How Legal Malpractice Insurer Licensing Can Impact Multi-State Law Firms
Law firms representing clients in multiple states may neglect verifying whether their legal malpractice insurer is properly licensed and prepared to offer coverage in each state where the firm conducts legal work or serves clients.
Firms assume that a single legal professional liability policy automatically follows them wherever they practice. Unfortunately, that is not always the case. Choosing a malpractice insurer licensed in limited states or an insurer nationally licensed but not writing business in a particular state can create significant insurance, coverage, and cost issues for law firms with multi-state practices.
Why State Licensing Matters
Each state regulates and licenses or authorizes insurers to conduct business. The National Association of Insurance Commissioners (NAIC) maintains extensive state licensing guidance, reflecting the state-by-state nature of insurance regulation. [content.naic.org]
For law firms, this means that an insurer’s geographic licensing footprint can become a critical issue when the firm expands beyond its home state.
According to the American Bar Association’s Lawyers Professional Liability Insurance Directory, there are certain legal malpractice insurers not operating or licensed in every state. [americanbar.org], [americanbar.org]
The Problem for Multi-State Law Firms
The issue occurs when a law firm has offices, clients, or matters in states where its malpractice insurer does not write coverage.
An insurer may simply decline to insure a firm if it has clients or offices in what they consider the “wrong” state. Even a single client located in a restricted state can result in a refusal to write a policy.
Reasons insurers may limit coverage include:
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- Lack of defense counsel or claims resources in particular states.
- Prior withdrawal from a state due to unfavorable underwriting results.
- Concerns about the legal climate of certain states or portions or states.
- Concerns that attorneys may be practicing in unfamiliar areas of law.
- A high percentage of firm revenue generated from a state outside the insurer’s preferred territory.
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When One Policy Becomes Two or Three
Certain law firms discover that proper insurance coverage separate policies for work performed in different states.
In real-world situations, firms carry two or even three separate primary legal malpractice policies because their insurers were only willing or able to insure exposure in certain states.
While this may solve an immediate coverage problem, it often creates new challenges:
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- Higher Premium Costs – Maintaining multiple primary policies frequently costs more than securing one policy from one insurer that covers the firm’s entire geographic footprint. Firms that consolidated multiple policies into a single nationwide program have sometimes realized substantial premium savings.
- Administrative Complexity- Multiple renewal dates, applications, policy forms, endorsements, and reporting obligations create additional administrative work for firm management.
- Coverage Gaps – When two or more policies are responsible for different portions of a firm’s exposure, determining which carrier should respond to a claim can become complicated.
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Mutual Insurers and Regional Carriers
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- Attorneys like regional mutual insurance companies because of their strong reputations, specialized focus, and competitive pricing.
- However, mutual insurers may operate in only a handful of states or concentrate primarily on their domiciled state. As a result, firms expanding their clientele or offices across state lines may discover that their existing insurer cannot cover their growth strategy.
- Stock insurance companies may also restrict coverage or decline firms with exposure in certain states or state areas.
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Best Practices for Multi-State Law Firms
Before renewing or purchasing legal malpractice insurance, firms should carefully evaluate:
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- The states in which the firm actively practices.
- The states where firm clients or offices are located.
- Find an insurer licensed and willing to provide coverage in those states.
- Any territorial restrictions or state-specific exclusions.
- Whether a single carrier can provide comprehensive nationwide coverage.
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A law firm’s insurance program should align with both its current operations and future growth plans. An insurer that works well today may become problematic if the firm expands into additional states tomorrow.
The Bottom Line
For multi-state law firms, selecting a legal malpractice insurer based solely on premium can be a costly mistake. The insurer’s licensing footprint and willingness to insure exposure across multiple states can have a significant impact on coverage quality, claims handling, and long-term costs.
While a carrier licensed in only a limited number of states may be appropriate, firms with offices and clients across state lines should strongly consider working with insurers that can provide consistent coverage for their entire practice. Doing so may reduce administrative headaches, minimize coverage disputes, and provide a more seamless defense if a claim ever occurs.
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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
