Knight Specialty Insurance 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.
Knight Specialty Insurance 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. Knight’s policy language that deals with deductibles is as follows:
II. LIMITS OF LIABILITY AND DEDUCTIBLE
B. DEDUCTIBLE
This policy will pay only that part of the loss which exceeds the deductible amount(s) stated in Item 4.a., or Item 4.b., of the Declarations, such deductible amount(s) to be borne by you and will
remain uninsured.
The deductible amount stated in the Declarations as EACH CLAIM or AGGREGATE or both is described below:
1. EACH CLAIM
The EACH CLAIM deductible amount stated in Item 4.a. of the Declarations, if any, is the amount for which you are responsible with respect to loss arising from each claim.
2. AGGREGATE
The aggregate deductible amount stated in Item 4.b. of the Declarations, if any, is the amount for which you are responsible with respect to loss arising from all claims, in the aggregate,
under this policy.
A single deductible amount will apply to loss arising from all claims alleging the same covered act or interrelated covered acts.
Our obligation to pay loss, including defense costs, in connection with any claim will only be in excess of the deductible, the amount of which must be borne by you at your own expense. We will have no obligation whatsoever, either to you or to any other person or law firm, to pay all or any portion of the deductible on your behalf. We will, however, at our sole discretion, have the right and option to do so; in which event you will repay to us any amounts so paid.
III. CLAIM MITIGATION
Subject to the conditions described in this Section III. CLAIM MITIGATION, your deductible obligation may be reduced pursuant to one of the following:
A. In the event a claim is fully and finally resolved to the satisfaction of all parties, including us, as a result of alternative dispute resolution in a form acceptable to us, without resorting to litigation, we will waive your deductible obligation for such claim;
B. If within one year of being reported, or being deemed to have been made, in accordance with Section VI.C. of this policy, a claim is fully and finally resolved to the satisfaction of all parties, including us, and all loss and defense costs arising from such claim have been paid, then your deductible obligation for such claim shall be reduced by twenty-five percent (25%) up to a maximum reduction of $25,000;
C. If a claim arises from an assignment in which you used an engagement letter containing a limitation of liability clause and mediation clauses in a form that complies with the laws or rules in the applicable jurisdiction that was signed prior to the covered act being committed, then your deductible obligation for such claim shall be reduced by fifty percent (50%) up to a maximum reduction of $10,000 each claim, and $25,000 in the aggregate for the policy period;
D. If we recommend a settlement within the applicable Limit of Liability which is acceptable to the claimant, and you or your designee consent to such settlement within forty-five (45) days of our recommendation or within the time permitted by the claimant to accept the claimant’s demand, whichever is less, then your deductible obligation for such claim shall be reduced by twenty-five percent (25%) up to a maximum reduction of $25,000. We will reimburse you for the difference between the deductible amount previously paid in connection with the claim and the amount of the reduced deductible.
If, however, you or your designee does not consent to the settlement of the claim within the time frame described above, then the deductible will remain at the amount set forth in Item 4. of the Declarations, even if consent is given to a subsequent settlement of such claim.
Your deductible obligation for a claim may only be reduced pursuant to one of Subsections III.A., III.B., III.C., or III.D. above. If more than one of Subsections III.A., III.B., III.C., or III.D. apply to a single claim, then your deductible obligation for such claim shall be reduced pursuant to the Subsection which is most beneficial to you. The maximum amount of the reduction of your deductible obligation in respect to Subsection III.A., III.B., III.C., and/or III.D. above shall be $50,000 in the aggregate per policy period.
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
