Three Reasons Why Lawyers Don’t Need Insurance
*Spoiler alert: there aren’t any*; every attorney should have lawyer’s professional liability coverage (“LPL”). Unfortunately, many attorneys labor under common misconceptions about the risk of a claim, the cost to defend a claim, and the cost of insurance. It is shocking the number of excuses lawyers create as very weak rationalization for not purchasing LPL coverage. Let’s clear these up so you can make an informed decision about purchasing an LPL policy.
Claims against attorneys are not uncommon, have been increasing steadily over the past several years, and the cost of defending and resolving them has increased significantly. A 2022 survey by insurance broker Ames & Gough illuminates this troubling trend. The report reveals that the largest number of claims were in the practice areas of business transactions, trusts and estates, real estate, corporate and securities, and personal injury. The most common allegations giving rise to claims included conflicts of interest, procedural errors, missed filing deadlines, clerical errors, general negligence, failure to know or apply applicable law, and failure to obtain client consent. Insurers also reported increased defense and indemnity costs.
And this recent survey does not account for State Bar disciplinary proceedings, which occur with much higher frequency than legal malpractice claims. Indeed, 2394 grievances were filed against attorneys in 2021, according to the most recent data published by the State Bar. Approximately seven percent (179) of these cases –twice as many as in 2020– were referred to the State Disciplinary Board for formal investigation, 86 of which resulted in the filing of a Formal Complaint which triggers very expensive public record litigation.
Despite data showing the prevalence of claims, some attorneys struggle to understand the risk of a claim. Even the most experienced attorneys are at risk of having a claim brought against them. Further, claims happen when they are least expected, and without any indication of client dissatisfaction. As attorneys, we sometimes tend to overestimate our ability to mitigate risk and fail to appreciate that claims can arise from circumstances outside of our control. Grievances are a prime example: clients –and indeed any member of the public– can file a grievance regardless of the merits, as there are no consequences or civil remedies for filing a frivolous grievance. In 2022, we defended dozens of lawyer-clients against such frivolous grievances, and since January 1, 2023, our phone lines have been very busy with new lawyer-clients calling for assistance.
The average cost of LPL is $2500-3500 per year, according to ALPS Insurance, a direct writer of legal malpractice insurance in Georgia. In contrast, defending a grievance can easily exceed $15,000. If the grievance is referred to the State Disciplinary Board, the costs can increase exponentially. Defending a legal malpractice case can easily consume $100,000 in discovery costs alone. Clearly, the cost of defending a grievance or claim is far outweighed by the cost of coverage.
There are additional benefits to being insured, in addition to your own peace of mind and financial security. Clients frequently ask whether their attorney is insured; being uninsured places you at a competitive disadvantage. Just as a client wouldn’t hire an uninsured contractor to replace the roof of their home, why would they entrust an uninsured attorney with their legal affairs?
Once you’ve made the decision to purchase coverage (or evaluate existing coverage), you should reach out to an insurance agent or attorney knowledgeable in LPL who can explain the nuances of coverage and help you assess your particular coverage needs, including:
- Coverage for prior acts. The insurer provides coverage retroactively back to a date that is prior to the effective date of the very first policy with the insurer.
- Limits of coverage. Choosing the appropriate amount of coverage is an important decision, as inadequate limits can expose you to personal liability should coverage be exhausted.
- Optional coverages. For example, claim expenses outside limits (“CEOL”), provides additional coverage for claims expenses to help preserve the primary limit of liability. If the claim expense is inside the limits of coverage, then the policy is said to have “eroding coverage” in which the limits of coverage are reduced by the claim expenses. Claim expenses outside of limits will cost a few extra premium dollars for that coverage, but the peace of mind is more than worth the small expense. Another optional coverage is first dollar defense (“FDD”) coverage, which allows you to avoid paying an insurance deductible for frivolous claims for which you have no liability.
- Loss of earnings coverage. Coverage to help pay for specific continuing expenses that are covered under the policy, which could include payroll, taxes or mortgage payments.
- Pre-claims assistance. If you have not received a ‘notice of claim’ but there are circumstances that may give rise to a claim, insurers will often provide some degree of assistance. The scope can range from telephone coaching to payment of reasonable fees, costs and expenses incurred in the investigation of a potential claim.
- Disciplinary coverage: limits and definition of “disciplinary proceeding.” LPL policies typically have a separate sublimit for defense of disciplinary proceedings ranging from $10,000-$50,000. Further, the definition of “disciplinary proceeding” should be carefully scrutinized to make sure it is consistent with the State Bar’s disciplinary process so that coverage is triggered when you need it.
Finally, there are a number of insurers who offer LPL. In choosing an insurer, you should inquire about the insurer’s financial stability, how long they have been writing LPL, and their reputation for claims handling. For a more thorough discussion about what you need to know about LPL coverage, pick up a copy of Minnows and Sharks, Lawyers’ Quick Reference For Reducing Risk and Avoiding Trouble, BookLogix May 2021. Minnows and Sharks is available in paperback on the Chandler Law website: www.chandler-law.net and is also available as an E-Book through Amazon, Apple, and Barnes & Noble.