When the Lawyer Gets Sued
Although a legal malpractice lawsuit is hard to win, clients will not hesitate to sue if they feel your service wasn’t up to par. Things like missing filing deadlines, skipping court dates, or making an agreement without client approval can set you up for a professional liability claim.
Even if the accusation has no merit, you will still have to spend time and money defending yourself, your employees and your firm. You will lose billable hours at trial or mediation, and you could incur substantial research and document fees. Remember what Abraham Lincoln said: “The man who represents himself has a fool for a client.”
Lawyers’ professional liability (aka LPL) insurance is written to cover all these loss exposures, keeping your firm’s money available for payroll and everyday expenses.
Customize your policy to meet your firm’s needs
Some insurers offer a broad definition of insured parties, including independent attorneys with whom you may need to contract for certain cases. A policy might also assist with crisis response and coverage for disciplinary proceedings. Your insurance agent or broker can fill you in on all the details, but here are some questions you can ask:
- Is it easy to add new attorneys to the policy?
- Can part-time attorneys be named as insureds?
- Are there restrictions on the types of law practiced, such as tax or patent law?
- Are ancillary services covered, such as service on a board of directors of a professional organization?
- Does the policy cover investigations and subpoenas?
- Is there an extended reporting period for attorneys who leave the firm or die?
- Do defense costs eat away at total coverage, or are they paid outside of the policy limits?
- Can we choose our attorney, or does the insurer make that selection?
Important claims information
LPL policies are written on a claims-made basis, meaning they cover claims that are made while the policy is in force. Some insurers will include coverage for events that occurred before the current policy’s term if:
(a) the policyholder has been insured continuously with the same insurer from the time the claimed event occurred through the time it was reported or
(b) the current policy contains a retroactive date on the declarations page and the claimed event happened on or after that date.
File claims in a timely manner
You will also have responsibilities regarding the timeliness of reporting of claims — even potential claims. Failing to adhere to these deadlines can nullify coverage. A “potential” claim usually consists of your becoming aware of a breach of professional duty, an error or omission, or a failure to render service that resulted in a personal injury (including financial injury) to a client. Many insurers offer a hotline that you can call to figure out what threshold a potential claim should meet to merit reporting to the claims office.
No coverage for dishonest acts
No professional liability contract will cover illegal or dishonest acts. For some of these, such as embezzlement, you might be able to insure your attorneys through a fidelity bond. These protect your firm against acts by an employee such as forgery, theft of client assets, or the illicit transfer of funds.
Coverage exclusions and limits
Be aware that punitive, multiplied and exemplary damages are frequently excluded from LPL coverage. That is especially important these days because of what’s called “social inflation,” which is a trend in court judgments where plaintiffs are awarded massive sums based on the “social justice” inclinations of jury members.
Know that your policy will have per-occurrence limits as well as aggregate limits on how much the insurer will pay out. Sometimes the two are the same, meaning your full amount of coverage is available for a single claim if needed. In other instances, the per-occurrence limit is much lower, so check with your agent or broker about the limits on your policy.
Special extended coverage
A professional liability claim may come in after an attorney has left your firm or has died. It might seem that your firm would face serious losses in these cases, but you can secure coverage for just these circumstances. Many policies already contain language that extends protection for the following:
- Past or present partners
- Managing directors
- Employees of a named insured
- A predecessor business
- A successor business (that was acting on behalf of the named insured during the policy term)
Added protections for covered events
Also included in many lawyers professional liability policies is a clause that protects a deceased insured’s estate, heirs, executors, administrators, and legal representatives in the event of the insured lawyer’s death, incapacity, insolvency or bankruptcy for events otherwise covered by the policy.
Extended reporting period
You can also purchase extended reporting period (ERP), sometimes called “tail” insurance. This protects when claims are reported after a claims-made policy expires as long as the occurrence generating the claim happened while the claims-made policy was in force but before the ERP became effective. Some policies have this built-in; others don’t.
Career coverage
For attorneys who want professional liability insurance that follows them no matter where they work, there is a product called “career coverage.” It may be added to a firm’s policy, or it can be purchased by the attorney as a stand-alone product. It offers protection in case an employer’s policy doesn’t cover the attorney’s prior or future liabilities. These policies are expensive, hard to find, and are rarely purchased by law firms, but for solo practitioners or lawyers concerned that past employers might let coverage lapse, it can be an important product.
Commercial excess liability
One important consideration for your law firm is commercial excess liability insurance. That can be written to add coverage limits that are triggered when the limits of your lawyers professional liability policy are exhausted. This can be a valuable addition to protect against extreme judgments.
LPL won’t cover a data breach
People trust their attorneys with sensitive information, including data storage. Law firms are at risk for cyberattacks like ransomware and malware. If the error or negligence concerns a data breach, you will have to face multiple issues on top of your liability, such as:
- Paying settlements and government fines
- Sending mandatory data breach notices
- Securing and recovering your data
- Hiring a cyber forensics team to determine how the hack occurred
- Paying for required credit monitoring services
- Correcting harm to your firm’s reputation
LPL does not cover cyberattacks. Cyber liability insurance is the go-to policy for a data breach.
Contact your agent
Protect your law firm’s reputation. Call your insurance agent for a comprehensive coverage review.
This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.