Law firm executives are no strangers to the importance of insurance in protecting your assets and mitigating risks. And while no one particularly enjoys paying for insurance, it only takes a single loss to illustrate why having appropriate coverage is critical to protect your firm.
The coverage you need goes beyond the obvious area of malpractice insurance. Read on to learn how the risk landscape has changed for law firms, the kinds of coverage your firm is likely to need, and common misconceptions that can keep your firm from being protected properly.
The Evolving Risk Landscape for Law Firms
Two decades ago, law firms primarily focused on malpractice (E&O) coverage and basic property policies. However, the world has changed dramatically since then. Today, our society is more litigious than ever, with settlements and jury awards reaching unprecedented heights. Law firms now face a broader spectrum of risks that go well beyond malpractice and negligence claims.
For instance, movements of all kinds have heightened awareness of social issues and the demand for social justice. In turn, businesses are finding that through the normal course of operations, they might unwittingly raise their liability exposure. Even a cyberattack can trigger liability claims by your clients. In this evolving world, law firms must expand their understanding of risk and insurance to protect their assets effectively.
Key Coverages for Law Firms to Consider
- Employment Practices Liability (EPL): Many law firms believe they're immune to allegations like wrongful termination, hiring discrimination, or sexual harassment. However, EEOC reported a 20% increase in discrimination charges in 2022 over the prior year. No matter how well-documented your policies and procedures, and no matter how much training you provide your employees, employment practices liability (EPL) claims can and do happen.
- Cybersecurity Insurance: Cyberattacks are a significant threat to law firms, and human error is often the leading cause of data breaches. Every law firm can be a potential target for cybercriminals, especially due to the sensitive nature of much of its data. This coverage is not just about protecting data but also meeting contractual requirements imposed by clients and prospects.
- Crime Policy: Most companies want to trust that their employees would not steal from the business, but it happens more often than you might imagine. Financial crime can also originate from outside the organization, and even when the incident occurs online, it is not always fully protected by a cyber insurance policy.
- Commercial Umbrella Liability: While primary errors & omissions (E&O) / malpractice insurance is a necessity, it might not be enough in cases of substantial claims. A commercial umbrella liability policy provides an additional layer of protection, which can be crucial for law firms handling large cases and settlements.
- Commercial Auto: Even if your law firm doesn't own company vehicles, you may still need commercial auto insurance. Accidents that occur while employees are conducting business can expose your firm to liability.
- Property Insurance: Basic property policies might not fully meet your lease requirements or protect against the downstream effects of property loss. Subleasing or business interruptions can also have unexpected consequences that require additional coverage.
- Fiduciary Liability: Offering retirement plans for your employees can expose your firm to lawsuits. Fiduciary liability insurance can protect your firm from claims related to mismanagement of such plans.
- Directors and Officers (D&O) Insurance: No law firm wants to believe its partners could end up in a dispute that escalates to a lawsuit, and no firm expects its highly experienced leaders to engage in mismanagement that runs afoul of the law. But as many firms have learned, various incidents can trigger legal action against the directors or officers, and sometimes they originate from internal sources.
Our Comprehensive Guide Can Help You Manage Your Law Firm’s Risk
Protecting your law firm from risks and liabilities is a multi-faceted endeavor. Our Law Firm’s Guide to Protecting Assets and Mitigating Risk will equip you with the knowledge and insights needed to make informed decisions about your firm's insurance coverage. It provides in-depth examples of each of the coverages above and covers some common insurance pitfalls law firms need to avoid. If you're ready to dive deeper, download the guide now.