With those startling figures in mind, it is imperative lawyers appreciate the importance of malpractice insurance, says Evan Schwartz, namesake of Schwartz Law, PC, a Manhattan law firm focused on insurance defense.
Legal malpractice insurance “covers a lot more events than lawyers realize it covers, such as issues relating to ethics and fiduciary” activities, according to Schwartz. Another equally important matter practitioners should recognize about malpractice insurance is that “there are circumstances that can lead to a claim being filed against the lawyer, so the lawyer needs to report them” to their insurance carrier, he says. That’s because if a malpractice claim arises that the lawyer did not inform their carrier about, the resulting claim may not be covered by the insurance.
Furthermore, if the lawyer didn’t report the potential claim but it was discovered when the attorney sought to renew his or her policy, the insurance company can deny future coverage or cancel the policy immediately. That can lead to a “double whammy. Why wouldn’t you disclose it, especially when not reporting can lead to a cancellation of insurance?” poses Schwartz.
Malpractice Insurance Basics
On its face, malpractice insurance might seem simplistic. Just like automobile insurance is designed to help drivers when they cause an accident or worse yet, injure a person, legal malpractice insurance covers instances when an attorney provides less than competent representation. Some of the services covered by a professional liability policy may also include situations when the lawyer acts as a mediator, arbitrator, notary public or title agent. It can also extend to situations when a lawyer acts in a fiduciary position, such as an administrator, conservator, executor, guardian, trustee or receiver.
In an article in the American Bar Association’s Young Lawyers Division newsletter, author W. Brian Ahern explains some basics about malpractice insurance every lawyer should know. Those include:
- Certain areas of legal practice account for higher incidences of malpractice--or at least claims of it. According to Ahern, lawyers in plaintiff personal injury and real estate matters are targeted for malpractice lawsuits more often than most other practice areas.
- Lawyers should consider the monetary value of their firm’s cases and the potential damages that could arise if a claim was pursued against the attorney and/or the law firm employing them.
- Since younger lawyers tend to have fewer assets to protect than an older, more experienced attorney, they may not need as much malpractice insurance. However, just like the accident rate for teenage drivers with less experience is higher than for drivers with more hours behind the wheel, younger lawyers can be more susceptible to committing malpractice than their peers with more years of practice under their belts.
- A “Claims Made and Reported” policy is one that allows coverage if the claim is asserted against the insured and a written notice is received by the insurance carrier within the policy term in which the firm first became aware of the claim.
- A “Full Prior Acts Coverage” policy provides coverage for a claim that resulted from services rendered since the name insured’s inception date. That date is normally when the firm initially purchased malpractice insurance, as long as coverage was maintained continuously since then.
Are there disadvantages to having malpractice insurance? Other than the cost involved, absolutely not, Schwartz says. “It is an advantage. It protects assets. In fact, having malpractice insurance can help attorneys attract certain clients,” he says. For example, legal referral entities universally require lawyers to be covered by malpractice insurance.
Still, legal malpractice insurance is not required of lawyers in all states. For example, while Ohio attorneys are not required to maintain malpractice insurance, the Supreme Court of Ohio has promulgated rules for lawyers who don’t carry coverage. An Ohio lawyer who does not maintain malpractice insurance must inform their clients of that reality via a written notice available on the website of the Ohio Supreme Court. Clients must be given a copy of the notice to sign and the wise lawyer will keep that document in their client’s file.
The fact that state supreme courts have enacted rules ranging from requiring lawyers to maintaining insurance to situations, such as Ohio’s, proves the value placed on it by members of the judicial and executive branches. “Even states realize how important malpractice insurance is so they promulgate rules requiring insurance or notice to clients that the lawyer doesn’t have it,” Schwartz says.
Tami Kamin Meyer is an Ohio attorney and writer.