When the economy declines, attorney malpractice claims rise. Following every recession when people lose money, they look for someone to blame. Mistakes in paperwork or an error in judgement is not a problem when there is no economic loss. With an economic loss, even when there is no legal malpractice, does not prevent claims from being filed.
Some lawyers go without malpractice insurance believing because they work for a small firm and maintain close relationships with their clients, they are immune to claims. Other attorneys believe that the chances of them facing a claim are not great enough for them to purchase an attorney malpractice insurance policy. The flaw in this logic is that small firm lawyers have malpractice claims just like their more high-profile peers in larger firms. If a malpractice claim goes to trial, the lawyer can expect to pay over $75,000 just for defense costs. The good news is that malpractice claims tend to happen with less frequency and severity for small firm lawyers that do maintain close relationships with their clients. But even a close relationship does not prevent a claim in times of economic stress.
Attorney malpractice insurance costs vary widely. No two attorneys are going to pay the same premium for their coverage. Law firms are insured as an entity with the cost generally on a per attorney basis. The key premium rating factors include claims history, areas of practice, number of years maintaining claims-made coverage, policy limits, and location.
The costs for different areas of practice can vary 5 to 10 times from one area of practice to another. Criminal Law and Insurance Defense firms generally pay the least with Securities Placement, Class Action Work and Intellectual Property firms paying the most. With that said during the Great Recession, Real Estate work went from a very desirable practice area to one of the areas that many underwriters refused to write.
Full-time attorneys with no coverage and no claims history can expect to pay between $300 to $1000 for the 1st year of coverage depending on limits and areas of practice per attorney. By the 5th year of ‘claims-made’ coverage, the average cost for most attorneys for ‘fully-rated’ policies are in the $1200 to $2500 range annually. The premium increase is due to step rating. Attorneys that practice in the higher risk practice areas can expect to pay in the $3000 to $10,000 range annually. These also costs vary by state and location.
Attorneys need to weigh the value of protecting ones assets versus the cost. After all, in the end Attorney Malpractice Insurance is Sleep Insurance.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080