Attorney errors and omissions insurance is complicated. It requires expertise and experience.
Lawyer’s Professional Liability (LPL) Insurance, also known as Errors and Omissions(E&O) Insurance, is possibly the most critical insurance protection for law firms. This type of insurance provides coverage for claims that arise from “wrongful acts” committed in the rendering of legal services in the lawyer’s capacity. These policies generally offer both indemnification coverage and claim expense coverage.
Insurance premiums continue to rise for law firms. The first signs of changes in the marketplace came back in 2018 when the cost of professional liability started to show an average of 5% increase from the prior year. The increasing expense for litigation and mounting losses created the hard market for attorney errors and omissions insurance.
Some of the most common claims against legal representation include:
- Administrative Errors
- Allegations of Abandoning Representation
- Failure to address the client’s Needs
Regardless of whether you’re a small or mid-sized firm, the lawyers are not immune to disgruntled clients.
As client expectations are increasing and malpractice lawsuits are on the rise, law firms are more exposed than ever before. In the case of a malpractice lawsuit, your firm’s financial security may depend on your insurance protection.
Occurrence vs. Claims-Made
Most commercial business insurance policies are written on an “occurrence” basis, while almost all professional liability policies are on a “claims-made” basis.
So, what’s the difference, and why does it matter?
Claims made policies cover incidents reported during the policy period that arise from acts or omissions occurring on or after what is commonly called a “retroactive” or “prior acts” date.
The trigger for coverage under your claims-made policy is not the event’s happening, but the reporting of the claim or incident arising from that event. The event must have occurred on or after your prior acts date, and the claim or incident must be reported during a policy period.
An occurrence policy provides coverage for alleged incidents (injuries) that happened during the policy year regardless of when the claim is reported to the carrier. The occurrence policy provides a separate coverage limit for each year the policy is in force. The policy does not need to be active to report a claim. It only matters that the policy was active when the alleged incident occurred.
Speaking with an experienced insurance broker will ensure you get the right coverage for your needs.
Key Underwriting Factors
When an insurance company reviews an application, numerous factors contribute to its pricing model.
For LPL insurers, underwriters take into consideration a combination of these elements, including:
- Number of Attorneys – The more attorneys, the more significant potential for a professional liability claim.
- Annual Revenue – Increase in revenue increases the possibility of a claim arising.
- Areas of Practice – Carriers are inclined to offer coverage based on the type of law practice. Certain areas of law are more prone to LPL claims, whereas others are not.
- Mergers and Acquisitions – In recent years, many law firms have merged, causing an increased risk for claims arising from conflicts of interest.
- Jurisdiction – Certain states are more likely to see litigation, higher decisions, and additional expenses.
Insureds should be proactive in reviewing their E&O exposure and existing coverage as they determine the best strategy to address growing cyber vulnerabilities.
When a customer contract requires insurance, all types of insurance (E&O, General Liability, Worker’s Comp, Umbrella, Cyber, etc.) should be specified. Companies should review the limitation of liability and indemnification clauses in their customer contracts, as underwriters are scrutinizing these provisions, (especially as they relate to cyber risk).
Companies should review customer-use policies and guarantees regarding any estimated or guaranteed service availability.
Be Proactive With Your Insurance
Don’t leave your insurance entirely up to the broker. As your renewal date approaches, take these steps to help reduce your costs.
- Start the renewal process 90 days before the renewal
- Examine any open claims. Provide updates with details.
- Be ready to offer details as to COVID-19 impact (if any)
- Discuss marketplace and renewal approached with your broker
- Explore deductible options to offset the increase in premium
- Don’t wait until the last minute
Despite the current climate for law firms, insureds can still keep insurance expenses in-line without jeopardizing protection for the business.
If you have any questions, please contact me here.
Opinions expressed in this article are solely the author’s opinion. Not intended to provide the reader with legal or any other professional advice. Should you need help or opinion, consult with a qualified professional to address your specific needs.