By Chiara LaPlume, Esq. and Terence J. Welsh, CPU, AIS
When purchasing professional liability (malpractice) insurance, you should consider several details:
- Liability limits, i.e., how much the insurance company will pay and what a firm is required to have by clients or vendors (e.g. banks, lending organizations, CPCS, etc.).
- Deductible, i.e., how much does the insured need to pay before the insurance company is required to pick up the tab. The higher the deductible, the lower the annual premium. Also, an “each claim” (deductible is paid for every claim) or an “aggregate” (one amount for the policy period) deductible may be offered. “Each claim” deductible policy premium is cheaper as the attorney shares more of the financial risk.
- All policies provide for defense and indemnity payments. Some offer defense costs to be outside of the policy limits meaning that any defense payments are in addition to and not a reduction of the available policy limits. This policy benefit will be a higher premium than “inside the limit” policies.
- Board of Bar Overseers (BBO) complaint defense inclusion. Sometimes unhappy clients will file a complaint with the BBO instead of suing, as this is a cheaper way for them to seek retribution. Some policies include defense before the BBO; others do not. Some have a specific limit available for BBO defense and some allow the attorney to select defense counsel while others do not.
- Does the carrier provide tail coverage2 for free or at a reduced fee if you stay with them for a period of several years? Although you may be far from retirement, you might have a change of career or become disabled. It is always useful to understand if a carrier is willing to provide free tail coverage if you stay with them for several years (usually three to five), or what the terms of coverage will be.
- If you leave a firm and want to protect yourself for work you did while at that firm, does the policy allow you to purchase an “individual tail policy”? If a firm dissolves and does not purchase a tail policy, all past and present attorneys are then open to financial risk for any future claims arising from the dissolved firm. Individual tail policy provides that protection.
- The complexity of the annual application form: More than one attorney has been happy to pay a slightly higher premium so they would not have to deal with very complex annual application forms. Depending on your record-keeping, certain schedules can be very hard or time-consuming to complete, depending on your areas of practice.
- If you use a premium finance company3 to pay for your malpractice insurance, be aware that they usually have the legal authority—known as “power of attorney”—to cancel your policy if you miss a payment. They often act quickly to cancel in order to protect their financial agreement with you, and the insurance company must honor their cancellation request. This means your coverage can end suddenly if a payment is missed.
- ALL MALPRACTICE POLICIES ARE DIFFERENT! Often times agents and brokers tell firms that the “coverage is the same” in an attempt to write their policy. Limits, deductibles, effective dates and retroactive dates might be similar, but the policy language is very different for each policy. Policy language determines whether a claim is or is not paid and at what amount. Insurance policies are contracts and should be read and understood.
