Inadequate Lawyers Liability Coverage Limits Could Cost You Everything
A Risk Management Warning for Law Firms and Solo Practitioners
At L Squared Insurance, we specialize in protecting law firms across all 50 states and a common mistake for attorneys is attorneys carrying inadequate professional liability insurance limits. If you’re practicing law with coverage that’s too low, you’re not just underinsured, you’re financially exposed.
What Does “Inadequate Coverage” Mean?
Your Lawyers Professional Liability (LPL) policy limit is the maximum your insurance will pay for damages and legal defense in the event of a claim. If your limit is too low to cover the actual cost of a malpractice suit including defense costs and judgments the difference comes out of your pocket.
For example, a $250,000 policy may seem reasonable until you face a $900,000 claim involving a missed statute of limitations or a complex real estate transaction. After legal defense fees eat into the limit, your policy may only cover half of the actual damages.
Common Pitfalls of Insufficient LPL Limits:
- Defense Within Limits (CEIL): LPL policies may include legal defense within the limit, meaning every dollar your attorney bills reduces the amount left to settle the claim.
- Defense Outside the Limits (CEOL): LPL policies may provide a separate limit for defense costs. Remember CEOL is not a substitute for an adequate primary liability limit to settle the claim.
- Exhausted Policy Limit: If the liability limit is exhausted by either defense costs or being inadequate to pay the claim the insurer’s obligation to you ends. Your on your own to settle the remaining portion of the claim.
- Client Expectations: High-value or institutional clients often require proof of higher limits, typically $1 million or more.
- Reputational Risk: A lawsuit can be damaging enough. A lawsuit you can’t afford to pay. Potentially career-ending.
- Personal Asset Exposure: If a court awards damages beyond your policy, your personal and firm assets may be at risk.
- Extended Reporting Period Endorsement (ERP or Tail): An ERP endorsement does not reinstate the policy occurrence limit; it merely extends the policy reporting period. An inadequate occurrence limit may make your ERP endorsement nearly worthless.
When Was the Last Time You Reviewed Your Limits?
Factors such as your practice area, deal size, jurisdiction, and claims history all influence what coverage is appropriate. For instance:
– Real estate, estate planning, and corporate transactional work carry higher risks.
– Solo practitioners in smaller firms may need more than they think, especially if handling complex or high-value matters.
– State bar associations may recommend or require minimum limits depending on jurisdiction.
How L Squared Insurance Can Help
We don’t just sell policies we help attorneys protect their assets. Our team understands the nuances of lawyers’ liability insurance and works with top-rated carriers to deliver the right coverage at the right price.
We recommend reviewing your LPL limits at least once per year or at any time you:
– Expand your practice area
– Take on larger clients
– Hire additional attorneys
– Have a change in claims history
Let’s Talk — Before a Claim Forces the Conversation
If you’re not sure whether your current policy is enough, let us review it for you. We’ll help you determine if you need higher primary limits, excess coverage, or risk management support.
Contact L Squared Insurance today to schedule a no-obligation policy review and protect what you’ve worked so hard to build.
Contact L Squared About Insurance Needs
Contact Me Today
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
