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Law Firms get very comfortable with their attorney malpractice insurance carrier.  Many firms have never had a claim or even the need to report an incident.  So how do you know that you have the most cost effective insurance policy for your firm?  Cheaper is not always better.  No two lawyers professional liability insurance policies are the same.  Saving dollars up front may cost the firm with an uninsured loss.  But you could be paying thousands of dollars more they you should and not even have the right coverage.  So what should you look for in a policy?  

 

Choosing lawyers professional liability insurance is one of the most important decisions you can make for your law firm. The following are some helpful tips:

 

1 Evaluate the whole program

Keep in mind the malpractice insurance carrier is a very important piece, but not the only piece. You need to evaluate the entire program. Coverage and price aside are not the only consideration.  Make sure to consider the insurance broker’s and insurance carrier’s track record, stability, risk control programs and long-term commitment.

 

2 Determine Carrier Structure / Assess the financial stability / A.M. Best Rating

You are buying “sleep insurance”.  The trick to sleeping well is to be assured about the insurance malpractice carriers continued ability to pay claims.  You can ask your broker for an AM Best Report that shows the size of the carrier and AM Best Rating.  This is a very important 1st step. 

 

The form and structure of the carrier can also cause you to lose sleep if you do not understand if the carrier is truly a carrier.  The basic forms of carriers (entities) are:

a.     Admitted Insurance Carriers—Rates and forms are filed with each state.  If you have a claim problem, the State Insurance Department to help resolved.  These carriers are backed by the State Guarantee Fund.

b.    Non-Admitted (Surplus Lines) Carriers—Do not file rates and forms with each state, not backed by the State Guarantee Fund and State Insurance Departments will not be able to assist with a claims issue.

c.     Risk Purchasing Group (RPG)—Program business that requires that the law firm join the RPG to gain access to the program.  An RPG has either an admitted or non-admitted insurance carrier that actually issues the insurance coverage and pays claims.

d.    Risk Retention Group (RRG)—Rates and forms are not filed with the state.  An RRG relies heavily on reinsurance contracts.  If the reinsurance contracts are not maintained, the RRG can disappear without warning.  This makes RRG’s the most unstable of the 4 basic forms of insurance carriers.  RRG’s have gone suddenly out of business in the past and history is likely to repeat. There are no AM Best Reports but you can get a Demotech Report.

 

3 Consider the agent or brokers relative experience and certifications

Is the broker or agent an insurance generalist? Or is the broker a specialist immersed in serving the lawyers malpractice insurance? What are they doing to stay involved in the legal community?  Do they stay current with the comings and goings of insurance carriers and insurance programs? Can the broker actually work with the firm to explain the advantages or pitfalls of different policies and carriers?  What is the educational level of the agent?  Does the agent have advanced certifications or degrees? 

 

4 Look for a commitment of malpractice insurance carriers

With claims-made coverage business its easy for new malpractice insurance carriers to enter and leave the marketplace. Many new carriers target specific insurance markets to collect as much premium as possible. Theyll write business until the claims start coming in and then leave law firm high and dry.

 

Beyond the A.M. Best rating and structure, research the carriers track record and length of time in the lawyers professional liability insurance business. Is this company going to be around when the going gets tough?  Many financially strong carriers have a history of withdrawing from markets with the going gets tough.  For a few law firms the carrier withdrawal is exactly the wrong time, costing the firm thousands of dollars in additional premiums.

 

What is the carrier’s claims philosophy?  Do they fight to the death or do they settle without a fight.  Does the carrier have specialized knowledge of attorney malpractice claims? Or, is the person handling a law firm’s’ claim a generalist handling other claims such as homeowners, personal auto or other types of malpractice claims.

 

5 Weigh Your Options from a Relevant Coverage Standpoint

The policy needs to fit the needs of your law firm based on your areas of practice and other relationships. Does it match up with the specific exposures you face? Does the carrier or agent offer other needed coverages such as Crime Insurance or Cyber/Data Breach Coverage that you likely need?  If you firm has directorships or outside business interests, what impact do these items have on the coverage?

 

The devil truly is in the details. With no standard policy a thorough reading of the policy definitions and exclusions is necessary.  Law firms are surprised to find that a key part of their legal work is excluded from coverage because of how legal services are defined in the policy.  Sometimes the firm has gone years without knowing that this issue exists with their coverage. 

 

6.   Seek Out a Trusted Advisor

Even though you are concerned about the stability of the malpractice insurance carrier, the agent can be a very important component.  An independent insurance agent/broker can provide addition insight as to which carrier best fits your needs and maybe it is time to change carriers.  Some agencies have outlasted most lawyers professional liability insurance carriers comings and goings. These are the insurance agencies that will be there is good times and in bad.

 

7 Allow time to make your decision

Making this decision on the 11th hour of the 11th day does not always result in the best decision.  It is important to take the proper time to complete all of the needed information for the application process and to make sure that the underwriter is as comfortable with you as you are with the carrier.  Last minute surprises can be expensive.  Surprises can cause premiums to change and coverage to be declined.

 

Don’t be fooled into saving a few dollars only to find that you have given up benefits or coverage that could cost thousands of dollars later.  But also do not assume that the malpractice insurance carrier that you have been with for years is your best most economically and best fit.  It pays to look around, just pay attention to the details.

 

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