An attorney malpractice claim resulted in a loss of over $200,000. Unfortunately, the attorney only had a policy limit of $100,000 per claim. The insurer wrote their check(s) for $100,000 and close their claim file. The insurer fulfilled their contract. The attorney defended themselves after that and paid any additional damages due.
For years, the insured attorney carried a $500,000 policy limit per claim but to save money reduced the policy limit the year before the claim was made against the attorney. Even though the insured had a $500,000 per claim limit when the claim occurred the current insurance policy settled for $100,000. With a claims-made policy, the claim settles using the policy form inforce when the claim is reported.
The end result is that by saving a few hundred dollars at renewal, the attorney now faced providing themselves with a defense and is responsible for additional damages. Underinsuring to save money exposes your assets. When determining the proper policy limit look at cases handled in the past, present, and future. Consider that the ‘average’ cost of defense for a malpractice claim that goes to trial exceeds $78,000. Every dollar spent on defending the claim reduces the amount available to pay the claim if damages are inside the limits. You need to be insured for the worst-case scenario not an average cost of potential claims made against you. And with claims-made coverage it is not just your current cases but the cases that you've handled in the past that can come back to haunt you.
Getting close to retirement is not a time to reduce limits. Even if your practice has slowed down, your past acts still need adequate coverage. With claims-made insurance the Extended Reporting Period Endorsement (Tail/ERP) attaches to the last policy inforce. The ERP does not increase limits, nor does it reinstate limits used during the last inforce policy period. The ERP endorsement only extends the claim reporting period.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080