When the Lawyer Gets Sued

Although a legal malpractice lawsuit is hard to win, clients will not hesitate to sue if they feel your services weren’t up to par. Things like missing filing deadlines, skipping court dates, or making an agreement without client approval can set you up for a professional liability claim. 

Even if the accusation has no merit, you will still have to spend time and money defending yourself, your employees, and your firm. You will lose billable hours at trial or mediation, and you could incur substantial research and document fees. Remember what Abraham Lincoln said: “The man who represents himself has a fool for a client.”

Lawyers’ professional liability (LPL) insurance is written to cover all of these potential losses, keeping your firm’s money available for payroll and everyday expenses.

Customize your policy to meet your firm's needs

Some insurers offer a broad definition of insured parties, including independent attorneys you may need to contract with for certain cases. A policy might also assist with crisis response and coverage for disciplinary proceedings. Your insurance agent or broker can explain the details, but here are some questions you can ask:

• Is it easy to add new attorneys to the policy?
• Can you name part-time attorneys as insureds?
• Are there restrictions on the types of law practiced, such as on tax or patent law?
• Are ancillary services covered, such as service on a board of directors of a professional organization?
• Does the policy cover investigations and subpoenas?
• Is there an extended reporting period for attorneys who leave the firm or die?
• Do defense costs eat away at total coverage, or are they paid outside of the policy limits?
• Can we choose our attorney, or does the insurer make that selection?

Important claims information

LPL policies are written on a claims-made basis, meaning they cover claims made while the policy is in force. Some insurers include coverage for events that occurred before the current policy’s term if either:

• The policyholder has been insured continuously with the same insurer from the time the claimed event occurred through the time it was reported, or 
• The current policy contains a retroactive date on the declarations page, and the claimed event happened on or after that date.

File claims in a timely manner

You will also have responsibilities regarding the timeliness of reporting of claims, even potential claims. Failing to adhere to these deadlines can nullify coverage. A “potential” claim usually consists of your becoming aware of a breach of professional duty, an error or omission, or a failure to render service that resulted in a personal injury to a client, including financial injury. 

Many insurers offer a hotline you can call to determine what threshold a potential claim should meet to merit reporting to the claims office.

No coverage for dishonest acts

No professional liability contract will cover illegal or dishonest acts. For some of these, such as embezzlement, you might be able to insure your attorneys through a fidelity bond. These protect your firm against acts by an employee, such as forgery, theft of client assets, or the illicit transfer of funds.

Coverage exclusions and limits

Be aware that punitive, multiplied, and exemplary damages are frequently excluded from LPL coverage. That is especially important these days because of “social inflation." This is a trend in court judgments whereby plaintiffs are awarded massive sums based on the “social justice” inclinations of jury members.

Know that your policy will have per-occurrence limits as well as aggregate limits on how much the insurer will pay out. Sometimes the two are the same, meaning your full amount of coverage is available for a single claim if needed. In other instances, the per-occurrence limit is much lower. Check with your agent about the limits on your policy.

Special extended coverage

A professional liability claim may come in after an attorney has left your firm or died. It might seem that your firm would face serious losses in these cases, but you can secure coverage for these circumstances. Many policies already contain language that extends protection for the following: 

• Past or present partners
• Managing directors
• Employees of a named insured
• A predecessor business
• A successor business (acting on behalf of the named insured during the policy term)

Added protections for covered events

Also included in many lawyers' professional liability policies is a clause that protects a deceased insured’s estate, heirs, executors, administrators, and legal representatives in the event of the insured lawyer’s death, incapacity, insolvency, or bankruptcy from events otherwise covered by the policy.

Extended reporting period 

You can also purchase an extended reporting period (ERP), sometimes called “tail” insurance. This protects you when claims are reported after a claims-made policy expires, as long as the occurrence generating the claim happened while the claims-made policy was in force but before the ERP became effective. Some policies have this built-in, while others don’t.

Career coverage 

For attorneys who want professional liability insurance that follows them no matter where they work, there is a product called “career coverage.” You can add it to your firm’s policy, or purchase it as a stand-alone product. It offers protection in case your firm's policy doesn’t cover an attorney’s prior or future liabilities. These policies are expensive and hard to find. For these reasons, law firms rarely purchase them. But for solo practitioners or lawyers concerned that past employers might let their coverage lapse, it can be an important product.

Commercial excess liability

One important consideration for your law firm is whether to purchase commercial excess liability insurance. That can be written to add coverage limits that are triggered when the limits of your lawyer's professional liability policy are exhausted. This can be a valuable addition to protect against extreme judgments.

LPL won't cover a data breach

People trust their attorneys with sensitive information, including data storage. Law firms are at risk of cyberattacks like ransomware and malware. If the error or negligence concerns a data breach, you will have to face multiple issues on top of your liability, such as:

• Paying settlements and government fines
• Sending mandatory data breach notices
• Securing and recovering your data 
• Hiring a cyber forensics team to determine how the hack occurred
• Paying for required credit monitoring services
• Correcting harm to your firm’s reputation

LPL does not cover cyberattacks. Cyber liability insurance is the go-to policy for a data breach.