Investing In Legal Malpractice Insurance Can Be A Professional Game Changer

TLTR: This blog discusses legal malpractice insurance, the areas it covers, and which professions require it the most. Additionally, the blog also explores how and where you can buy the policy from. 

Before we start, let’s go through a hypothetical scenario.

After studying for years in a widely recognized law school and practicing for decades, Tim, a 57-year-old divorce lawyer went bankrupt. In his last case, he was representing a client who ended up filing a malpractice case against Tim. Even after months of fighting the case, Tim ended up losing and with it lost all his fortune.

Had he applied for legal malpractice insurance, his insurance company would have helped him settle with his client by offering the client a payout or even paying the defense cost. Now Tim is facing a disastrous situation without anything to back him up.

According to Claims Journal, at least four legal malpractice claims cost more than $100 million in 2020. It’s safe to say that if Tim was covered under the policy, he wouldn’t have gone bankrupt.

In this blog

Introducing Legal Malpractice Insurance

Legal malpractice insurance, or simply malpractice insurance, is a policy that protects you if your legal counsel or attorney fails to properly handle your case. It can be terrifying to think about needing this type of insurance but it is important at the same time. Legal malpractice insurance policies are generally offered as part of an all-inclusive package for lawyers and attorneys. It can also be purchased separately depending on the individual’s needs — regardless of their profession.

Simply put, legal malpractice insurance is a specialized type of professional liability insurance. When you face a lawsuit that accuses you of incompetence, legal malpractice insurance can provide you a way to stay financially afloat.

Legal malpractice insurance is a topic not often discussed by every professional field. The common misconception is that most people don’t have any need for such insurance because they don’t work in the legal field. But when you’re looking to protect your business and livelihood from lawsuits, it’s an important consideration.

How Does Legal Malpractice Insurance Work?

The policy is usually written as a “claims made” or “occurrence made” policy.

Claims-Made Policy: A “claims made” policy means that claims made during the time the policy is active will be covered. For instance, let’s say the case in question took place in 2018, and your policy covers you from 2020 till 2025. If the claim is made in, say, 2021, the policy will have you covered.

Occurrence Based Policy: An “occurrence based” policy means that coverage extends for any incidents which took place while the policy was put in place. For example, If the policy was active between the years 2015-2020 and a malpractice incident occurred in 2017 then the policy will cover all the future claims.

Note: Occurrence-based policies are generally seen as a sub-category of medical malpractice insurance. Please refer to your insurance provider in order to know which type is applicable for your profession. 

Legal malpractice insurance generally works similarly to the likes of lawyers insuranceemployment practices liability insuranceengineer insurancehandyman insurancerisk insurance, and more. The policy covers you for errors and omissions that may come up in your profession.

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What Does Malpractice Insurance Cover?

There are various kinds of costs covered under legal malpractice insurance. Some of these are:

    • Lawyer fees
    • Medical damages
    • Punitive damages
    • Settlement
    • Arbitration costs
    • Defense fees
    • Expert witness costs

Note: Remember that the policy will only cover you up to the specified policy limit. 

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Legal Malpractice Insurance:
The Specializations Which Need It The Most

Health Care

Malpractice insurance for health care workers is popularly known as medical malpractice insurance. The policy covers healthcare providers. It can be understood as professional liability insurance which protects licensed professionals from liabilities that may be associated with their own practices. Liabilities occur when there is any form of misconduct from the professional’s end.

Health care is a broad category and has many different professions. Medical malpractice insurance is available for almost all variations. For example, you can purchase malpractice insurance for doctors as well as counselors.

Here is a list of health care workers for whom legal malpractice insurance is crucial:

    • Nurses
    • Physical therapists
    • Practical nurses
    • Yoga instructors
    • Personal trainers
    • Physicians
    • Assistants
    • Anesthetists
    • Registered Nurses
    • Chiropractors
    • Surgeons
    • Pharmacists
    • Dentists
    • Optometrists
    • Psychiatrists
    • Counselors/therapists
    • Nursing/medical students and more

Medical malpractice insurance is one of the most popular malpractice insurance categories and for good reason.  According to Yale News, estimates of preventable death are too high in the U.S. The number goes up to 22,000 deaths a year. The article says that medical malpractice is the third leading cause of death in the U.S.

Note: Medical malpractice insurance is generally a little expensive. The expense is likely to increase if you work in a new or extremely specialized field. On average, the cost of the policy is about $7,500 per year. 

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It’s a commonly known fact that legal malpractice insurance is essential for everyone who practices some or the other form of law. According to the Insurance Business Magazine, malpractice claims in the legal sector are rising rapidly. Evidently, the number of claims which require multimillion-dollar payouts is dramatically increasing.

Many practicing lawyers and attorneys believe that legal malpractice insurance should not be mandatory in order to practice law. However, as explained in The Indiana Lawyer, states such as Idaho and Oregon require professionals to carry the policy to practice. California and Washington are also actively considering implementing the law. Those in favor say that clients might not get relief if a lawyer fails to procure finances.

Note: the average cost for legal attorneys for malpractice insurance is around $1,200 to $2,500 per year. However, the annual price can range between $3,000 to $10,000 if the attorney practices in a higher-risk area. 

Educational Institutes

Every industry has its unique insurance needs. For educational institutes, safety is one of the top priorities. However, maintaining safety can be difficult amidst all the things that can go wrong. One of them being school shootings.

According to The Washington Post, the trend of mass shootings in schools has started to surge as schools are beginning to open post the pandemic. Having a comprehensive insurance policy is important for schools, colleges as well as universities.

Legal malpractice insurance for educational institutes isn’t commonly heard of. It can make a significant difference in a school’s functionality. It takes a lot of finances to run a school. Especially so if the school has many unique programs for its students.

For instance, if an educational institute is known for admitting children to various kinds of scholarships, then it would be sensible for them to offer their students malpractice insurance. In any case, the student slips up or makes a mistake, the insurance can help secure their career.

How To Buy Malpractice Insurance?

Here are five easy steps to buy legal malpractice insurance today:

Step One: Find the Right Provider

Finding an insurance company that fits your needs is the first step. You will need to do some market research on this — both online as well as offline. Most companies don’t put their quotations online. So, after the initial online research to figure out which companies cover in your state, find their reviews and rates by talking to them.

To help you get started on the process, here are some of the best malpractice insurance companies as per Investopedia

Insurance carrier Known For
Proliability (Professional Liability Insurance) Best for any kind of malpractice insurance
Nurses Service Organization Best for nurses malpractice insurance
Healthcare Providers Service Organization Best for therapist/psychologist/psychiatry malpractice insurance
Dentist’s Advantage Best for dentists malpractice insurance
CoverWallet Best for social workers malpractice insurance
State Volunteer Mutual Insurance Company Best for doctors malpractice insurance
360 Coverage Pros Best for attorney malpractice insurance

Step Two: Be Careful with the Forms

Legal Malpractice insurance requires you to fill out forms in the initial process. These forms need to be detailed so that the insurer can properly cover all your assets. Make sure you don’t withhold any kind of information form the company or your agent.

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Step Three: Know Your Policy Limits

It is quite important to know the specifics of your coverage. A standard legal malpractice insurance policy doesn’t tend to cover the acts prior to the coverage. Make sure you check the contract thoroughly. Additionally, also check with your agents and companies before you buy the policy.

Make sure you also see the monetary limits of your insurance policy. It’ll help you plan your legal action (if required) accordingly.

Step Four: Know When the Coverage Starts

Many legal malpractices insurance policies take a while to start even after you have paid for your deductibles and your premiums. Make sure you are careful with the dates before you get into risky business.

Step Five: Know About the Claim Process

If you find yourself in a situation where a client makes a malpractice claim against you, make sure to inform your carrier immediately. If you handle the claim on your own, the insurance company may refuse to pay for your legal fees or for your settlement. Make sure that you follow the proper insurance claim process.

Conclusion

It is important to be aware of the risks that you are undertaking by not having legal malpractice insurance. You may think your company will never face lawsuits, but life can take some unexpected turns and lawsuits happen without warning.

Legal malpractice insurance is a type of liability insurance that helps protect against the consequences of negligent or erroneous work. It is a normal human tendency to make mistakes and also to look out for yourself in case of such scenarios.

If this sounds like something you would want for your business or if you need more information on why it’s so crucial to have legal malpractice insurance for your profession, find an agent today and ask them about our affordable options!

Frequently Asked Questions (FAQs)

Are some professional areas riskier than others?

Yes. Some professionals are riskier than others. For example, a healthcare provider’s job is riskier than that of an educator. In terms of legal malpractice insurance. It’s generally seen that health care providers usually go for the costliest coverages in comparison to other professions especially because of the risks.

Can I purchase legal malpractice insurance on my own?

It depends. Some carriers allow you to purchase directly from them while others prefer that you go through an insurance agent or an insurance broker. You are going to have to check with your insurance provider.

How much legal malpractice insurance do I need?

This is different for every professional. It depends on the kind of risks and clients you have to deal with. Additionally, it also depends on the kind of service/products you provide. It also depends on both your professional as well as personal assets.

For example, if you are an esthetician and have a low limit of say $80,000 then it certainly won’t be enough if a client files a suit against you. The amount will barely cover the legal fees to fight the case.

You should consult your insurance provider and evaluate your assets, profession as well clientele to see how much insurance is adequate for you.

Do Non-profit workers require malpractice insurance?

Yes, they do. Non-profits work closely with causes that involve many people so it would be recommended to get legal malpractice insurance for social workers. However, they can also substitute the legal malpractice insurance with comprehensive commercial general liability insurance or add malpractice insurance to their existing insurance for non-profit.

What all do I need to disclose in my legal malpractice insurance form?

When applying for a legal malpractice insurance policy, you will be required to fill out a detailed form. It is crucial that you truthfully fill out this form.

You need to also tell your insurance provider about any potential claims. So, for example, if a client has threatened to file a lawsuit against you or where your job/business then you should mention it in the form.

In any case, where you withhold information from your carriers, your claim can be denied.  

What Are Some Questions to Ask the Insurance Company When Buying Legal Malpractice Insurance?

Here is a list of questions you can ask:

  • What are the limits of the coverage?
  • Does the policy cover your line of practice?
  • What is deductible under the policy?
  • Is there a specific term for the current coverage?
  • Will there be transparency if their services are no longer applicable to you?
  • Can they provide you with a Certificate of Insurance?
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