FAQs about Limits of Liability

Q: What are my coverage options if I insure with Lawyers Mutual?

A: Lawyers Mutual offers a variety of coverage options:

• $100,000/$300,000
• $250,000/$750,000
• $500,000/$1,000,000
• $1,000,000/$1,000,000
• $1,000,000/$2,000,000
• $2,000,000/$2,000,000
• $2,000,000/$4,000,000
• $3,000,000/$3,000,000
• $3,000,000/$6,000,000
• $4,000,000/$4,000,000
• $4,000,000/$8,000,000
• $5,000,000/$5,000,000
• $5,000,000/$10,000,000

Each coverage option is subject to two limits: (1) a per claim or occurrence limit, and (2) an annual aggregate limit for all claims. For example, with our lowest coverage option, $100,000/$300,000, there is a coverage limit of $100,000 for any one claim and a coverage limit of $300,000 for all claims that may occur during the policy period.

Q:  How do I decide how much coverage the Firm needs to be covered adequately?

A: While you are the one who must determine the liability limits the Firm needs to be covered adequately, we can offer several suggestions that may help in making your decision:

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 your firm’s representations. Consider the potential damage to your firm if a claim arose from your firm’s biggest case. Lawyers often use this worst-case scenario when choosing limits rather than their firm’s average exposure. Risk-averse lawyers often use a multiple of two or three times the highest loss they can anticipate in selecting policy limits.

Determine whether your 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 your 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 lawyerss in your firm.
If personal assets are substantial, higher policy limits may be desirable even though the Firm’s practice has low exposure to malpractice claims.

Consider the number of lawyerss 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 with your docket, work control, conflicts check, filing, and mail handling procedures?
• Have you provided legal advice in a careful, responsive manner?
• What kind of training are you providing to new attorneys in the Firm?

Consider the risk tails that may exist for your 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 a 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 your firm’s malpractice exposure annually.
You should review your exposure well in advance of your 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.