As an attorney, you’re well-versed in how to respond when a client is faced with a lawsuit. But the nature of your work makes you and your firm susceptible to legal actions, too.
For mid-sized law firms, the ability to protect against malpractice claims is essential to running a stable, profitable business. The more you know about professional liability insurance, the better equipped you’ll be to reduce your risk by obtaining the best coverage for your firm’s needs.
The Basics on Lawyers’ Professional Liability (LPL)
In the process of providing legal services to a client, it’s possible that an individual attorney or the firm overall may make an error or omission that results in negative consequences for the client. Here are some common issues that can trigger a legal action:
- The attorney misses an important deadline, such as a tax filing date, causing the client to incur financial penalties.
- The client doesn’t feel they received sufficient value for the legal fees they paid, perhaps because they’re unhappy with the outcome of the case or matter.
- The firm experiences a cybersecurity breach and client data is exposed.
- A newly hired partner claims to have expertise in a particular area of the law but does not, resulting in a negative outcome for the client.
- An attorney fails to bring in a relevant expert to support the client’s legal defense, jeopardizing the case outcome.
- A junior-level associate isn’t properly supervised by a more experienced attorney and makes an error that proves material to the case
In instances like these, the client involved might file a lawsuit against the firm and/or the individual attorney. LPL insurance is designed to protect the firm and its attorneys against such claims of negligence, errors, or omissions that cause another person financial loss or other harm.
Why Your Firm Could Be at Risk
While claims of malpractice or negligence can happen in any area of the law, certain practice areas are more prone to these lawsuits due to the nature of the work.
Trust and estate work is one such example. If a mid-sized law firm finds itself handling an especially large estate, the family might dispute how the funds changed hands, particularly since large sums are at stake. Difficult economic times also tend to spur more scrutiny about how an estate or trust was handled, making the firm more susceptible to a lawsuit
The lateral hiring trend is another factor that can raise your firm’s risk of a professional liability claim. If you recruit an associate from another firm, there is only so much vetting you can do to ensure they have the capabilities and expertise they profess to have. If the associate overstates their credentials and their actions cause your client harm, the firm could be exposed to a malpractice claim.
The growing threat of cybersecurity attacks also can increase your law firm’s risk of a lawsuit. The more creative hackers become, the more challenging it is to protect against cybersecurity threats. That’s especially true for mid-sized law firms that don’t have the same resources to devote to cybersecurity controls and protections as the largest firms. If a cyberattack exposes client data, you could face a malpractice claim for failing to adequately secure that data.
How Premiums and Capacity Are Trending
While a mid-sized law firm is less likely to face a nuclear judgement of many millions of dollars, the size of the award or settlement is often less of a factor than the frequency of these lawsuits. The pandemic caused a spike in liability claims across many professions—especially related to employment matters such as claims of wrongful termination or failure to provide a safe work environment. However, the frequency of LPL liability claims has begun to trend the other way, helping to keep premiums in check.
In fact, though rate increases have been quite high for some coverages over the last year, that is not the case for LPL insurance. Renewal premium increases are averaging 5-7% and we expect that figure to stay fairly constant in the short term.
Another positive for insureds is the fact that there are now more options for obtaining this coverage thanks to several new entrants into the market. While it was difficult to obtain LPL insurance at one time, an increase in the number of carriers means there is more capacity and more competition to keep rates stable.
Considerations for Securing This Critical Coverage
When you’re ready to purchase a new LPL policy or it’s time to renew, one of the most important considerations is determining how much coverage you need. Several factors can come into play when choosing the right policy limit for your firm:
- A client might require the firm to carry certain liability policy limits.
- If the managing partners are risk-averse, they might prefer higher limits.
- Certain practice areas, like trusts and estates or class action suits, bring exposure to larger awards, which means you’ll likely want more coverage.
- If the states you operate in are plaintiff-friendly, your firm will be at greater risk of a malpractice claim with an unfavorable outcome, suggesting you need higher limits.
Obtaining a policy with high limits isn’t a straightforward exercise, though, since most primary insurance carriers aren’t willing to offer more than $5 million in coverage. If you determine you should carry limits beyond that threshold, you’ll need to obtain excess liability insurance to cover the difference.
Unfortunately, excess liability premiums are being driven up by escalating settlement and judgment amounts. The larger the award, the more likely it will exceed the primary insurance policy limit and require a payout by the excess carrier (what is often called “piercing the excess layer”). With excess carriers paying more claims, they’re increasing their premiums to compensate for their higher costs.
Turn to the Experts at B. F. Saul Insurance
The liability insurance professionals at B. F. Saul Insurance recognize how important it is to protect your attorneys individually and your law firm overall from claims of negligence, errors, or omissions. We’ve been helping law firms obtain the right professional liability coverage for over five decades.
We start by assessing your law firms’ risk exposure, through a series of targeted questions that help us determine the likelihood you’ll face a professional liability lawsuit and the expected severity. Then we use benchmarking and other methods to determine how much protection you need.
We can also leverage our experience in this field to recommend risk management approaches that will mitigate or reduce your exposure, including best practices for your everyday operations. And if you’re hit with a professional liability claim, our in-house counsel will advocate for you with the carrier to help you achieve the best outcome. To protect your firm against claims of negligence, errors, or omissions, contact the LPL specialists at B. F. Saul Insurance.
In order to bring the best content to our readers, we feature various writers from within B.F. Saul who have advanced expertise in key, niche areas of insurance. This is an article by featured writer, Erik Bohn, B.F. Saul Insurance's Vice President, Commercial Lines practice.
Erik is responsible for leading client relationships, business development and overall client service delivery. He specializes in coverage and risk management issues for commercial real estate, non-profit organizations and personal lines for successful families.