Attorney Malpractice Insurers offer a variety of different deductible options. The deductible options work with the deductible amount to help balance the exposure you are willing to take should a claim arise.
Deductible options can be in the policy body or added as an endorsement for an additional charge. Choosing the option combination right for your firm is important. Understanding the options helps you choose the deductible.
Different insurers may offer all or none of the following options:
1. Zero Dollar Deductible—if you have a zero dollar deductible the other options listed below are not needed. With an attorney malpractice insurance policy zero-dollar deductible the firm has no deductible claim costs. The insurers offering this option, do so with a premium increase.
2. Per Claim Deductible—the firm is responsible for the deductible on each attorney malpractice claim. This is the least expensive premium deductible option. Law firms with practice areas that have frequent claims may want to avoid this option as multiple claims filed in any one policy year will be costly.
3. Aggregate Deductible—this limits the firm’s deducible exposure to the amount listed as the aggregate deductible for the policy period. It may be the same amount as the per claim limit or a higher aggregate deductible limit. The aggregate deductible’s biggest advantage with multiple claims in any one policy period, the law firm’s deductible exposure costs are capped. We see at least one or two firms a year hit many multiple claims made against the firm in one year. This can be particularly concerning for firms doing collections work. For example, if the firm is carrying a $10,000 per claim deductible, then the out-of-pocket deductible costs for 10 made claims could be $100.0000. Depending on claims history and practice areas the aggregate deductible may not be available.
4. 1st Dollar Defense (FDD)— sometimes called a loss only deducible. With FDD the insured is only responsible for the deductible if there is an indemnity claim payment paid. Without FDD the deductible is due as claims expenses or indemnity payments are incurred. But with an FDD, If the claim made results in no indemnity payment, then there will be no deductible owed. The other advantage of having FDD is that with many attorney malpractice Insurance claims the time between when a claim is made, and an indemnity payment paid can be many months if not years.
5. Deductible Abatement— a deductible abatement is like a savings account that accumulates the longer you are with the insurer. If a claim is made, then the abatement is used to offset the deductible costs for the law firm. If the abatement is coupled with an aggregate deductible, then the firm with a $10,000 abatement can carry a $10,000 deductible and have the benefit of a zero-dollar deductible exposure with the insurance premium being rated for a $10,000 deductible.
6. “Donut Hole” Deductible—is another unique feature. Yes, it works in the same way as the “Medicare Donut Hole.” This is offered by a few insurers as part of their policy. With this feature, the insurer pays up to a certain amount, (for example up to $2500) for any attorney malpractice claim made and the firm is responsible for their deductible once this amount is exceeded either for claims expenses or indemnity payments. Once the deductible is paid, 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.
Small law firms often find that the premium savings of carrying a high deductible are small. But as the size of the law firm grows so will the premium savings for carrying a higher deductible. By using the right deductible option combination the Attorney Malpractice Insurance Policy can be tailored to balance the insurance costs with the claim deductible exposure.
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Lee Norcross, MBA, CPCU, CPIA
Managing Director, CEO
(616) 940-1101 Ext. 7080