In Part I of my blog, I went through the issues you should consider when deciding how much insurance your firm needs. Part II will go over the features and benefits you should understand as you evaluate your existing insurance policy or shop for a new carrier.
First and foremost, take advantage of your legal community network. Talk to your friends. Talk to your state bar. Who has had a good experience? Talk to attorneys/defense counsel who defend legal malpractice claims. What carrier(s) would they recommend and why? Once you’ve narrowed your choices, consider the following as you compare your options:
1) Make sure you are comparing apples to apples!
The most significant difference between professional liability polices is whether the defense limits or cost of defense are inside the indemnity limit or erode the policy. If the limits are eroding, every dollar spent on defense reduces the available limit of indemnity. An eroding limits policy provides significantly less coverage than a non-eroding policy. This is particularly critical in today’s market, where the cost to defend a legal malpractice claim is at a record high.
Suit has been filed and served against an attorney in Las Vegas. Damages prayed for in the complaint are over $2,000,000.
Attorney A has a policy with $2,000,000/per claim limit of liability/$4,000,000 aggregate and an outside defense allowance of $1,000,000.
Attorney B has a policy with $2,000,000/per claim limit of liability/$4,000,000 aggregate, and the limits erode the indemnity limit of liability.
Note: Attorney A’s policy provides $1,000,000 of defense costs to defend claims before the $2,000,000/$4,000,000 indemnity limits begin eroding.
Conversely, Attorney B’s $2,000,000 indemnity limits begin reducing the minute defense counsel is hired. Attorney B thought he was getting a “great deal” when he received his quote, but he didn’t realize that he was not comparing apples to apples.
2) Make an informed decision before declining cyber and employment practices liability insurance.
Cyber Risk and Security Breach Liability Insurance is necessary for law firms today. It is not a matter of if you will get hacked but when. Education for all staff and attorneys is critical. Often, you will not know of a breach for several months or longer. Compliance with state and federal breach notification laws is time consuming and expensive; firms are often unsure what information has been compromised when a breach happens six months or a year prior. Your firm’s reputation is at stake. How your firm handles the breach is of the utmost importance to your clients and your employees. ALPS provides a Cyber Risk and Security Breach Liability Insurance Policy option for our policyholders to help minimize this risk. Before you decline this option, make sure you have made an informed decision regarding protecting your firm against this threat.
Employment Practices Liability Insurance is not just for large firms. Allegations of wrongful termination, demotion and sexual or non-sexual harassment occur at law firms of any size. Retaliation claims based on alleged unlawful discrimination are made at small and solo firms by staff when an attorney is too busy or simply does not appreciate what it takes to run an office. These claims are often fact-intensive and expensive to defend. Has your firm educated your employees and made an informed decision on how best to protect against this risk? If you are an ALPS insured, you can add an ALPS Employment Practices Liability Insurance Policy to help make sure your firm is protected.
3) How can your firm obtain the coverage you need without breaking the bank?
ALPS realizes that difficult decisions must be made based on your firm’s economic situation. Most firms are under significant pressure to reduce costs. Your firm’s insurance is just one of those costs.
Here are a few helpful tips:
- Consider increasing your deductible as much as possible; under the ALPS policy, no matter how many claims your firm has in a policy period, your firm can only be billed for two deductibles per policy period. Your firm should consider whether it would make sense to increase your deductible to $5,000/$10,000/$25,000 or more per claim.
- if you qualify and your firm purchases an ALPS Enhanced Policy, your firm will receive $25,000 per year per policy period to defend against bar complaints. This benefit does not trigger the firm’s deductible. There are additional benefits provided under the ALPS Enhanced Policy, including reimbursement for loss of earnings when attending trial, reimbursement for civil liability under the Fair Debt Collection Practices Act, and reimbursement for Public Relations Expenses. Additional requirements apply to each supplemental payment. Please refer to your ALPS Enhanced Policy, or contact your ALPS Account Manager to learn more.
- Ask about and evaluate whether the First Dollar Defense (FDD) endorsement is a good option for your firm going forward. If your firm has always purchased the FDD endorsement, assess whether it is still a good fit after looking at your firm’s areas of practice. While most attorneys believe any claim brought against them will be meritless and successfully defended and dismissed by dispositive motion, in fact, the majority of claims are not litigated through to a defense verdict; they are resolved via settlement and the firm pays its deductible at the time of settlement. Without the FDD Endorsement, your firm would incur payment of your deductible as defense costs are incurred.
- Find out if your firm qualifies for the ALPS Enhanced Policy with $2,000,000/per claim indemnity limits or above, as this provides your firm with an outside defense allowance of $1,000,000. More bang for your buck. However, this does not apply if you practice in an area associated with more severe or large claims losses, and/or you have sophisticated clients with large net worth and you live in a large metropolitan area. If either circumstance applies, ALPS would suggest the Enhanced Policy is likely inadequate coverage to insure against your firm’s risk.
Have you ever heard anyone who has had a claim or been involved in litigation say, “Gosh, I sure wish I would have bought less insurance!”? Me neither.