to make sure an insured’s unique coverage needs are appropriately covered, and ensuring the carrier is financially stable.
What are the highest risk areas of practice, and how can an insurance underwriter help protect lawyers in those fields?
For more than 30 years, the ABA Standing Committee on Lawyers’ Professional Liability has compiled a study called the Profile of Legal Malpractice Claims. Produced every four years, this study provides a panoramic view of malpractice claim trends. The most recent study includes claims statistics from 2012–15. The publication contains a wealth of valuable information, including that the top three highest risk areas of practice are: personal injury – plaintiff, real estate and family law.
Underwriters not only review an applicant’s practice area concentration for risk, but also for type of risk. More specifically, some areas of practice are prone to high claims frequency, with a low severity factor, while others may be considered high severity, but low frequency. Practice area concentration percentages reflected on an application greatly factor into the premium quote.
Underwriters can help protect their insured lawyers by working closely with the insured’s insurance agent to make certain the insured understands their unique risk factors and make recommendations on adequate limits and policy coverage.
Many insurance carriers employ risk managers whose job it is to educate the carrier’s insureds on various risk factors and provide them with resources and knowledge to protect them from becoming a malpractice statistic.
What are the LPL insurance implications when a lawyer leaves, joins or forms a new law firm?
All too frequently attorneys do not consider the insurance implications that arise when they transfer or change firms until after the change is made, at which point it can become much harder for the parties involved to agree on and get appropriate coverage in place.
When attorneys leave firms, coverage usually remains in force for their client representation during the time they were employed by their now-predecessor firm, providing the predecessor firm continues to maintain an insurance policy or purchases an extended report period (ERP) in the event the firm discontinues coverage.
Departing attorneys also have the option of purchasing their own extended reporting period (“tail”) and should carefully consider doing so, especially if they have reason to believe a predecessor firm may not continue to renew its insurance policy, may dissolve or may not purchase an extended reporting period.
Also, when joining new firms, attorneys should make sure they have a full understanding of the insurance coverage that will be afforded to them under the firm’s current insurance policy and also ensure they are added to the policy in a timely manner, pursuant to the policy conditions, which can vary from carrier to carrier.
It is not unusual for members to break away from a firm to form a new firm, or to completely dissolve a firm and start anew. This is where maintaining prior acts coverage can be problematic. Often, a predecessor firm can be included in the new firm’s insurance policy if the new firm has assumed at least 50 percent of the predecessor firm’s assets and liabilities and if at least 50 percent of the attorneys from the predecessor firm become members of the new, successor firm.
How important is it to get cyber-liability coverage?
Law firms routinely handle highly valuable and sensitive information, but often they do not have the sophisticated security in place that other types of businesses do. Accordingly, their defenses are down and they become easy targets.
Lack of knowledge and awareness about the cyber risks and the potential impact of an event has kept many firm managers from purchasing a cyber-liability insurance policy. Many believe they have adequate coverage for cyber risks under their firm’s current insurance policies. However, other policy types with add-on endorsements often offer only a minimal amount of cyber coverage compared to a dedicated cyber-liability insurance policy.
I highly recommend that lawyers work with their insurance agent to review their current insurance coverages to understand what cyber insurance coverage they may (or may not) have and to identify any gaps in coverage.