LEGAL MALPRACTICE INSURANCE COST

LEGAL MALPRACTICE INSURANCE COSTHow Much Does Legal Malpractice Insurance Cost? This Much:

As legal malpractice insurance brokers, we get many questions from attorneys about what the policy covers, how to complete the application, etc., but the most frequent question is “how much does legal malpractice insurance cost?”

We can’t answer that question precisely without getting quotes for a firm. So, as a proxy for that, we’re presenting placements that we recently made for 25 firms of various sizes, practice areas, etc. If your firm is similar to any of them, then you’ll have a good idea of the premium it should pay for a malpractice insurance policy with the same limit and de-ductible. If you want a different limit or deductible, you can adjust the premium using the estimates provided below.

First, 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.

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. (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. As a guideline, 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, covers a firm for alleged mal-practice that it committed before its current policy’s inception date (hence the name “prior acts coverage”). Without it, a firm is covered only for malpractice that it committed on or after the inception date.

Prior acts coverage doesn’t apply when you buy your first malpractice policy, but once you buy a policy and renew it, your insurer will offer you prior acts coverage back to the inception date of your first policy, i.e., 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 it, as explained above in the section on ‘step-rating’, which increases the premium. However, we advise against buying a policy without prior acts coverage, because most claims aren’t filed until one or more years after the alleged mal-practice was committed, so without p.a. coverage, you’ll likely have no coverage if you’re sued.  

Territory – a firm’s premium will be debited (surcharged) if it’s located in NYC, LA, or certain other locales, or credited (reduced) if it’s located in a rural area. None of the  placements listed below involves a firm located in either an urban center or 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.

Our recent placements are listed below.

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.

AOPs – areas of practice; if a specific AOP is listed, then it comprises 50% or more of the firm’s practice (Bus. = business law; RE = real estate; T-E-W = trusts – estates – wills). “Gen. Prac.” = general practice, i.e., the firm practices three or more types of law, none of which comprise 50% or more of its practice.

Policy Limits – explained above.

Deductible – explained above.

Prior Acts coverage – explained above.

Premium – the cost of one year of coverage, i.e., the annual premium. 

Note: premium financing is readily available. The usual terms are a 20% down payment, with the balance paid in nine equal monthly installments at a specified interest rate, which is currently about 9%. You can pay the balance off early with little or no penalty.

PLACEMENTS

Firm Size    AOPs       Policy Limit   Deductible  Prior Acts  Premium

1              Gen. Prac.   $100K/$300K   $1,000       No          $500
1              T-E-W          $100K/$300K   $1,000       No          $568
1              Business      $100K/$300K   $1,000       No          $902
1              Crim. Def.    $500K/$1M      $1,000        No          $1,153
1              Pers. Inj.      $500K/$1M      $10,000      Yes        $2,300
1              T-E-W          $1M/$1M         $5,000        Yes        $2,576
1              Bus., RE      $1M/$2M         $5,000        Yes        $4,474

1.5           Gen. Prac.   $250K/$500K  $2,500         No         $1,450
2              Gen. Prac.   $100K/$300K  $2,500         No         $1,500
2              Gen. Prac.   $100K/$300K  $2,500         No         $1,100
2              Tax, TEW    $500K/$500K  $2,500         Yes        $3,770 2              T-E-W          $2M/$2M         $5,000        Yes         $6,251
3              Family          $500K/$1M     $2,500        Yes         $3,640

4              Ins. Def.       $2M/$4M         $4,500        Yes         $5,936
4              Pers. Inj.      $1M/$1M         $5,000        Yes         $6,122

4              Gen. Prac.   $1M/ $1M        $2,500        Yes         $8,646
4              Pers. Inj.      $4M/$5M         $20,000      Yes         $15,269

5              Crim. Def.    $1M/$1M         $2,500        Yes         $4,307
6              Real Estate  $1M/$2M         $5,000        Yes         $8,206
7              Traffic          $2M/$4M         $5,000         Yes        $7,206
8              Gen. Prac.   $4M/$4M         $10,000       Yes        $27,989
10            Med. Mal.   $5M/$5M          $25,000        Yes       $49,000

Special Situations: high-risk practice areas, history of malpractice claims, excess insurance.

1             Class Act.     $500K/$1M    $5,000           No         $5,240
4*            Debt Coll.     $1M/$1M        $5,000          Yes        $11,204
4*            Pers. Inj.       $2M/$2M       $25,000         Yes        $26,635
6              Int. Prop.      $4M/$4M        $25,000        Yes        $37,392
4*            Med. Mal.     $2M/$2M        $25,000        Yes        $47,438
22 **        Int. Prop.      $5M/$5M        $50,000        Yes        $45,002

*The firm’s prior policy was non-renewed due to malpractice claims.
**Excess insurance coverage.

NOTES (listed by premium in the first table above)

$3,770: this 2-attorney Tax and Trusts-Estates firm received a renewal quote of $4,328 for a $250,000 per claim/$500,000 aggregate limit from its long-time malpractice insurer, and contacted us to get competing quotes.

We placed it for $3,770 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and policy limits of $500,000/$500,000, plus a sep-arate $500,000 limit for defense costs.

Note: if your firm has a similar risk profile to this firm: 2 – 4 attorneys, 10+ years in business, moderate-risk practice areas (no Securities, Med. Mal., PI, or Intellectual Property work), stable revenues, no malpractice claims, etc., then malpractice insurers will compete aggressively for your firm’s business.

We can obtain a policy for you that offers more coverage for less money than you’re currently paying.

$5,936: this 4-attorney insurance defense firm fits the profile of the firm mentioned above, and enjoyed a similar outcome:

It received a renewal quote of $7,021 for a $2M per claim/$4M aggregate limit from it’s long-time insurer.

We placed it for $5,936 with an “A-rated” insurer that offered a  broader policy than the firm had with its current insurer – a special policy for defense litigation firms – and policy limits of $2M/$4M, plus a separate $500,000 limit for defense costs.

$8,646: this 4-attorney general practice firm fits the profile of the firms mentioned above, and enjoyed a similar outcome: its incumbent insurer offered a renewal quote of $10,024 for a $500K per claim/$1M aggregate limit.

We placed it for $8,646 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and policy limits of $1M/$1M, plus a separate $1M limit for defense costs.

$4,070: this 5-lawyer criminal defense firm was founded in 2011. They contacted us after their incumbent insurer – which is endorsed by their state bar association – gave them a renewal quote of quote of $5,082 for a $1M per claim/$1M aggregate limit, which was an increase of almost 60%.

We placed it for $4,070 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and policy limits of $1M/$1M, plus a separate $1M limit for defense costs.

$7,057: this 7-lawyer traffic defense firm recently branched out into personal injury law. This factor, plus an increase in their attorney roster from five to seven in the previous 12 months, resulted in their incumbent insurer offering a renewal quote of $8,277 for a $1M per claim/$2M aggregate limit, an increase of over 90%.

We placed it for $7,057 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and policy limits of $2M/$4M.

Note: criminal/traffic defense law generates few malpractice claims, so insurers compete aggressively for these accounts. If this is your firm’s primary practice area, we can ob-tain a policy for you that offers more coverage for less money than you’re currently pay-ing.

$27,989: this 8-lawyer firm practices in 18 areas of law. The managing partner stated that the firm gets competing quotes every three years, and this was the third year, so he contacted us after getting a renewal quote of $32,507 for a $4M per claim/$4M aggre-gate limit from the firm’s state-bar endorsed insurer.

We placed it for $27,989 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and the same policy limit.

Notes – Special Situations (listed in the order that they appear in the second table above.)

1. This 4-lawyer debt collection firm had its malpractice coverage non-renewed due to claims frequency (six in the last five years).

2. This 4-lawyer personal injury firm had its malpractice coverage non-renewed due to claims frequency (five in the last three years).

3. This 6-lawyer patent firm contacted us after receiving a renewal quote of $43,643, its second consecutive double-digit premium increase, despite having no malpractice claims.

We placed it for $37,392 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and the same policy limit.

4. This 4-lawyer Medical Malpractice firm had its malpractice coverage non-renewed due to claims severity (a policy-limits claim payout of $3M).

5. A 22-attorney Intellectual Property firm contacted us after receiving a renewal quote of $51,138 for its excess-over-primary-insurance, an increase of almost 20%, and its in-cumbent broker couldn’t find a better price.

We placed it for $45,002 with an “A-rated” insurer that offered an equally broad policy as the firm had with its current insurer, and the same policy limit.

Published by Lawyers Insurance Group, legal malpractice insurance brokers and subject matter experts.

Our mission is to find the best terms available in the market for your firm. 

To learn more about legal malpractice insurance, including attorneys’ biggest misconceptions, and how to obtain the best terms, visit our FAQs page:

LEGAL MALPRACTICE INSURANCE FAQs: Answered

If you have any questions, email Curtis Cooper, our principal broker: ccooper “at” lawyersinsurer.com.

To learn more about legal malpractice insurance, visit our Legal Malpractice Insurance Center.

To learn more about our approach and results, visit our Legal Malpractice Insurance page.

If you’re ready to obtain no-cost, no-obligation proposals from A-rated legal malpractice insurers, and get the best terms available in the market for your firm, download, fill out, and return this one-page premium estimate form.

FURTHER READING


About the author:

Curtis Cooper is principal of Lawyers Insurance Group
Legal Malpractice Insurance Brokers, which helps law firms optimize their malpractice insurance. Contact him by phone: (202) 802-6415, or email: ccooper “at” lawyersinsurer.com.

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