American Alternative – 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.
American Alternative 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.
- 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.
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. American Alternative’s policy language that deals with deductibles is as follows:
I. INSURING AGREEMENT
F. CLAIM AMELIORATION AND LOSS PREVENTION INCENTIVES
The Company will reduce the Insured’s Deductible obligation according to the terms below, if any of the following Claim Amelioration and Loss Prevention incentive conditions are met. However, in no event will the Insured’s Deductible obligation be reduced by a total amount that exceeds the lesser of 50% of the otherwise applicable Deductible amount or $50,000, regardless of the number of incentive conditions that may apply.
1. Mediation: If a Claim, that is either first reported or deemed to have been first reported during the Policy Period according to the Conditions section of the Policy, is completely and finally resolved through Mediation to the satisfaction of all parties, including both the Insured and the Company, either prior to the institution of arbitration or legal proceedings, or within 60 days after the institution of such arbitration or legal proceedings, then the Insured’s Deductible obligation will be reduced by the lesser of 50% of the otherwise applicable Deductible amount, or $25,000.
2. Prompt Claim Resolution: If a Claim is completely and finally resolved, to the satisfaction of all parties, including both the Insured and the Company, within 12 months of the date such Claim was either first reported, or deemed to have been first reported according the Conditions section of the Policy, and all Damages and Claim Expenses for such Claim have been paid, then the Insured’s Deductible obligation will be reduced by the lesser of 50% of the otherwise applicable Deductible amount, or $25,000.
3. Engagement Letter Usage: If the Insured used an Engagement Letter in connection with the provision of Professional Services, that subsequently becomes the subject of a Claim that is either first reported, or deemed to have been first reported during the Policy Period, then the Insured’s Deductible obligation for such Claim will be reduced by the lesser of 50% of the otherwise applicable Deductible amount, or $25,000, provided that the engagement letter was signed by the Clients within 30 days of the date representation began, and it also includes:
a. A clear description of the Professional Services undertaken, and as appropriate, those not undertaken;
b. Specific identification of the Clients represented, and as appropriate, those not represented;
c. A clear explanation of the manner of professional compensation and billing arrangements; and
d. Explanation of the Insured’s file retention policy, including how long client files are generally retained.
4. Potential Conflict of Interest Disclosure and Waiver: If the Insured provided a potential conflict of interests disclosure to the Insured’s clients (and also obtained a conflicts waiver if ethically or legally required) in connection with the provision of Professional Services, that subsequently becomes the subject of a Claim that is either first reported, or deemed to have been first reported during the Policy Period, then the Insured’s Deductible obligation for such Claim will be reduced by the lesser of 50% of the otherwise applicable Deductible amount, or $25,000, provided that the Disclosure included an explanation of:
a. The nature of the potential conflict of interest, as well as the Insured’s legal and ethical responsibilities regarding such potential conflicts of interest;
b. The risks and potential consequences for the Client associated with undertaking Professional Services with an existing potential conflict of interest; and
c. The Insured’s legal and ethical responsibilities, and likely course of action, in the event the potential conflict of interest becomes an actual conflict of interest.
II. LIMITS OF LIABILITY AND DEDUCTBLE
C. DEDUCTIBLE
The amount stated in the Declarations as the Deductible is the total amount of the Insured’s liability for Damages and Claim Expenses for each Claim first made against the Insured and reported to the Company during the Policy Period. If the Deductible shown in the Declarations includes an Aggregate Deductible Amount, then the Insured’s liability for Damages and Claim Expenses for all Claims first made against the Insured and reported to the Company during the Policy Period will not exceed the Deductible Aggregate Limit. The Limits of Liability shown in the Declarations are in addition to and in excess of the Deductible amount. The Deductible shall be paid by the Named Insured, or in the event that the Named Insured shall fail to pay the Deductible upon demand, then the Deductible shall become a joint and several obligation of all Insureds. No Deductible will apply to any Claim arising solely out of Professional Services provided by any Insured on a Pro Bono basis, provided that the Named Insured gave prior consent or approval for such Professional Services to be provided without a fee. In addition, no Deductible will apply to any Supplementary Payments made under Section I.E. of the Policy.
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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
