Before beginning the application process for professional liability insurance consider the following factors:
- Consider the monetary values of matters handled by the Firm.
Average dollar value can be misleading because there is no guarantee that a loss won’t exceed the average value of the Firm’s representations. Consider the potential damage to the Firm if a claim arose from the Firm’s biggest case. Lawyers often use this worst-case scenario when choosing limits rather than the Firm’s average exposure. Risk-averse lawyers and/or firms often use a multiple of two or three times the highest loss they can anticipate in selecting policy limits.
- Determine whether the Firm's practice concentrates in areas of law that have a high frequency of claims.
Loss experience studies identify plaintiff’s personal injury cases and real estate matters as the areas with the highest frequency of claims. Practice areas with high but somewhat lower claims probability include business transactions, family law, collection and bankruptcy, and estate planning. All other areas have relatively low claim probabilities. In Kentucky, we are seeing an increase in bankruptcy, workers’ compensation, family law, and estate and probate claims. Note that over-diversifying the practice in a number of relatively claims-free areas may result in a greater malpractice exposure than concentrating in areas with higher claims frequencies.
- Take into consideration the personal assets of the lawyers in the Firm.
If personal assets are substantial, higher policy limits may be desirable even though the Firm’s practice has low exposure to malpracticeclaims.
- Consider the number of lawyers to be covered under the policy. Frequency of claims increases in direct proportion to increases in the number of lawyers in the Firm.
- Evaluate the Firm’s attitude toward risk.
- Does the Firm have an active risk management program?
- Are you confident in the docket, work control, conflicts check, filing, and mail handling procedures?
- Has legal advice been provided in a careful, responsive manner?
- What kind of training is provided to new attorneys in the Firm?
- Consider the risk tails that may exist for the Firm’s areas of practice. The risk tail is the time between an occurrence and the claim arising from it. For example, real estate claims often have long risk tails because errors are typically not discovered until the properties are resold, which could be a number of years later. Similarly, estate and probate claims have long risk tails. A long risk tail means that claims are more costly because of inflation. In these circumstances, higher insurance limits are warranted for inflation protection.
- Keep in mind that defense and other claims costs are included in the limits of coverage in many lawyer liability policies, including ours. Defense costs vary with each claim depending upon the complexity of the claim. These costs can erode policy limits substantially before a claim is finally paid. In choosing policy limits, consider both indemnity and defense expense.
- Understand the requirements of a claims-made and reported policy, the policy form used by virtually all providers of lawyers liability insurance and the one we use. “Claims-made” means that the limits in effect at the time the malpractice claim is first made against the lawyer covers that claim -- not the policy and limits in effect at the time of the conduct giving rise to the claim. Increasing limits as the Firm’s malpractice exposure grows over the years should be considered to protect against several claims from prior years’ representations being asserted in the current policy year.
- Review the Firm’s malpractice exposure annually, by reviewing the exposure well in advance of the policy’s renewal date. Compare the cost of the limits option you think you should have with the next highest option, and evaluate the cost of a lower versus a higher deductible.
- Deductible Options: When choosing a deductible decide how much risk the Firm is willing to assume. Assuming more risk reduces the premium charged. Lawyers Mutual offers a range of deductibles from $1,000 to $100,000. Additionally, we offer two different deductible options:
- Per-claim – The deductible applies to each claim asserted during the policy period.
- Aggregate – This caps your deductible for all claims asserted during the policy period. The entire aggregate could be applied to the first claim.
Lawyers Mutual Insurance Company of Kentucky
323 W. Main Street, Suite 600
Louisville, KY 40202
Questions? Call us at 1-800-800-6101 or 1-502-568-6100