Legal Malpractice Insurance Types of Insurers: two types of insurers underwrite legal malpractice insurance: standard and non-standard. This post will explain the difference, and how it affects the premium that attorneys pay and the coverage that they receive.
Legal Malpractice Insurance Types of Insurers: Standard Market Insurers
Standard market insurers are admitted in each state in which they underwrite coverage, which means that they’re licensed and regulated by the state’s insurance department.
Regulation entails reviewing each insurer’s initial policy wording and rates, and any subsequent proposed changes, to ensure that they comply with the state’s insurance laws and regulations. The primary objectives are to prevent insurers from selling policies with ephemeral coverage and charging unfair rates.
The standard market insurers are national insurers, like CNA, AIG (American International Group), Zurich, AXA, Westport, and Everest, and regional insurers, like Hudson, General Star, AmGUARD, Hanover, Wesco, and Med Marc.
Most attorneys obtain their coverage in the standard market for their entire career, often from one or more of the insurers mentioned above.
Legal Malpractice Insurance Types of Insurers: Non-Standard Insurers
Non-standard insurers are neither licensed nor regulated by the insurance department of the states in which they underwrite coverage. This may sound ‘scary’, but these insurers play an important role in the insurance market.
The regulation of standard market insurers provides vital consumer protection, and serves as a powerful check on an industry that has a sordid history of taking advantage of consumers. However, by limiting the rates that insurers can charge and the premium increases that they can impose, regulators also limit their ability to charge an appropriate premium to accounts that are higher-risk to incur a malpractice claim.
Among law firms, ‘higher-risk’ accounts are firms whose primary practice area is patent, securities, or class action law or a few other obscure practice areas. These practice areas have historically generated claims that cost the most to defend and accounted for the highest settlements or verdicts.
Other high-risk accounts, are firms that have recently incurred a malpractice claim and/or disciplinary punishment, or have a history of such incidents.
The standard market insurers as a rule, will decline to quote these accounts. They would thus be forced to go without coverage, but can avoid this, by shopping in the non-standard market. Since non-standard insurers’ rates and policy language aren’t regulated, they can charge an adequate premium, and are thus willing to cover ‘high-risk’ accounts.
The non-standard market, is thus analogous to the assigned risk pool that some states have for drivers who can’t obtain coverage from regulated insurers like Allstate or State Farm, because they’re either in a high-risk group, i.e., males aged 18 – 25, or have a poor driving record.
Legal Malpractice Insurance Types of Insurers: Checks and Balances
Buying coverage from an unregulated insurer may sound ‘scary’: what’s to stop it from charging outrageously high premiums or ephemeral coverage?
The answer is ‘competition’. Premium volume in the non-standard insurance market has grown at a much higher annual rate than in the standard insurance market for at least the last decade, and this growth has attracted insurers, including some standard market insurers, who are eager to expand. By offering adequate coverage for a premium that accurately reflects the risk, they can accomplish this, while providing protection to the firms they insure.
Further, while state regulators don’t directly regulate non-standard insurers, they aren’t powerless. Virtually every state has a ‘diligent search’ rule, whereby an insurance broker can’t place a firm’s coverage with a non-standard insurer, unless it has first failed to place it in the standard market, as evidenced by at least three standard market insurers declining to offer a quote.
These factors notwithstanding, there’s no avoiding the fact that rates are generally 50% – 100% higher in the non-standard market vs. the standard market, and while the coverage is adequate, non-standard insurers don’t offer some of the ‘bells and whistles’ that standard markets do in their policy.
Legal Malpractice Insurance Types of Insurers: Conclusion
Legal Malpractice Insurance Explained
- Shopping For Legal Malpractice Insurance – There Is More Than Cost to Consider
- Findlaw’s Guide to Legal Malpractice Insurance
- Legal Malpractice Insurance – 10 Questions Buyers Should Ask
- Findlaw’s Glossary of Legal Malpractice Insurance TermsThese Links Are To Pages On This Website:
- Understanding Your Legal Malpractice Insurance Policy Part I: Claims-Made v Occurrence Coverage
- Understanding Your Legal Malpractice Insurance Policy, Part II: Claims-Made Policy Coverage Triggers
- Understanding Your Legal Malpractice Insurance Policy, Part III: Claims-Made Policy Coverage Gaps – Switching Insurers
- Understanding Your Legal Malpractice Insurance Policy, Part IV: Avoiding Claims-Made Policy Coverage Gaps
- Understanding Your Legal Malpractice Insurance Policy, Part V: Why Claims-Made Coverage Causes Your Premium to Double In The First Five Years
- Legal Malpractice Insurance Buying Guide for Attorneys
- Legal Malpractice Insurance FAQs
- Legal Malpractice Insurance Policy
- Legal Malpractice Insurers
Reduce Your Risk of Committing Legal Malpractice
- Top 10 Ways to Avoid Legal Malpractice
- 10 Tips to Avoid Lawyers Can Avoid Committing Malpractice
- Legal Malpractice on Trial: Avoiding Claims
- Top Tips For Avoiding Legal Malpractice Claims
- What Is Legal Malpractice and How Can Lawyers Avoid It?
- Legal Malpractice Traps and How To Avoid Them
Calendaring/Docketing Best Practices
- You Get What You Pay For – Best Practices In Choosing a Calendaring Solution
- Best Practices In Legal Calendaring Management
- How To Minimize Docketing Errors
- Lawyers Mutual Calendar and Docket Management and Forms
- Best Legal Calendaring and Docketing Software – 2019 Comparison
Conflict of Interest Avoidance Best Practices
- How Lawyers Should Deal With a Conflict of Interest
- Conduct Deep, Wide, and Ongoing Checks to Avoid Conflicts of Interest
- Conflict of Interest Avoidance Best Practices
- How To Do A Law Firm Conflicts Checks
- Features of a Good Conflict of Interest Checking System
- From Paper to Computers – Conflict of Interest Checking Options
Engagement Letter/Retainer Agreement Best Practices
- Why Attorney Retainer Agreements Must Be in Writing
- The Well-Drafted Retainer Agreement
- Sample Attorney Engagement Letter
- Attorney Engagement Letter Checklist
- New York State Bar Association Sample Engagement Letter
- American Bar Association Engagement Letter Primer
Billing Practices to Increase Realization Rates and Avoid Fee Suits