What Is Legal Malpractice Insurance and What It Covers

Legal malpractice insurance is a type of liability insurance that protects lawyers from financial losses due to errors or omissions in their professional services.

This insurance is essential for lawyers as it helps them cover the costs of defending themselves against malpractice claims, which can be expensive and time-consuming.

The cost of legal malpractice insurance varies depending on factors such as the lawyer's experience, location, and type of practice.

Legal malpractice insurance is designed to protect lawyers and law firms from claims of professional negligence and errors. It covers defense expenses and settlements or damages you're required to pay.

Some errors that fall under the umbrella of legal malpractice include misinterpretation of the law, giving poor advice, missing important deadlines, and not disclosing a conflict of interest. These mistakes can lead to costly claims, even if a breach of duty hasn't occurred.

The policy you choose should have a clear start date, as practicing before your policy is effective can leave you vulnerable to claims. Most policies exclude coverage for claims lodged against you before the policy is active.

Here are some common claims that legal malpractice insurance covers:

When you're considering legal malpractice insurance, it's essential to know what isn't covered. Intentional criminal or fraudulent conduct is typically excluded from coverage.

Some types of claims are automatically excluded from coverage, including claims for bodily injury or property damage. Employment-related matters, such as harassment, discrimination, or wrongful termination, are also usually excluded.

Claims against other lawyers within the same firm are often excluded under an insured vs. insured exclusion. If you were aware of the potential for a lawsuit before obtaining malpractice insurance, the insurance company will exclude that claim from coverage.

Here are some key exclusions to keep in mind:

Innocent Insured coverage provides protection to attorneys for acts or omissions of other attorneys who are Insureds under their policy.

This coverage is specifically designed for situations where the innocent insured had no prior knowledge of the act or omission and did not participate or acquiesce in it.

To be eligible for this coverage, the innocent insured must report the act or omission as soon as they have knowledge of it.

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If you're an attorney, it's essential to know what isn't covered by malpractice insurance. Criminal conduct, for example, is typically not covered by legal malpractice insurance, which only covers errors and omissions, not intentional criminal or fraudulent acts.

Employment-related matters, such as claims for harassment, discrimination, or wrongful termination, are also usually excluded from coverage. This is because there are other types of insurance that can cover such claims.

Breach of fiduciary duty is another common exclusion. This means that if you're accused of violating your duties as a lawyer, you may not be covered.

Legal malpractice insurance is limited to coverage for claims arising out of the delivery of legal services. This means that if you're sued for something you did in a non-legal capacity, such as as a board member or business partner, you may not be covered.

Claims against other lawyers in your firm are often excluded, even if the entire firm is insured. This means that if one lawyer sues another in the firm, the claim may not be covered.

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Here are some common exclusions to be aware of:

It's also worth noting that if you fail to disclose potential claims against you at the time of policy underwriting, the policy may exclude the claim from coverage.

Fdcpa Damages are covered under legal malpractice insurance, specifically awards arising under 15 U.S.C. Section 1692k(a), the Fair Debt Collection Practices Act.

Damages under the FDCPA can be substantial, and the policy may cover the costs of awards and settlements given to the plaintiff, up to policy limits.

For example, if a client suffered $100,000 in damages due to a debt collector's violation of the FDCPA, the policy might cover the full amount.

Legal malpractice insurance policies can be tailored to fit your specific needs. Package lawyers professional liability insurance with other essential coverages, such as Cyber and Workers Compensation.

There are different types of policies available, including first dollar defense and coverage that follows the attorney. First dollar defense means you pay a deductible only if there is a payment for damages. With coverage that follows the attorney, insured attorneys are covered for all their legal services unless a specific exclusion applies.

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Here are some key features to consider when evaluating a policy:

You can package Lawyers Professional Liability insurance with other essential coverages to create a tailored policy. Embroker makes it simple to get started.

Cyber insurance is a great addition to Lawyers Professional Liability insurance. It protects against data breaches and cyber attacks that could compromise sensitive client information.

You can also add Workers Compensation insurance to your policy. This coverage is usually required by law, but it's also a good idea to have in case you need to cover medical expenses and lost wages for employees who get injured on the job.

Some carriers also offer extended reporting coverage, which allows you to report claims after the policy expiration date. However, qualification is subject to underwriting guidelines.

Here are some common policy combinations that you might consider:

By combining these policies, you can create a tailored policy that meets your specific needs and provides comprehensive protection for your law firm.

Liability limits are a crucial aspect of legal malpractice insurance policies. They determine the maximum amount the insurance company will pay for damages and defense costs.

First dollar defense policies pay your defense costs not to exceed the limits of liability, but only if there is a payment for damages. This means you won't have to pay a deductible if there's no payment for damages.

Depleting limits of liability are a common feature of legal malpractice policies. As the carrier pays for defense costs, the coverage limit for the claim will be reduced by the amounts paid for the defense.

For example, if you have a policy with a $100,000 coverage limit and the insurance company spends $50,000 on defense, you'll be left with $50,000 to pay for any settlement, adverse judgment, or future defense costs.

The higher the volume of work your law firm handles, the more important it is to consider the aggregate limit in the policy for all claims in a policy period. This is because multiple claims can be asserted against the firm, and the policy limits would be exhausted when the aggregate limit is reached.

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