AIG (National Union) Choosing the Right Attorney Malpractice Insurance Deductible for You
Selecting the right deductible option is a strategic decision that balances risk and financial planning. It’s not just about current needs but also about anticipating future scenarios. The deductible amount sometimes called a retention amount makes up part of the exposure for the firm.
Factors to Consider When Choosing a Deductible Option:
- Financial Stability: Assess your firm’s ability to handle out-of-pocket expenses associated with higher deductibles.
- Claims History: A firm with few or no past claims might opt for higher deductibles to reduce premiums.
- Risk Tolerance: Consider how much financial risk you’re willing to assume versus paying higher premiums.
- Practice Area: Certain legal specializations carry higher risk, influencing deductible choices.
- Firm Size: Larger firms may face more claims, making aggregate deductibles more appealing.
AIG offers the Following Deductible options:
- Per Claim Deductible—the firm is responsible for the deductible on each LPL claim. The policy premium is usually less than any other option. Certain practice areas or firm practices may tend to develop multiple claims in a policy year. A per claim deductible can increase the financial risk to the firm.
- Annual Aggregate Deductible—this limits the firm’s deducible cost to the amount listed as the aggregate deductible. A cap is set on the total deductible amount the firm pays within a policy period. No further deductibles apply for that period once you reach the cap. Aggregate deductibles likely increases the premium.
- 1st Dollar Defense (FDD)–sometimes called a loss only deducible. With FDD the insured is only responsible for the deductible when there is a claim indemnity payment. Without FDD the deductible is due as claims expenses or indemnity payments incur. If the claim results in no indemnity payment, then there will no be a deductible owed. The other advantage of having FDD is that with LPL claims the time between the making of the claim and when an indemnity payment is due could be months if not years. FDD does increase the premium.
- “Donut Hole” Deductible—is another unique feature. Few insurers offer this option. With this feature, the insurer pays up to a certain amount (for example up to $2500) of any LPL claim made and the firm is responsible for their deductible after expenses exceed this amount. After the deductible, then the insurer resumes handling claim costs, i.e., the “donut hole.” This is a nice feature that eliminates out of pocket expenses for small nuisance claims.
Attorney Malpractice Deductible Options by Insurer
The Lawyer Professional Liability (LPL) different deductible options may be part of the policy or provided as an additional charge. Depending on circumstances a firm may chose more than one deductible option. The deductible options can be in the declarations page or via policy endorsement. AIG’s policy language that deals with deductibles is as follows:
III. Special Benefits
1. Claim Expenses.
a. The first two thousand five hundred dollars ($2,500) of claim expenses incurred by us for each claim shall not be subject to the deductible and shall erode the limits of liability.
4. Reduced Deductible for Arbitrated or Mediated Claims.
We have the right to submit a claim to binding arbitration or mediation; however, no claim shall be submitted to arbitration or mediation without your prior written consent. If you consent to submit a claim made against you to binding arbitration or mediation upon our request and agree with the terms and conditions we specify as respects such arbitration or mediation, we will reduce the deductible stated in the Declarations by fifty percent (50%). However, in the case of mediation, the maximum dollar amount by which the deductible will be reduced under this special benefit is two thousand five hundred dollars ($2,500).
VI. Limits of Liability & Deductible
4. Deductible.
The deductible stated in the Declarations is the total amount of your liability for each claim and applies to the payment of damages and claim expenses, except as otherwise permitted in the Special Benefits section of this policy. The limits of liability are in addition to and in excess of the deductible. The deductible shall be paid by the named insured, or upon the named insured’s failure to pay, jointly and severally by all of you.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
