Having malpractice insurance is important to reduce the chance that a legal malpractice claim will result in severe financial hardship to you or your firm. It will also save you time in defending such claims. Rule 1.4(c) of the PA Rules of Professional Conduct require a lawyer to inform a new client in writing if the lawyer does not have professional liability insurance of at least $100,000 per occurrence and $300,000 in the aggregate per year. A lawyer must also inform existing clients in writing if the insurance drops below those amounts or is terminated. The lawyer must also maintain a record of these disclosures for six years after termination of the representation of a client.
It is important for you to read the terms of the policy. Many policies will extend coverage to claims arising from acts which occurred prior to coverage, as long as the attorney was unaware of the facts that could support the claim. An insurance company can deny coverage under what is commonly known as a “prior knowledge provision” if you had a reasonable basis to believe that a claim would be made against you, even if you did not personally believe that a claim would actually be made. Prior acts coverage excludes coverage for acts prior to a certain date. Tail coverage also exists to limit exposure after expiration of a policy. The period for reporting claims will be extended if the errors occurred prior to the expiration. Liability insurance policies generally exclude from coverage bodily injury, property damage, business activity, securities transactions, and dishonest and fraudulent activity.
For most lawyers, legal malpractice insurance is a necessary evil and also an increasingly expensive one. The choice of coverage is often based more on price rather than a reasoned decision as to what the policy provides in the way of actual coverage protection. Read the policy before you agree to the coverage and know that in many cases, you can actually negotiate the terms. Although most attorneys are aware that they or their law firm has a professional liability coverage, few intimately know the details of that coverage. If you fall into this category we strongly recommend you take a look at the specifics of your policy – you may not be as safe as you think. You should be familiar with the following terms and information.
It is also important for you to carry an appropriate amount of coverage. To do so you should consider your practice in general, what types of cases and clients you take, the typical amount in controversy or at stake, etc. If you mostly represent motor vehicle accident clients with claims less than six figures, you can likely get away with having a smaller amount of coverage. If on the other hand you handle complex bodily injury cases worth hundreds of thousands or millions of dollars, or if you structure complex high dollar business deals, you should opt for a higher coverage limit. The bottom line is this… the amount of coverage provided by your policy should be commensurate with the potential economic harm your theoretical malpractice could cause one or more of your clients.