LEGAL MALPRACTICE INSURANCE COST


LEGAL MALPRACTICE INSURANCE COST

LEGAL MALPRACTICE INSURANCE COST: how much attorneys pay for their coverage, and the factors that determine the premium.

Published by Lawyers Insurance Group, legal malpractice insurance brokers.

Apply on-line to obtain fast, free quotes from ‘A’-rated insurers.

I. Legal Malpractice Insurance Cost – Fast Facts 

  • Most sole practitioners will pay $500 – $1,000 for their first policy. A 2-atty. firm will pay slightly less than double that; a 3-atty. firm, slightly less than triple that, etc. Premiums are 25% – 50% higher in NYC, NJ, Miami-area, LA-area, and San Francisco-area; up to 35% lower in rural areas.
  • The premium is based mainly on your firm’s atty. count, practice areas, policy limits, and county/state.
  • Criminal defense lawyers pay the least, then immigration; family and business; bankruptcy and employment; PI, real estate, and trusts-estates, and patent, securities, and class action lawyers, who pay the most.
  • The minimum policy limits are $100,000 per claim/$300,000 annual aggregate, followed by $250,000/$500,000, which costs about 35% more, and then $500,000/$1,000,000, $1,000,000/$1,000,000, etc. Each higher level costs 10% – 25% more. Most solos choose one of the first two levels.
  • Attorneys who practice 26 or fewer hours per week, qualify for a part-time rate, which will reduce the premium by 35% – 50%.

II. Legal Malpractice Insurance Cost – Examples of How Much Firms Pay For Their First Policy

California

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                  Immigration            $500K/$1M      $2,500             $1,676
1               Plt. + Def Civil Lit.     $1M/$1M          $1,000            $2,063
1               Family, Crim. Def.     $1M/$1M          $1,000            $1,329

Georgia

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1               Real Estate, Family    $500K/$1M       $1,000            $800

Maryland

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1            Elder Law, Gov.t Cont.   $500K/$1M      $1,000             $812
1            Real Estate                    $250K/$500K   $2,500             $1,175  

Michigan

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                 Criminal Defense    $500K/$1M       $2,500              $530
2               Family, Immigration  $500K/$1M       $1,000              $1,192

New Jersey

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1    Civil Lit. (Defense), Business  $500K/$1M     $1,000             $1,257

New York City

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1              Business/Trademark $250K/$500K     $2,500             $1,200
1               General Practice      $250K/$500K     $1,000             $858
1               Personal Injury         $1M/$1M           $1,000             $1,394  
1               Immigration              $250K/$500K    $2,500             $895
1               Real Estate              $1M/$1M           $2,500             $1,629  (Nassau County)
2               Business, Civ. Lit.     $1M/$1M          $2,500              $2,439

New York – upstate

1                Real Estate, T-E      $1M/$1M           $1,000             $1,056  
1                    Business             $250K/$750K     $1,000             $664

Ohio

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                 Crim. Def., Family   $100K/$300K    $1,000              $327

South Carolina

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                 Family                    $500K/$500K     $1,000              $736

Texas

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                 Criminal Defense    $100K/$300K    $2,500             $322
1                 Business                 $1M/$1M           $2,500             $1,379  
1                  PI                           $2M/$2M           $2,500             $2,524 
2                 Immigration, PI       $100K/$300K    $1,000              $1,139

Virginia

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1             Business, Telecomm.    $1m/$1M        $2,500              $944

 Washington, DC

Firm Size   Main Practice Area   Policy Limits   Deductible  Annual Premium 

1                  PI, Plt. Civ. Lit          $500K/$1M      $2,500             $1,124

III. Legal Malpractice Insurance Cost – Factors That Affect Your Premium 

Here are the primary factors that legal malpractice insurers use to calculate a firm’s annual premium: 

Firm size – the number of lawyers in a firm, and whether each one works full-time or part-time. Note: all of the placements shown above are for full-time attorneys, which most insurers define as working more than 26 hours/week. Part-time attorneys generally pay lower premiums.

The number of years each lawyer has been with a firm (not his/her total years in practice) – insurers use “step rating” to calculate premiums, whereby a lawyer’s pre-mium is lower in his first year with a firm (step 1), when he has fewer cases, and rises in each of the next four years steps (2 – 5), as his cases from the previous years develop, and he takes on additional cases, both of which increase his malpractice claims risk (a claim generally isn’t filed for 1 – 4 years after an atty. makes an error). (See Prior Acts coverage below.)

After five years with a firm (some insurers use six or seven years), a lawyer is consid-ered to be “mature”, as the malpractice claims risk of his new and developing cases is offset by the statute of limitations tolling on his older, closed cases. At that point, his premium no longer increases each year based on this factor. 

Area(s) of Practice (AOP) – a lawyer’s premium will be debited (surcharged) if she specializes in a high-risk AOP, i.e., Medical Malpractice, Securities, or Intellectual Property law, or credited (reduced) if she specializes in a low risk AOP, i.e., Criminal Defense, Insurance Defense, or Immigration law. 

Policy Limits – the minimum policy limit is $100,000/$300,000, which means the insurer will pay a maximum of $100,000 for defense and indemnity costs for any claim made against the firm during the policy period, and a maximum of $300,000 for all claims made against it during the policy period, which is 12 months. 

The next level of limits is $250,000/$250,000, then $250,000/$500,000, $500,000/$500,000, $500,000/$1M, $1M/$1M, $1M/$2M, etc.

The higher a firm’s policy limit, the higher its premium. A policy with a $250,000/$250,000 limit costs about 35% more than a policy with a $100,000/$300,000 limit, and each higher limit above $250,000/$250,000 usually increases the premium by 10% – 15%. 

Deductible – the amount the firm must pay for claim expenses and indemnity costs before the insurer will begin paying. The minimum deductible is $1,000 per claim; higher options are $2,500, $5,000, $10,000, $15,000, $25,000, $50,000, $100,000, etc.

The higher a firm’s deductible, the lower its premium, but insurers will offer only as a high a deductible as they believe it can afford to pay, based on its annual revenue, etc.

Nearly all firms whose malpractice insurance premium is below $10,000 have a de-ductible of $1,000, $2,500, or $5,000 per claim, because insurers won’t offer them anything greater.  Within this range, each higher deductible will reduce the premium by 1% – 3%, i.e., raising it from $1,000 to $5,000 will reduce the premium by about 5%.

Prior Acts coverage – a/k/a Retroactive coverage, refers to coverage for a claim that arises out of malpractice that an attorney committed before the firm’s current policy’s inception date.

Prior acts coverage doesn’t apply when you buy your first malpractice policy, , i.e., the policy won’t cover any work that you did before the policy inception date. However, if you renew the policy a year later, it will cover work that you did back to the inception date of your first policy, i.e., one year ago. So, in your second year of coverage, you’ll have one year of prior acts coverage, in your third year, you’ll have two years of prior acts cov-erage, etc.

Insurers charge extra for each of the first four policy renewals, as explained above in the section on ‘step-rating’, which increases the premium in Years 2 – 5 of coverage, independent of any other factors that affect the premium, i.e., a change in the firm’s practice areas. These increases stop after year 5 of coverage, because the SOL tolls on work done 3 – 4 years ago, which offsets the risk that an atty. will occur a claim on a recent matter, i.e., after 5 years, an attorney’s prior acts exposure reaches an equilibrium point. 

Territory – a firm’s premium will be debited (surcharged) if it’s located in NYC, LA, Miami, San Francisco, and certain other locales, or credited (reduced) if it’s located in a rural area. 

Malpractice Claims – a firm will pay a higher premium if any of its lawyers has recently been sued for malpractice; how much higher depends on the number of claims, and the total dollars its insurer paid out to resolve them.

Risk Management practices – a firm’s premium will increase if its calendaring or con-flicts-checking system is inadequate, it doesn’t use engagement, disengagement, and non-engagement letters, it sues clients for unpaid fees, etc.

Keep in mind that your objective shouldn’t be to buy the cheapest policy, or the biggest policy, but the right policy, based on your practice, budget, risk tolerance, etc. That’s what each of the firms whose policy terms are listed below did. We presented them with proposals – different combinations of coverage, limits, deductible, and premium – from various insurers, and then reviewed the proposals with them to determine which one best met their needs.

Here’s an explanation of the column headings:

Firm size – the number of full-time lawyers in the firm, i.e., 1 = a solo practitioner.

Location – the city/state where the firm’s main office is located.

Policy Limits – explained above.

Deductible – explained above.

Prior Acts coverage – explained above 

Annual Premium – the cost of one year of coverage 

IV. Legal Malpractice Insurance Cost – Learn More or Request Quotes

The form will give the insurers enough information about your practice to offer “ballpark” terms, without your having to complete a full application.

We’ll send your form to all suitable insurers, and contact you as they respond. If you like any of the estimates that we obtain, then you can complete a full application and provide any other information that the insurer needs to offer you a firm, final quote. The final quote usually matches or is very close to the estimate.

NOTES: 

If you filled out an application or premium estimate form for another broker, send us that, instead of filling out our form.   

All quotes that we obtain for you are no-cost, no-obligation.

If you accept any of them, then the insurer that offered it will pay us a percentage of the premium as a commission.

That’s our only compensation; we don’t charge any fees.

We thus have every incentive to find you the best terms available in the market.

IV. Legal Malpractice Insurance Cost – Reduce Your Risk of Committing Malpractice 

Calendaring/Docketing Best Practices

Conflict of Interest Avoidance Best Practices

Engagement Letter/Retainer Agreement Best Practices

Billing Practices to Increase Realization Rates and Avoid Fee Suits

FURTHER READING

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