Two attorneys are comparing the cost of their legal malpractice insurance for their law practices. One attorney is dismayed because their law firm insurance policy is twice the cost of the other law firm. Given that the firms have the same number of attorneys and both law practices are similar how can this be?
There are cases where the premiums are dramatically different. Both law firms may be with the same insurer. There are times when slight application and law practices differences result in big premium differences.
The factors that impact legal malpractice insurance costs are:
1. Practice area differences impact legal malpractice premium rates, sometimes by 2 or 3 times the premium. This is especially true if one firm has high risk practice areas such as Medical Malpractice or Real Estate and the other law firm does not. Even if they ‘do’ the same thing, if the areas of practice percentages are different the premiums can be very different.
2. The prior acts dates may differ. If one law firm’s attorneys longevity is greater than the other law firm the costs for prior acts can differ by more than 50%.
3. The malpractice policy liability limits may differ. One firm’s malpractice policy has claims expenses outside the limits (CEOL) and the other does not.
4. The deductibles may be different, or one has 1st dollar defense and/or an aggregate deductible and the other does not
5. The hours worked for the firm’s attorneys may differ.
6. One firm has great internal controls the other firm’s procedures are lacking.
7. One firm sues clients to collect unpaid legal fees; the other firm has never sued a client. Law firms that regularly sue clients for fees are more likely to have future claims.
8. One firm has recent claims, and the firm attorney has never had a claim or disciplinary matter. Claim history has a large impact of premiums.
9. The law firms are with different malpractice insurers. Premiums from one insurer to another can differ by over 50%.
10. And finally, the firm’s may interpret the same application question differently.
Each factor can have a dramatic impact on premium. When you combine two or more of these factors attorney malpractice premiums can easily be 2 or more times different.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080