Getting Higher Lawyers Professional Liability Limits with Excess Insurance

Getting Higher Lawyers Professional Liability Limits with Excess Insurance

Your law firm needs higher liability limits than your primary insurer provides because:

• • • A major client requires higher limits.
    • The firm handles large cases.
    • Leadership wants greater protection for the firm’s assets.

Whatever the reason, an insurer’s refusal does not necessarily leave the firm without options. An excess lawyers professional liability insurance policy provides the additional limits the firm needs.

Why Do Malpractice Insurers Limit the Coverage?

Insurance insurers manage their potential losses by restricting liability limits for individual law firms. Certain insurers impose lower maximum limits on solo attorneys and small firms because the premium generated by those accounts does not support the insurer’s exposure to a multimillion-dollar claim.

The insurer will also consider underwriting factors, including:

• • • The number of attorneys in the firm
    • The firm’s areas of practice
    • Its claims history
    • The value and complexity of client matters
    • Its risk-management procedures
    • The requested per-claim and aggregate limits

A primary insurer’s limits work for certain firms but still fall short of a particular law firm’s contractual requirements or potential exposure.

Will a Commercial Umbrella Policy Cover Attorney Malpractice?

No.

Commercial and personal umbrella policies increase the liability limits available for certain underlying policies, such as general liability and automobile insurance. Umbrella policies commonly exclude liability arising from professional legal services.

Certain law firms need an umbrella and an excess policy, but they serve different purposes:

• • • A commercial umbrella policy provides additional limits for covered general liability and automobile exposures.
    • An excess professional liability policy provides additional limits for covered attorney malpractice claims.

Never assume that the word “umbrella” means the policy extends to every insurance policy carried.

Why Not Purchase a Second Primary Malpractice Policy?

Malpractice insurers typically refuse to issue a second primary policy once they discover another primary policy already covers the same firm and exposure.

Purchasing another primary lawyers professional liability policy increases total coverage limits, but in practice, this approach creates coverage disputes.

Primary policies contain an “other insurance” provision that explains how the policy responds when other insurance covers the same claim. If two primary policies contain competing provisions, each insurer may argue that its policy responds only after the other policy pays.

This situation produces:

• • • Disputes over which insurer responds first.
    • Delays in addressing a claim.
    • Conflicting policy terms.
    • Unanticipated deductibles or retentions.
    • Potential coverage gaps.

An excess policy provides a cleaner solution because it specifically goes above the primary policy.

What Is Excess Lawyers Professional Liability Insurance?

Excess lawyers professional liability insurance provides an additional layer of coverage above a law firm’s primary malpractice policy.

For example, a firm might purchase:

• • • A primary policy with a $2 million limit
    • An excess policy with an additional $3 million limit

Subject to the terms of both policies, this structure could provide a combined limit of $5 million for a covered claim. A law firm that needs even higher limits can stack multiple excess layers.

The excess policy responds after a covered claim exhausts the applicable underlying limit. The underlying policy limits are the excess policy’s retention (deductible).

What Is a Following-Form Excess Policy?

A following-form excess policy adopts the coverage terms and conditions of the primary policy. The policies work together because the excess insurer follows the primary insurer’s coverage form.

However, the words “following form” do not automatically guarantee identical coverage.

Excess policies fall into three categories:

1. 1. 1. Stand-alone excess coverage: The policy uses its own definitions, conditions, and exclusions.
      2. Modified following-form coverage: The policy follows portions of the primary policy but adds provisions or endorsements that restrict coverage.
      3. True following-form coverage: The policy adopts the primary policy’s terms without adding material restrictions that create an unexpected gap.

Review the complete excess policy, not merely the “following form” label. Certain ”following form” excess policies contain exclusions, conditions, or limitations.

Important considerations include:

• • • Policy periods – When possible, the primary and excess policies should have matching effective and expiration dates. Misaligned policy periods can complicate a claim and may create an unintended gap.
    • Retroactive or prior-acts dates – The excess policy’s prior-acts coverage should align with the primary policy. If the excess policy uses a more recent retroactive date, it excludes claims that the primary policy covers. With a split retroactive date, the primary insurer covers certain claims not covered by the excess insurer because the alleged act occurred before the excess policy’s retroactive date.
    • Underlying limits – The primary policy must satisfy the excess insurer’s required underlying limit. If the firm fails to maintain the required primary coverage, the excess insurer will not “step down” to fill the difference.
    • Defense expenses – Determine whether defense costs reduce or “erode” the primary policy limits. If they do, legal fees decrease the amount available to pay a settlement or judgment.
    • Definitions and exclusions – Compare the policies’ definitions of insured, claim, professional services, damages, and related claims. Review all exclusions and endorsements for inconsistencies.
    • Insurer requirements – Certain excess insurers require primary insurance coverage proof before binding coverage.

 

What Determines the Cost of Excess Malpractice Insurance?

The cost of excess coverage varies by law firm. Insurers consider:

• • • The premium and limits of the underlying policy(s)
    • The amount of excess coverage requested
    • Firm size
    • Areas of practice
    • Claims history
    • Geographic location
    • Client and matter profiles
    • The insurer’s attachment point
    • The excess policy’s terms and exclusions

A firm with higher-risk practice areas or a history of claims may pay more than a firm with a lower-risk profile.

Get the Right Excess Coverage

An insurer’s refusal to offer higher primary limits does not mean your firm must remain underinsured. Properly structured excess lawyers professional liability insurance adds coverage above the primary policy while reducing the complications associated with overlapping primary policies.

The details matter. Policy dates, retroactive dates, defense costs, underlying limits, exclusions, and reporting requirements impact the protection available when a serious claim occurs.

L Squared Insurance Agency specializes in lawyers professional liability insurance and can help law firms evaluate primary and excess coverage options. Even if L Squared does not place your primary policy, its team can assist you obtain the additional limits your firm requires.

Contact L Squared Insurance Agency to discuss excess lawyers professional liability insurance for your law firm.

This article provides general insurance information only. Coverage depends on the specific policy language, endorsements, applicable law, and facts of each claim.

Request a Legal Malpractice Quote