Don’t be guilty of ignoring the lawyers’ E&O marketplace

Every day hundreds of thousands of lawyers throughout the U.S. provide legal advice, depose witnesses, prepare and file various legal documents, negotiate contracts and settlements, make court appearances, attend administrative hearings, as well as provide a host of other legal services on behalf of their clients.

If a deadline is missed, if there is an error in contract language, if a client is unhappy with the outcome of a case, or even if there is a dispute over fees, a lawyer or law firm could face legal action for malpractice or negligence. The cost to pay damages and defend these lawsuits could seriously damage that lawyer’s or law firm’s financial stability. That is where insurance coverage for lawyers’ errors and omissions can provide both financial and operational protection. Sole practitioners or law firms that are underinsured, or that have not updated coverages to cover all aspects of their practice, are at significant risk.

There are a variety of markets writing lawyers E&O coverage on both an admitted and non-admitted basis. They target law firms based on the size of the firm, areas of practice, geographic location or firm history. Some programs focus hard-to-place law firms, those with negative claims histories or a practice in the more hazardous areas of law. Premiums vary depending upon the size of the firm, the firm’s areas of practice; its location and its claims history. A typical premium for a $1 million limit policy for a 25-man firm with a good claims history, engaged in the general practice of corporate law may range from $40,500 on the low side to $67,500 at the upper end.

Underwriting the risks

Underwriters of lawyers E&O not only look at the firm’s areas of practice and claims history, but also review the firm’s risk management procedures.They want to gain some comfort level that the law firm or attorney has measures in place to prevent claims stemming from poor client intake, missed dates and blown statute of limitations, conflicts of interest including those that arise from lawyers serving on board of directors of other entities, misunderstandings with regards to scope of services, errors in documents, or claims arising from action relating to collection of unpaid fees.

Agents should look for programs that include broad definition of “professional services” including services provided as a lawyer, arbitrator, mediator, fiduciary, trustee or notary public; or services as a member of a formal accrediting, ethics, peer review, licensing board or other professional board or committee. Coverage should also be included for disciplinary proceedings. Be sure, also, that the coverage includes not only the firm, but individual partners, associates, of-counsel attorneys and independent contractors or per diem attorneys who work on behalf of the insured firm. Predecessor firms should also be included.

Coverages

As an enhancement to comprehensive coverage, agents may also want to look for policies that include a non-practicing reporting period which provides an extension of coverage for an individual lawyer who retires or for a firm that ceases doing business.

Depending on the size of the firm, limits are available on a primary basis from $100,000 each claim/$300,000 aggregate, up to $10 million aggregate with excess coverage available above that. For mega-firms limits up to $300 million are possible. Most markets write up to $5 million limits with a minimum deductible of $5,000 per claim. On average, a minimum premium for $1 million limits is $5,000. Most policies are written on a claims-made basis. Look for prior acts coverage. Defense costs are usually included inside the limit.

Adding in EPLI

Rounding out lawyers E&O with employment practices liability coverage often makes sense. Many law firms do not see the need for this coverage and do not currently purchase it. With premiums for EPL at an all time low, the timing is right to recommend that clients add this coverage. EPL programs are available from a number of carriers or managing general agents. Coverage is most often written on a claims-made basis. Look for a product that offers full prior acts, third party liability and punitive damages (where insurable with favorable jurisdictions wording). Of particular importance to a law firm would be inclusion of coverage for Failure to Make Partner. Some markets will give consideration to the insured’s choice of defense counsel.

Limits available in EPL programs are generally up to $5 million although higher limits are available. Minimum deductibles can be as low as $2,500, but a $5,000 minimum tends to be the norm. As with the lawyers E&O protection, these programs may also provide risk management to its insureds including the availability of deductible or premium credits for consulting with legal counsel prior to a termination; hotline to provide legal or HR advice on employment related matters; availability of employee handbooks and various HR forms and management training in employment related issues.