Not only can you vary the deductible amount, but you can apply different options to help balance the insurance claims costs with the amount of exposure you are willing to take. Not all attorney malpractice deductibles are created equal.
Deductible options can be packaged into policies or added as an endorsement for an additional charge. Choosing the combination of options that is right for your firm is important. Understanding the options helps you choose the deductible that is right for you.
The major deductible options:
1. Zero Dollar Deductible—this is listed first because if you have a zero dollar deductible the options listed below do not apply. With an attorney malpractice insurance policy zero-dollar deductible the firm has no deductible claim costs. Only a few insurers offer this option and it increases the insurance policy premium.
2. Per Claim Deductible—the firm is responsible for the deductible on each attorney malpractice claim. This is the least expensive premium deductible option. Depending on the firm and the areas of practice, it also can be very costly to the firm if multiple claims are filed in any one policy year.
3. Aggregate Deductible—this limits the firm’s deducible exposure to the amount listed as the aggregate deductible for the policy period. It may be the same amount as the per claim limit or a higher aggregate deductible limit. The aggregate deductible’s biggest advantage is if there are multiple claims in any one policy period, the law firm’s exposure to deductible costs is capped. We see at least one or two firms a year hit many multiple claims made against the firm in one year. This can be particularly concern for firms doing collections work. For example, if the firm is carrying a $10,000 per claim deductible, then the out-of-pocket deductible costs for 10 made claims could be $100.0000. Depending on claims history and practice areas the aggregate deductible may not be available.
4. 1st Dollar Defense (FDD)—which is sometimes called a loss only deducible. With FDD the insured is only responsible for the deductible if there is an indemnity payment paid for claim. Without FDD the deductible is due as claims expenses or indemnity payments are incurred. But with an FDD, If the claim made results in no indemnity payment, then there will be no deductible owed. The other advantage of having FDD is that with many attorney malpractice Insurance claims the time between when a claim is made, and an indemnity payment paid can be many months if not years.
5. Deductible Abatement—this is a unique feature. The deductible abatement is like a savings account that accumulates the longer you are with the insurer If a claim is made then the abatement is used to offset the deductible costs for the law firm. If the abatement is coupled with an aggregate deductible, then the firm with a $10,000 abatement can carry a $10,000 deductible and have the benefit of a zero-dollar deductible exposure with the insurance premium being rated for a $10,000 deductible.
6. “Donut Hole” Deductible—is another unique feature. Yes it works in the same way as the “Medicare Donut Hole”. This is offered by a few insurers as part of their policy. With this feature, the insurer pays up to a certain amount, (for example up to $2500) for any attorney malpractice claim made and the firm is responsible for their deductible once this amount is exceeded either for claims expenses or indemnity payments. Once the deductible is paid, then the insurer resumes handling claim costs, i.e. the “donut hole”. This is a nice feature that eliminates out of pocket expenses for very small nuisance claims.
Small law firms often find that the premium savings of carrying a high deductible will be small. But as the size of the law firm grows so will the premium savings for carrying a higher deductible. By using the options that are right for you, either individually or in conjunction with each other the Attorney Malpractice Insurance Policy can be tailored to balance the insurance costs with the claim deductible exposure.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080