All Lawyers Professional Liability Insurance Insuring agreements are not created equally. The insuring agreement which also may be given other headings such as “defense and settlement” or by another name the plus additional coverages provided will tell you what the attorney malpractice policy is intended to provide coverage. The items to look for in an insuring agreement:
1. Is the policy a duty to defend or reimbursement policy? Although almost all admitted attorney malpractice insurance policies are a duty to defend policy. There are some policies, particularly with the non-admitted carriers, that are reimbursement policies. There are places for a reimbursement attorney malpractice policy. This is particularly true for many larger firms and other firms with high deductibles in areas of practice that have frequent small claims or incidents that can be settled within the deductible. In these situations managing the defense costs and settlement costs inside the deductible helps the firm maintain a lower overall attorney malpractice cost. For those firms that are not prepared to foot the bill for a large deductible a duty to defend policy makes more sense. With a duty to defend policy the insurance carrier is required to provide a defense up until the time coverage is determined to not exist; or the cost of defense have exceed the applicable policy limits or the claims is settled. This is an important distinction as with a reimbursement policy the law firm must provide its own defense and foot the bill “up front”. With a reimbursement policy the only costs that will be reimbursed are for those after coverage is determined to exist. Which is right a law firm is a matter of preference, but the firm should know what they have. It should also be noted that with some insurance malpractice carriers, the policy may be a duty to defend, but the additional coverages may be a reimbursement policy.
2. Is there a “consent to settle clause”? If so, is there any penalty for withholding consent (Hammer Clause)? Most professional liability insurance policies give the right to approve settlement to the insured. In most cases the insured will want settle the matter and move on. But there are occasions where the insured may not want to settle. If the insured does not want to settle it is important to understand the consequences of that decision. Many “consent to settle clauses” state that if the insured does not settle when the insurance carrier could have, any additional expenses for defense and indemnity are the responsibility of the insured (The Hammer Clause). Some “consent to settle clauses” provide a for the insured to refuse to settle and force the carrier to continue the defense, until limits are exhausted without additional liability to the insured. Some have some sort of mediation of the right to “consent to settle”. As to which insuring agreement is right for which a law firm is up to the law firm. What is important is for the firm to know what they have.
3. Are there additional coverages included, either in the insuring agreement or a separate additional coverage section such as disciplinary coverage, regulatory agencies inquiries or loss of earnings payments? Generally the additional coverages cannot be endorsed to higher limits The additional coverages normally are not subject to the deductible. Some of the addition coverages are:
a. Disciplinary coverage for regulatory agencies or government entities: These coverages are almost always defense only coverages. While these limits may seem unimportant, one carrier that has a $100,000 additional coverage limit for this exposure reports that the average cost of defense is around $20,000 to $25,000. If the policy has an additional limit of only $10,000 for this coverage, then it is likely too low. Some policies also only offer reimbursement of defense costs if the attorney or firm is found “innocent”. Many non-admitted policies provide no coverage for this exposure.
b. Another additional coverage is “loss of earning” for the time spent in assisting the insurance carrier provides a defense for the attorney or firm.
c. Subpoena Assistance is another coverage that might be available helping the insured respond to a request for information.
Let L Squared Insurance Agency work with you to find the proper Attorney Malpractice coverages at a competitive price.