LEGAL MALPRACTICE INSURANCE COST


LEGAL MALPRACTICE INSURANCE COST

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

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

Our mission is to obtain the broadest coverage at the best price for every law firm.

We accomplish this by scouring the market on firms’ behalf, leveraging our access to dozens of “A”- rated legal malpractice insurers. 

We even help firms that require limits >$5 million, have offices outside of the US, or have had their coverage non-renewed.

To obtain quotes, fill out and submit our on-line application.

 

I. How Much Does Legal Malpractice Insurance Cost? This Much:

If you’re a sole practitioner with no malpractice claims or disciplinary history, and you don’t practice IP, securities, plaintiff class action, or another type of law that the insurers regard as high-risk for claims, then your first policy will likely cost $500 – $1,000 (annual premium), for minimum limits, which are $100,000 per claim/ $300,000 aggregate.

Criminal defense, immigration, and appellate lawyers will pay closer to $500, divorce and trusts & estates lawyers will pay closer to $750, and PI and real estate lawyers will pay closer to $1,000.

Those figures will be 10% – 20% lower in some cities/states, and 10% – 20% higher in others. A policy with the next level of limits – $250,000/$500,000 – will cost about 25% more, while a policy with limits of $1,000,000/$1,000,000, will cost about 75% more.

A 2-atty. firm will pay about 70% more than a solo; a 3-atty. firm will pay about 125% more.

We can’t tell how much coverage will cost for your firm without getting quotes for it. So, as a proxy for that, we’re presenting several dozen placements that we made in 2018, arranged by practice area. Be sure to read the information below the table.

II. Legal Malpractice Insurance Cost – Examples of How Much Firms Pay

Appellate

Firm Size    Location       Policy Limit   Deductible  Prior Acts  Annual Premium 

1               Wash., DC     $1M/$1M        $2,500        2 years     $1,729

2               Wash. DC       $1M/$1M       $2,500        2 years     $1,708


Bankruptcy

Firm Size    Location      Policy Limit   Deductible  Prior Acts  Annal Premium

1            Brighton, MI   $250K/$500K    $2,500        No              $621


Business

Firm Size  Location         Policy Limit   Deductible  Prior Acts  Annual Premium

1             Wash. DC      $100K/$300K     $2,500           No         $850
1               Seattle          $100K/$300K    $2,500           No         $885 
1     Bala Cynwyd, PA    $250K/$250K    $2,500       5 years     $2,112
5             Wash. DC         $1M/$1M        $10,000     10+ years  $7,304


Criminal Defense

Firm Size    Location       Policy Limit   Deductible  Prior Acts  Annual Premium

1              Baltimore       $100K/$300K   $1,000         No              $375
1              Cleveand       $100K/$300K   $1,000       1 year           $603
1           Monticello, NY  $250K/$750K            0         No              $899
1           Richmond,VA   $500K/$1M      $5,000       5 years        $1,046


Employment

Firm Size    Location       Policy Limit   Deductible  Prior Acts  Annual Premium

1           Rockville, MD     $1M/$1M        $5,000        3 years      $2,134


Family

Firm Size    Location       Policy Limit   Deductible  Prior Acts    Annual Premium

1             Clarkston, MI   $250K/$250K   $2,500           No             $616
4             Columbia, MD  $500K/$1M      $2,500        5 years      $5,392
5             Grosse Pt, MI   $1M/$3M         $2,500        3 years       $9,817        


Immigration

Firm Size    Location       Policy Limit   Deductible  Prior Acts    Annual Premium

1                 NY City       $100K/$300K    $2,500         No                $682
1            Bethesda, MD  $250K/$500K   $2,500       5 years           $895
1              Edison, NJ     $1M/$1M          $2,500       10+ years    $2,665
2                NY City        $100K/$300K   $2,500          No             $1,400
2            Houston, TX    $250K/$250M   $2,500          No             $1,430

 

Intellectual Property

Firm Size    Location       Policy Limit   Deductible  Prior Acts    Annual Premium

1             Bryn Mawr, PA  $2M/$2M        $5,000           No             $4,065
1             Bothell, WA       $500K/$1M     $5,000           No             $2,896
9             Bethesda, MD   $4M/$4M        $25,000      4 years         $33,424    


Personal Injury

Firm Size    Location       Policy Limit   Deductible  Prior Acts     Annual Premium

1                NY City           $1M/$1M         $5,000           No             $1,493
4              Fairfax, VA       $3M/$3M        $50,000       10+ years    $26,435
6              Allentown, PA  $2M/$2M        $20,000       10+ years     $42,717


Real Estate

Firm Size    Location      Policy Limit   Deductible    Prior Acts   Annual Premium

1               Atlanta, GA    $2M/$2M        $5,000       10+ years         $3,341


Regulatory

Firm Size      Location     Policy Limit   Deductible  Prior Acts     Annual Premium

1                 Wash., DC   $1M/$1M        $2,500          No                  $1,467
1                 Wash., DC  $1M/$1M         $5,000          No                  $2,152
1                 Wash., DC  $500K$500K    $5,000         3 years           $3,601


Trusts-Estates

Firm Size      Location    Policy Limit    Deductible   Prior Acts   Annual Premium

3                 Wash., DC    $3M/$3M        $5,000         3 years            $7,100

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, or 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 – Estimating Your Premium

For a firm buying its first policy, a competitive quote is $500 – $750 per attorney for a minimum limit policy of $100K/$300K, and $750 – $1,000 per attorney for a policy limit of $250,000/$500,000.

These figures are for a 1-year policy with a deductible of $2,500 per claim, no prior acts coverage, and assume that the attorney(s) are working full-time, aren’t in high-hazard practice areas, i.e., class action, securities, or IP, have no prior malpractice claims or bar complaints, and aren’t located in a high-cost city.

As a guideline, appellate, criminal defense, and immigration law firms, which rarely incur malpractice claims, pay the least, followed by insurance/civil defense firms. For example, a solo appellate or criminal defense lawyer buying their first policy will pay $750 or so for a $1 million/$1 million limit, and around $500 for a $100,000/$300,000 limit, which is the minimum available. 

Class action, securities, and IP law firms pay the most, followed by plaintiffs’ med. mal. firms. For example, solo patent lawyers buying their first policy pay about $3,000 for a $1 million/$1 million limit; solo class action and securities lawyers pay about $5,000 – $6,000. However, with aggressive comparison shopping, we’re frequently able to obtain better terms.  

V. 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.

FURTHER READING

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