Important Coverage Features of Lawyers’ Malpractice Insurance

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There are several grounds that can be used to bring malpractice action against attorneys. It is possible to bring both clients’ and non-clients’ suits.

Lawyers’ Malpractice Insurance policies, also known as lawyers professional liability policies, are not all created equally. There is no one policy that covers legal malpractice. Important policy provisions may differ from one insurance company or another. These policy provisions should be considered when comparing policies from different insurers.

• Electronic Media Coverage

Electronic media is a common way for law firms to do business. This coverage covers misdirection of emails or other media like intranet, extranet, and internet connections, as well as loss of client information sent via electronic media.

• First Party Cyber Liability Coverage

Insurance companies will reimburse insureds up to $25,000 for third party costs to reduce the risk of legal liability due to security breaches that result in the loss or theft confidential client information.

• Deceptive Trade Practices Acts (DTPA) Coverage

In certain jurisdictions, DTPA coverage can be important. Lawyers could still be held liable for certain actions pursuant to DTPA-type statutes. DTPA statutes allow an attorney to sue for misrepresentations. Not all DTPA damages are covered by legal malpractice policies. This includes the multiplied portion and triple damages.

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• Punitive and Exemplary Damages Coverage

Many policies that cover legal malpractice exclude punitive or exemplary damages. A policy that covers only the legal permissible areas would be preferred.

• Innocent Partner Protection

All policies exclude criminal, dishonest, or fraudulent acts of a lawyer from their coverage. Any other innocent lawyer covered under the policy may be eligible for coverage if they are not involved in these acts.

• Deductibles – Per Claim v. Aggregate and First Dollar Defense or Loss Only

You will be subject to a new deductable for each claim that you make against you in any policy year. Some policies include “aggregate” deductibles, which means that an insured will not have to pay more than one deductible in any given policy year. You can also get first dollar defense in your deductible.

• Alternative Dispute Resolution (ADR)

Insurers may waive part of the deductible (e.g. 50%), or even the entire deductible, if ADR is used in settlement of a claim.

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• Hammer Clause

A “hammer clause” allows the insurance company to settle a claim if the insured refuses to consent. The policy will then only pay the amount that the insurance company could have paid. This means that the settlement demand is the only amount that will cover the claim. It would be preferable if there was a more favorable consent-to-settle provision.

 Loss of Earnings

You can lose revenue if you spend too much time defending a malpractice case. You may be eligible for expense reimbursement/trial attendance coverage under some legal malpractice policies. This covers you for the time you are away from the office to defend a claim, such as for mediation, arbitration, trial, or your own deposition.

• Disciplinary Proceedings

Certain legal malpractice policies provide coverage up to $25,000 and $50,000 for defense costs related to responding to disciplinary proceedings. This could be an additional limit that is not subject to the policy deductible.

• Other Coverage Options

You may also have the option of:

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1. Predecessor firm coverage

2. Career coverage

3. Lateral hire coverage

4. Extended reporting periods (ERPs), for non-practicing, retirement and disability

Legal malpractice insurance policies can be different. It is important that you have an independent, knowledgeable agent who can help you get competitive quotes. Broad coverage, premium cost and financial solvency should all be considered when making a decision.