Attorney Practice: Non-Practicing Insurance, Is It Enough?

While it is not mandatory in most states for attorneys to have malpractice insurance, it is highly recommended. Malpractice insurance can cover attorneys in the event of common professional liability suits, such as missing a filing deadline or using incorrect case law, and can provide the financial resources to continue practicing after facing a lawsuit. The cost of malpractice insurance varies depending on the level of coverage, the size of the firm, and the type of practice, with higher-risk areas like securities litigation and class action defense costing more. Some jurisdictions, such as Oregon, require attorneys to have legal malpractice coverage, so it is important for attorneys to be aware of the specific requirements in their jurisdiction.

Malpractice insurance requirements vary by state

Malpractice insurance is an important form of liability coverage for attorneys and law firms. It provides coverage in the event of malpractice or negligence claims, which are common, and can be financially devastating. While malpractice insurance is not a federal requirement, some states have specific rules and requirements regarding malpractice insurance for attorneys.

In the late 1970s, Oregon became the first and only state to make malpractice insurance mandatory for all practising lawyers. However, several other states have since instituted rules requiring lawyers to disclose whether they have malpractice insurance. As of 2024, nine states require some form of malpractice insurance disclosure: Alaska, Ohio, New Hampshire, South Dakota, Delaware, Virginia, Nebraska, North Carolina, and Pennsylvania. These disclosures usually involve notifying clients in writing if the attorney has no malpractice insurance, or if their coverage falls below a certain level (typically $100,000 per claim and $300,000 in aggregate).

Some states, such as Georgia, have brought the issue of mandatory malpractice insurance to court, but it remains optional. Similarly, Alabama, Arizona, and Arkansas do not require attorneys to carry malpractice insurance, but there may be other requirements, such as membership in the State Bar Association and annual registration fees.

The cost of malpractice insurance varies depending on factors such as the size of the firm, the type of practice, claims history, and the level of coverage desired. Solo practitioners and small firms often face higher rates compared to larger law firms. Practices in high-risk areas, such as securities litigation and class action defence, can expect higher premiums.

LPL is not required in most states

Lawyers' professional liability (LPL) insurance, also known as errors and omissions (E&O) coverage, is a type of insurance that provides law firms with protection from malpractice or negligence claims. LPL insurance is not required in most states, and there are some intricacies around the specifics, including exemptions in each state, usually for government or municipal attorneys and in-house counsel for companies.

While LPL insurance is not mandatory in most states, it is still one of the most important areas of liability coverage that a law firm or practicing attorney should purchase. Any mistakes or errors made when dealing with a client can lead to claims of malpractice or negligence against an individual or firm, resulting in additional litigation. LPL insurance can offer attorneys a valuable safety net in the event of such claims.

The cost of LPL insurance varies depending on several factors, including the size of the firm, the type of practice, claims history, and the level of coverage desired. Larger law firms typically have higher rates than solo law firms or small practices. Practices that handle medical malpractice cases, for example, are considered higher risk and may have higher premiums.

Attorneys who do not have LPL insurance may still practice law, but they should be aware of the potential risks and consequences of not having this coverage. Malpractice insurance can provide financial resources to defend against claims and ensure that attorneys can continue practicing even if they are facing a disagreement with a client. It is recommended that attorneys, especially those in solo or small-firm practices, carefully consider their insurance options and compare costs, deductibles, and coverage limits from different carriers.

Some states require attorneys to carry specific policies or minimum coverage

While most states do not require attorneys to carry legal malpractice insurance, some states have specific policies or minimum coverage requirements. For example, Oregon mandates that attorneys have legal malpractice insurance with a minimum coverage of $300,000 through the Professional Liability Fund (PLF). This variation in requirements across states underscores the importance of attorneys understanding the specific mandates of their jurisdiction.

The cost of malpractice insurance for attorneys can vary significantly depending on several factors. These factors include the size of the firm, the type of practice, claims history, and the level of coverage desired. Solo law firms or small practices typically pay lower premiums than larger firms. Additionally, practices in high-risk areas, such as securities litigation and class action defense, can expect to pay higher premiums than those in low-risk areas like insurance defense.

Attorneys should carefully consider their specific needs and the unique risks associated with their practice area when selecting an insurance policy. It is advisable to research different options and consult with professional liability insurers or brokers to find the most suitable coverage. This proactive approach ensures that attorneys are adequately protected and can focus on their legal practice without the constant worry of unexpected claims and financial strain.

Malpractice insurance serves as a valuable safety net for attorneys, covering common professional liability suits and errors and omissions made during their legal duties. It provides financial resources to continue practicing even when facing disagreements with clients. With thousands of malpractice claims filed against attorneys each year, having adequate insurance coverage is essential for risk management and maintaining a successful legal practice.

Malpractice insurance can cost between $500 and $10,000 per year

The cost of malpractice insurance for attorneys varies depending on several factors, including the attorney's practice area, claims history, insurance limits, location, and coverage amount. While some attorneys in low-risk practice areas can obtain insurance for as little as $500 per year, those in high-risk areas like securities litigation and class action defense may pay premiums ranging from $3,000 to $5,000 annually. Comprehensive policies with commonly accepted limits typically fall between $2,500 and $3,500 per attorney. Additionally, the size of the firm matters, with larger law firms generally facing higher rates than solo practitioners or small practices.

Attorneys should carefully consider their specific needs and compare quotes from multiple carriers to find the best coverage and price. Malpractice insurance is crucial for attorneys, as it provides financial protection in the event of errors, omissions, or negligence claims. It ensures that attorneys have the resources to defend themselves and continue practicing law, even when facing legal disputes.

The process of purchasing malpractice insurance can be time-consuming and confusing, but some companies, like ALPS, offer a 100% online application process, making it more accessible and efficient for busy attorneys. It is recommended to contact at least three carriers to compare costs, deductibles, coverage limits, and other terms. Attorneys can also seek guidance from professional liability insurers or brokers to explore different coverage options, such as "Employed Lawyers Coverage," which may include moonlighting and pro bono work.

While the cost of malpractice insurance may seem high, ranging from $500 to $10,000 per year or more, it is a small price to pay compared to the potential financial and career repercussions of facing a malpractice claim without adequate protection. Attorneys can adjust their coverage amount to find a more affordable premium if cost is a concern.

In summary, malpractice insurance is a vital investment for attorneys to safeguard their practice and finances. By understanding the factors that influence the cost of insurance and shopping around for the best options, attorneys can ensure they have the necessary protection to confidently continue their legal work.

Some insurers will only accept business through an agent

While many insurers are happy to work directly with attorneys, some insurers will only accept business through an agent. An agent is a person who represents a principal, who can be another person or a company, and acts on their behalf. In the case of insurance, an agent represents the insurance company and must be licensed by the state in which they conduct business.

Insurance agents represent one or more companies and are restricted to selling policies to particular people and for particular risks that the companies are willing to cover. They are provided with support and referrals from the insurance companies they work for, which can include being set up with an office or other workspace, and having access to an administrative staff to process paperwork. When consumers contact an insurance company about purchasing a policy, they will generally be referred to a captive agent that works in their area.

Independent insurance agents, on the other hand, are not contracted to work with a single company and can sell policies from multiple insurance companies. They have the benefit of being able to offer their clients a wider selection of coverage options but do not have access to the same level of support and referrals as exclusive agents.

Brokers are similar to agents but represent the insurance applicant rather than the company. They are familiar with many insurance companies and the types of risks they are willing to insure, and can therefore match the applicant to the insurer. They are also needed to provide a market for surplus lines, which are any type of insurance not offered by any insurer licensed to do business within the state.

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