A malpractice lawsuit can be an attorney’s worst nightmare, putting a lawyer’s competency and ethics under the microscope. Considering the fact that five to six percent of all attorneys will face a malpractice claim this year, the cost of which usually outweighs the cost of insurance, choosing to operate without legal malpractice insurance is ill-advised.
If you’re considering striking out on your own as a solo practitioner, or you manage a small law firm, here’s what you need to ask about your legal malpractice insurance.
What Does Malpractice Insurance Cover?
According to the ABA, legal malpractice is “any act which is negligent or wrongfully executed by an attorney who causes monetary damages to his/her client.” Legal malpractice insurance protects the attorney against the client’s claims of malpractice and, if the attorney is found guilty of malpractice, pays the client. The extent of the insurance agreement depends on the field of law and position of the attorney seeking coverage. It may fully or partially cover liability.
Legal malpractice insurers also provide “prior acts” coverage. As long as you had a malpractice policy in place at the time, you will be covered for malpractice suits arising during that period. This is reason enough for small firms and solo practitioners to get malpractice insurance — anything that occurs while you are uninsured will never be covered and could lead to a lot of trouble down the line.
Is It Required by Law?
Whether or not you, as a licensed attorney, are required to carry legal malpractice insurance is determined on a state-by-state basis. Unlike the medical field, most states do not have laws requiring attorneys to carry malpractice insurance. In fact, Oregon is currently the only state that requires legal malpractice insurance for all practicing attorneys. However, it is highly advised that you are covered by legal malpractice insurance if you are in a position to be personally liable if sued by an unhappy client, regardless of the law in the state you are barred in.
What Does Malpractice Insurance Cost?
Purchasing legal malpractice insurance is like purchasing insurance for anything else — do your research and shop around! The cost of malpractice insurance depends on several factors, including the policy provider, your practice area, the number of years you’ve been in practice, the size of your practice, and your geographic location. While a high-powered attorney will most likely have to pay between $5,000-$15,000 per year for a legal malpractice insurance policy, a lawyer working at a smaller firm would probably have to pay around $1,000-$3,000 per year.
Managing a law practice is a business. Like any business, the business of law is rife with risks. While you may never need to file a claim with your legal malpractice insurance carrier, and hopefully you won’t, it is better to have coverage and no claims than filed claims and no coverage.