We’ve all heard of medical malpractice, and we all know it’s a situation in which a doctor or other healthcare professional makes an error during patient care. Did you know that other professional career fields also have malpractice rules? The legal field, for example, refers to malpractice as either professional liability or errors and omissions.
Regardless of the name, malpractice is still malpractice. Someone made a mistake, and it has affected someone else. In the case of an attorney, clients can sue them for malpractice. Unfortunately, in the last few years, it seems that clients are more likely to sue than ever.
If only there were something to protect professionals from these lawsuits, whether frivolous or founded. Luckily for those who have chosen law as a career path, there is. It’s called malpractice or professional liability insurance.
- How much is the average cost of legal malpractice insurance?
- What factors affect the cost of legal malpractice insurance?
- 5 ways to lower your legal malpractice insurance cost
- Is legal malpractice insurance required in every state?
- How do you get legal malpractice insurance?
- Do you need legal malpractice insurance?
How much is the average cost of legal malpractice insurance?
The average annual cost of legal malpractice insurance for a new attorney is around $500. For an experienced attorney practicing in a high risk legal area can expect to pay as much as $6,000 a year with several years of retroactive coverage. In general, a typical attorney with 5+ years of experience should expect to pay $2,500-$3,500 a year.
| Types of attorneys | Legal malpractice insurance costs |
| New attorneys | $500 a year |
| Experienced attorneys practicing in high risk legal areas and many years of retroactive coverage | $6,000 a year |
| A typical average attorney with 5+ years of experience | $2,500-$3,500 a year |
What factors affect the cost of legal malpractice insurance?
Since the cost of a legal malpractice insurance premium varies, let’s discuss the factors that can affect the price.
Location
The state in which you practice law can significantly affect your premiums. Each state starts with a base rate for malpractice insurance premiums. Then, rates are set for the areas of expertise. Finally, insurance companies can adjust rates based on the number of claims within the state.
Size of the firm
Each attorney will have billable hours based on the number of clients and kinds of cases. Because these vary depending on the attorney (and the specialty), insurance companies bill based on the rate that doesn’t differ as often—the number of attorneys practicing. Insurance carriers find it easier to base rates on the firm’s size rather than its amount of money. Additionally, more attorneys mean more liability in general due to the number of handled cases.
Hours worked annually
Does your firm have anyone who only works part-time hours—less than 1,000 hours annually? If so, you could get a discounted rate. Some insurance companies give discounts for part-time work, but it depends on the firm’s state.
The firm’s area of expertise
Most law firms specialize in a particular form of legal practice. These specialties carry inherent risks that insurance companies evaluate when quoting coverage costs. The premiums are higher if your area of practice carries a higher risk factor.
Length of continued coverage
Typically, a law firm is considered mature after five years of continuous insurance coverage. Prior to the five-year mark, insurance companies will likely raise premiums yearly. Beyond the five years, the premium is no longer raised annually but can still change based on other factors like the number of claims or attorneys in the firm.
Number of claims
As is valid with any insurance, multiple claims will affect your premium rates. Insurance companies can raise rates based on how much money they pay out for a claim. If your insurance company covers a large malpractice settlement for you, then you can expect a premium increase.
Firm management
Insurance companies look at several factors when determining your insurability. One of the lesser-known factors is the way you handle your management practices. The way you handle your calendar, your communication practices with clients, and the sizes of your cases all factor into your management practices. Insurance companies will ask a series of questions to tell them how efficiently you run your office, and they will factor that into your premium cost.
5 ways to lower your legal malpractice insurance cost
Legal malpractice insurance is necessary but since it is not required by laws, many attorneys wonder whether they should have it. With a few hundreds a month, they will have the peace of mind if any law suits incur. Buying insurance is a tricky issue since you may pay premiums for years without having any benefits from it. But when you do, it will be so relieved that you have it. Legal malpractice insurance isn’t too expensive given that 5% of attorneys get used each year. There are ways for you to lower the legal malpractice insurance cost too.
Increase your deductibles and lower coverage limits:
Deductibles and coverage limits are the two variables in determining the cost of legal malpractice insurance. The higher the deductibles are, the lower the cost is. The lower coverage limit is, the lower the cost is. You can choose to increase the deductibles to lower the cost, especially if you believe that the chance for you to get sued is low since you only have to pay the deductibles when there is a claim against you.
Coverage limit is another variable that you can control to lower your legal malpractice insurance cost. The standard coverage limit is usually $1M/$3M. However, if you don’t think you would need up to $1M coverage for each law suits, you can ask to lower your coverage to $100K, $300K, or even $500K.
Limit tail coverage
Professional liability insurance or malpractice insurance is a claims-made policy, ie. you are covered only when the claim is being made while you are having the coverage. If you are sued for an engagement happened before you current coverage starts, you are not covered. That is the reason why a lot of people are looking to add tail coverage to their legal malpractice insurance policy to have coverage for their prior acts during the prior period when their current policy hasn’t started. This usually increases the cost of your legal malpractice insurance.
You can choose to limit the tail coverage period by changing the retroactive date of your policy to lower the cost. For example, initially you may want your policy to have the retroactive date to be 5 years ago when you worked at the previous firm. However, you realized that in your first 2 years at the firm, you just did a lot of internal work for the firm and did not engage in important clients. You may want to change your retroactive date to cover the previous 3 years only. That would lower the cost of your legal malpractice insurance policy.
Implement risk management best practices in your firm
Getting sued for malpractice is always about making mistakes or omissions. Having a risk management system in place and implement the best practices in your firm is an effective way to avoid making mistakes and omissions, especially the ones that could lead to malpractice law suits. Below are the top 3 risk management practices that you can consider:
Engagement and fee agreement letter:
It sounds simple, isn’t it. But it will help manage the risk of your law firm significantly. Always have an engagement and fee agreement letter as detailed as possible. This will help yourself and your insurance company when they try to defend you. It also helps set the right expectations with your clients for them to understand the scope of your service and what you expect from them.
Declination and disengagement letter:
Similar to the above, always issue a declination letter if you refuse a case with clear reasons and a disengagement letter when you decide to end a relationship with a client, even you have worked with them for years, with clear reasons and date and time of the disengagement. Be sure to always send a disengagement letter when you finish a case with a client and both sides do not expect additional business in the foreseeable future. You will be surprised how much this help improve your practice’s risk management and reduce your legal malpractice insurance cost.
Maintain a central docket system
You will be surprised that how many law suits against attorneys for legal malpractice is related to missing important meetings and court dates. That is the reason why it is important for every law firm to implement and maintain a central docket system to keep track of and a record of all important meetings and court dates, etc. This central docket system can also be used to keep track of your practice’s billing system. It should give you a clear picture of who pays you, how much, and when. It should link to your online calendar software.
Ask for discounts
Insurance companies offer many types of discounts. Be sure to ask your broker or agent that you are working with for the list of discounts the company offers to see which one you can be qualified for. As many insurance companies place the importance on risk management best practices, they have offered many discounts for using different risk management software. This will help you improve your risk management practice and lower the cost of legal malpractice insurance through discounts.
Shop around to compare several quotes
Last but not least, as in any insurance types, be sure to shop around with a few companies or with a broker or agency to compare several quotes to select the cheapest one for you. Different insurance companies have their own underwriting engine and will offer you different quotes and rates, do not settle on one policy until we see at least 3 quotes from three different companies. Many companies nowadays offer quotes online. It should take you less than 10 minutes to get a quote from a particular company.
When comparing several quotes, make sure you compare these quotes with the same deductibles and coverages.
Is legal malpractice insurance required in every state?
You may be wondering if legal malpractice insurance is a requirement in your state. The answer to this question is not a cut-and-dried, one-size-fits-all answer. Like many other things, each state has its own regulations for legal malpractice insurance.
While not requiring malpractice insurance, many states require disclosures regarding whether you have the insurance. Several states require these disclosures to be made public record giving clients the ability to use the information as they choose their attorney.
It’s advisable to search your state’s regulations to determine if you must have the coverage. Regardless of the requirements, it’s recommended that you consider professional liability insurance as protection for yourself and your firm. If you’re considering malpractice insurance, you’ll want to know how much it costs, so let’s take a look at that.
How do you get legal malpractice insurance?
In our digital age, it’s relatively simple to get legal malpractice insurance. Many companies provide online pricing quotes. Some, like Embroker or Attorneys’ Advantage (a subsidiary of Aon) allow you to complete the process from start to finish online. Most of the time, it only takes approximately ten minutes from start to finish to complete the application for a quote.
Some insurance companies still provide face-to-face service for their clients. A local insurance company might be the right choice for you if you prefer in-person contact with your agent. Also, some firms will apply discounts for multiple policies.
Whether you choose a completely online experience or a person-to-person relationship with your insurance company, ensure that you compare the same coverage when you get quotes. Some companies offer different levels of coverage. Carefully consider the types and amounts of coverage you need.
Learn more at the best legal malpractice insurance companies
Do you need legal malpractice insurance?
Some attorneys choose not to carry malpractice insurance if they aren’t required to do so. However, malpractice insurance is an excellent tool to have and use, especially if you are in a high-risk category for lawsuits. No matter how careful you are, it’s still possible to make a mistake, so it’s best to protect yourself from the beginning.
It’s wise to assess the risks of practicing law without malpractice insurance policies. With insurance, you are protected from the cost of a malpractice suit, no matter how frivolous or unfounded it might be. Without insurance, you would be responsible for your own legal expenses regardless of the case’s outcome.
Final thoughts
Malpractice insurance is not something that has standard pricing. Several factors affect the amount you will pay for a legal malpractice insurance policy. Before deciding on a policy, it’s best to discover your state’s requirements and shop for multiple quotes.
Nothing says you can’t shop around for the perfect insurance portfolio for you and your firm. Remember, your location and your areas of expertise will profoundly affect your insurance coverage guidelines, as will the size of your firm.
Choose your insurance coverage wisely. Be sure that you are comparing comparable coverages when you look at quotes. Whether you want an entirely online experience or an in-person agent, not all insurance or insurance companies are the same. Think of professional liability insurance as an investment in the future of your career.
