Claims-Made Professional Liability Policies for the Legal Profession: What You Need to Know

JANUARY 19, 2024

The pivotal importance of professional liability insurance for lawyers and legal offices in protecting against various risks and potential legal claims is multi-dimensional and crucial for maintaining the stability and integrity of any legal practice. Comprehending the different types of policies, especially the coverages and benefits of claims-made policies, is key for legal professionals to choose insurance products that align with their specific risk profiles.

Introduction to Professional Liability Insurance

Professional liability insurance for attorneys and law firms, often referred to as "legal malpractice insurance" or "lawyer’s liability insurance," is a specialized form of insurance designed to protect legal services providers from financial losses due to claims made against them by clients or third parties. 

Key aspects of professional liability policies include:

Coverage Scope: It typically covers claims of negligence, errors, omissions, or breaches of duty in the course of providing legal services, including representation and professional advice. 

Defense Costs: The insurance usually covers the cost of defending against a claim, including attorney fees, court costs, and settlements or judgments. This is crucial as legal defense can be expensive, even if the allegations are unfounded.

Tail Coverage: Since malpractice claims can arise years after the actual service was provided, legal professionals often purchase "tail coverage" or an extended reporting period, which allows them to report claims after the policy has expired, provided the act occurred during the policy period.

Exclusions: Like all insurance policies, there are exclusions. Common exclusions include criminal, fraudulent, or malicious acts, services rendered under a different profession, or claims arising from fee disputes.

Limits and Deductibles: These policies have specific limits of liability, which cap the amount the insurer will pay per claim or in total during the policy period. Deductibles may also apply, meaning the insured must pay a portion of the claim costs.

Regulatory Requirement: In some jurisdictions, having this type of insurance is mandatory for attorneys and law offices. Even where it’s not legally required, it is considered a best practice and essential for risk management.

Client Assurance: Carrying professional liability insurance also serves as a reassurance to stakeholders and indicates that the lawyer or law office is prepared to address any potential issues both professionally and financially.

Claims-Made Policies

A claims-made professional liability policy for legal professionals is a type of insurance that provides coverage for claims of professional negligence or malpractice that are made against attorneys or their firms during the policy period. Policies of this type – the most common for law offices and independent legal professionals – may include tail coverage and have specific terms regarding policy limits, nature of the claims covered, and other factors. 

What are the Benefits of Claims-Made Liability Insurance?

Professional liability insurance, often known as malpractice insurance in the legal field, provides several benefits for lawyers and law firms, including:

• Protection Against Legal Claims: This insurance shields lawyers from financial losses resulting from claims of professional negligence, errors, or omissions in their legal work.
• Financial Protection: It covers the costs of defending against a lawsuit alleging professional misconduct or negligence, even if the lawsuit is groundless or fraudulent.
• Settlements and Judgments: The insurance can pay for settlements or judgments against the lawyer, up to the policy limits, ensuring that a single lawsuit doesn't financially ruin the professional or their practice.
• Peace of Mind: Having professional liability insurance provides peace of mind, allowing lawyers to focus on their work without the constant worry of personal financial ruin from potential lawsuits.
• Client Trust: Knowing that a lawyer has professional liability insurance can increase clients' trust, as it indicates the lawyer's commitment to professionalism and financial responsibility.
• Risk Management: These policies often come with risk management advice and resources to help lawyers avoid professional errors and improve their practice.
• Covers a Range of Services: Professional liability insurance typically covers a wide range of legal services, ensuring protection across various aspects of legal practice.
• Protection Against Unforeseen Errors: Even the most diligent lawyers can make mistakes. This insurance provides a safety net for such unforeseen errors.
• Preserves Reputation: By ensuring that funds are available to address claims efficiently and effectively, this insurance helps in preserving the professional reputation of the lawyer or the firm.

Claims-made policies provide essential protection for law offices by covering claims of professional errors or malpractice that are both made and reported within the policy period. These policies are particularly beneficial for law offices, as they help manage the specific and unexpected risks associated with the legal profession.

Speak to a qualified professional liability insurance provider today to learn more about the coverages and benefits associated with claims-made insurance policies.