Malpractice Insurance: A Must-Have For Lawyers?

In the US, there is no blanket law or regulation that requires all lawyers to have malpractice insurance coverage. Instead, insurance requirements for lawyers vary from state to state. While some states don't require lawyers to have any coverage at all, others mandate certain limits depending on their business formation. For example, in Idaho, attorneys must carry limits of $100,000 per occurrence and $300,000 as an annual aggregate. Oregon is the only state in the US to require legal malpractice coverage.

Malpractice insurance requirements vary by state

While there is no blanket law or regulation requiring lawyers across the United States to have malpractice insurance coverage, insurance requirements for lawyers vary from state to state. Oregon is the only state that mandates legal malpractice coverage for all practising lawyers.

Some states require attorneys to notify clients in writing if they do not have malpractice insurance, or if their coverage falls below a certain limit. For example, Alaska, Ohio, and New Hampshire mandate that attorneys must inform clients if their malpractice insurance coverage is less than $100,000 per claim and $300,000 in aggregate.

Some states require attorneys to report whether they carry malpractice insurance coverage. For instance, Colorado, Florida, and Kansas do not require attorneys to carry malpractice insurance but do require them to report whether they carry coverage.

Certain states require attorneys to disclose their malpractice insurance coverage status to the state. For example, Virginia and Delaware require attorneys to notify the state whether they carry malpractice insurance. Virginia makes this information available to the public via the Virginia State Bar website and telephone.

A few states require attorneys to carry certain limits of malpractice insurance coverage. Idaho, for instance, requires attorneys to carry limits of $100,000 per occurrence and $300,000 as an annual aggregate.

Some states do not require attorneys to carry malpractice insurance but do mandate certification of whether insurance is carried or not. For example, Alabama, North Carolina, and Virginia require attorneys to certify whether they carry malpractice insurance coverage.

Other states do not require attorneys to carry malpractice insurance but do require disclosure of coverage status in one form or another. For instance, in some states, attorneys may be required to disclose their coverage status when their annual fees are due. In other states, attorneys may have to notify their clients if they do not carry malpractice insurance coverage or have insurance below a certain liability limit.

Some states require lawyers to disclose their malpractice insurance status

While most states in the US do not require lawyers to carry malpractice insurance, some states do mandate that lawyers disclose their malpractice insurance status to both their clients and the state. This is the case in California, where the Rules of Professional Conduct require lawyers without insurance to disclose this fact to their clients. In Alaska, attorneys must notify clients in writing if they have no malpractice insurance, or if their coverage is less than $100,000 per claim and $300,000 in aggregate. Additionally, Alaska lawyers must inform clients if their insurance coverage is terminated or if it drops below the $100,000/$300,000 levels.

Similarly, in New Hampshire, attorneys must disclose if their firm has no coverage or if coverage falls below $100,000/$300,000. They must also notify clients if their coverage is terminated or drops below these levels. In Ohio, lawyers are required to inform clients if they do not have malpractice insurance and this insurance must be at least $100,000 per occurrence and $300,000 in aggregate.

In Washington, an amendment to RPC 1.4: Communication, approved by the Washington Supreme Court in June 2021, requires lawyers to disclose to clients if they do not meet the minimum levels of malpractice insurance coverage, which is set at $100,000 per occurrence and $300,000 in aggregate. This rule also applies to lawyers with emeritus pro bono status and lawyers permitted to engage in limited practice.

While Texas does not require attorneys to carry or disclose their malpractice insurance status, it does mandate that lawyers who are not appointed by the Federal Government or do not practice federal law must carry malpractice insurance with a minimum coverage of $100,000.

Although most states do not require lawyers to have malpractice insurance, it is still considered an important form of liability coverage for law firms and practicing attorneys. Malpractice insurance can provide valuable protection in the event of claims of malpractice or negligence, which can lead to additional litigation and financial strain.

Some states have brought the issue of malpractice insurance being optional to court

While most states don't require attorneys to have legal malpractice insurance, some states have brought the issue of LPL being optional to court. In the state of Georgia, for example, a PLI committee failed to change the mandate. In the fall of 2021, the State Bar of Georgia's Board of Governors voted to continue to make buying professional liability insurance (PLI) or disclosing that one has it optional. The rationale behind keeping it optional is that people consider it to be an unnecessary cost. However, if one were to find themselves in a malpractice scenario, this perspective might change.

Malpractice insurance is important for lawyers to protect their law firm's financial future

Malpractice Insurance: A Financial Safety Net for Law Firms

Lawyers face multiple risks in their profession, including malpractice claims, which can put their firm's financial future in jeopardy. While not all jurisdictions require lawyers to carry professional liability insurance, it is prudent to have this coverage before accepting clients. This type of insurance is a valuable safety net, protecting law firms from the financial strain of legal expenses and settlements that could otherwise deplete their resources.

The Importance of Malpractice Insurance for Law Firms

The American Bar Association states that four out of five lawyers will face at least one malpractice claim during their careers. With the severity and cost of these claims on the rise, malpractice insurance is an essential safeguard for any law firm. While attorneys can implement risk management strategies and tools to minimize the risk of claims, having insurance provides a critical layer of protection for the firm's financial health.

Protecting the Firm's Financial Future

A malpractice claim, even if successfully defended, can be incredibly costly. Legal expenses and settlements can quickly deplete a law firm's fiscal resources. Malpractice insurance helps to mitigate this financial strain and ensures that the firm can continue serving its clients without significant disruption.

Choosing the Right Provider

When selecting a malpractice insurance provider, it is crucial to find one authorized to provide coverage for claims in your specific state or province. In the US, the American Bar Association's Professional Liability Insurance Directory lists insurers by state. It is also important to carefully review the scope of coverage to avoid gaps in protection. The ABA's "Checklist for Purchasers of Professional Liability Insurance" is a valuable resource for this purpose.

Understanding Coverage Details

The specifics of malpractice insurance coverage can vary, but it typically protects against claims related to missed deadlines, negligence in legal advice, conflicts of interest, communication failures, and breaches of duty. However, standard policies may not cover certain areas, including prior acts, non-firm legal activities, business activities, and cybersecurity. Therefore, it is essential to carefully review the policy to ensure adequate protection.

Cost Considerations

The cost of malpractice insurance for lawyers can vary depending on factors such as firm size, practice area, geographic location, and claims history. It is important to note that the severity of claims will impact insurance rates more than the number of claims. Additionally, experienced lawyers may face higher insurance costs due to their longer case history and increased potential for errors.

In conclusion, malpractice insurance is a critical investment for law firms, providing a financial safeguard against the risks inherent in the legal profession. By choosing the right provider and understanding the coverage details and cost considerations, law firms can protect their financial future and ensure they can continue serving their clients effectively.

Lawyers should carefully choose their malpractice insurance provider

While not all jurisdictions require lawyers to carry professional liability insurance, it is still prudent to have insurance before accepting your first client. In the US, Oregon is the only state that requires legal malpractice coverage. However, even in jurisdictions where it is not mandatory, lawyers without malpractice insurance may be required to notify their clients or regulators. This could impact their ability to retain clients, as potential clients may be hesitant to hire an uninsured lawyer. Additionally, proceeding without insurance puts the financial future of the law firm at risk.

When choosing a malpractice insurance provider, it is important to consider the following:

Find the right legal malpractice insurance provider

Most professional liability insurance providers are jurisdiction-specific. Lawyers need to find an insurer authorized to provide coverage against claims in their state or province. In Canada, each province has its specific legal malpractice insurer. For example, Ontario lawyers are required to purchase legal malpractice insurance from LAWPRO, while British Columbia lawyers purchase from the compulsory Lawyers Insurance Fund.

In the US, lawyers have more choices when selecting attorney malpractice insurance. The American Bar Association (ABA) maintains a Professional Liability Insurance Directory that lets attorneys see insurers that handle malpractice claims available in their state. State, local, and practice area bar associations may also have lists or recommendations for legal malpractice insurance providers. It is recommended to contact at least three carriers to compare costs, deductibles, coverage limits, and other terms.

Choose carefully when applying for legal malpractice insurance

When applying for malpractice insurance, it is important not to submit applications indiscriminately. Many insurers request detailed applications from lawyers, which may become part of the insurance policy contract. Submitting incomplete or hasty applications could result in higher attorney malpractice insurance rates or exclusion of certain activities from future coverage. Therefore, it is advisable to investigate insurers thoroughly and submit applications only to the top contenders.

Know exactly what your legal malpractice insurance policy will cover

When purchasing legal malpractice insurance, it is crucial to understand the specifics of the coverage. While the exact coverage will vary depending on the policy, legal malpractice insurance can generally protect against claims related to missed deadlines, negligence in legal advice, conflicts of interest, failure to communicate, and breach of duty.

However, there are four areas that standard professional liability insurance may not automatically cover:

• Prior acts coverage and tail coverage: Most policies do not cover claims from professional activities undertaken before the current policy period or reported after the policy has expired, unless explicitly stated.
• Non-firm legal activities: Many policies exclude coverage for pro bono or solo volunteer legal work.
• Business activities: Legal malpractice insurers typically do not provide commercial liability insurance, so separate coverage may be needed for risks like workplace injuries.
• Cybersecurity: With the increasing use of technology in law firms, insurers may apportion the risks of data breaches to policyholders. It is important to clarify with insurers what cybersecurity provisions are included in their coverage.

Know when your coverage starts

It is crucial to have a clear understanding of the start date of legal malpractice insurance. Undertaking legal work before the policy start date can expose the law firm to risk if a malpractice claim arises. Therefore, attorneys should wait to enter into an attorney-client relationship until after the insurance policy is signed and active.

Understand the cost of legal malpractice insurance

The cost of legal malpractice insurance can vary depending on several factors, including the firm's geographic location, size, practice area, and claims history. It is important to educate yourself on these factors and their impact on insurance premiums. Additionally, consider the potential impact of extended reporting period coverage and time in practice ("step rating") on the cost of insurance.

Be prepared to handle a legal malpractice insurance claim

When facing a malpractice claim, it is essential to notify your malpractice insurance carrier immediately, regardless of whether you believe the claim is viable. Insurance companies can deny coverage if a claim is not reported in a timely manner. Once notified, the carrier will guide you on the necessary steps to mitigate damages and provide advice on analyzing the situation.

Frequently asked questions