ISMIE 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.
ISIMIE’s standard policy has following deductible options included:
- 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.
- Annual Aggregate Deductible—this limits the firm’s deducible cost to the amount listed as the aggregate deductible. A cap is set on the total deductible amount the firm pays within a policy period. No further deductibles apply for that period once you reach the cap. Aggregate deductibles likely increases the premium.
- 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. ISMIE’s policy language that deals with deductibles is as follows:
II. LIMITS OF LIABILITY AND DEDUCTIBLE
B. Deductible
The Insurer shall only be liable for amounts payable under this policy for Damages or Defense Expenses which are in excess of the Deductible amount shown in Item 4. of the Declarations. This Deductible amount shall:
1. apply separately to each and every Claim;
2. be borne by the Insured; and
3. remain uninsured.
The Deductible amount applies to the payment of Damages and Defense Expenses. If the Insurer advances any amounts within the Deductible, the Named Insured shall reimburse the Insurer within 30 days of the Insurer’s request to do so. In the event of Related Claims, a single Deductible amount will apply.
III. EXTENSIONS OF COVERAGE
E. Deductible Credit for Mediation Extension
If:
1. mediation of a Claim takes place either without institution of an arbitration proceeding or service of suit within 60 days of the institution of such proceedings or service of suit; and
2. such Claim is ultimately resolved for an amount acceptable to the Insured and the Insurer by the process of mediation, the Insured’s Deductible applying to the Claim will be reduced by the lesser of 50% or $25,000.
This blog is an excerpt from the policy. The complete policy along with applicable endorsements could impact the information provided above.
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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
