If you’re a young lawyer hanging out your shingle for the first time, you know that every penny counts. For that reason, you may be evaluating whether you should spend the money for professional liability insurance. New lawyers or lawyers starting a firm may think the small cases they will handle in their first few years do not justify the cost of paying for malpractice insurance (also known as “errors and omissions" or "E&O" insurance). Or they may think that if they have very few assets (and very big debts), they won’t get sued if they don’t carry insurance.
Here’s why this philosophy is misguided—and why getting E&O insurance immediately is the best thing new attorneys can do for their practice.
Being Uninsured Won’t Prevent Lawsuits and Complaints
While you may not own a home or have significant monetary assets now, a judgment against you can be a liability that impacts your personal assets and reputation for years to come. After a judgment is issued, a creditor can seize your bank accounts and assets or garnish wages for years under state laws—and possibly renew the judgment past its initial statute of limitations. This means that even if you don’t have the money to pay the judgment now, you may wind up paying for it with future earnings.
Professional liability insurance will assist you with the costs of defending a malpractice lawsuit, help you obtain skilled defense counsel, and pay the costs of a judgment against you. This is far better than risking your long-term financial stability.
Even if you don’t get sued, bar complaints for attorney malpractice can be disruptive and costly. Failing to respond to or defend a complaint can permanently damage to your professional reputation and reduce your ability to make a living as an attorney. Professional liability insurance will help you respond to bar complaints appropriately by covering the cost of responding and providing you with professional counsel and resources for your defense. This reduces the risk that you will be sanctioned or disbarred in response to a client complaint.
Buying E&O Insurance Early Covers Future Complaints
Obtaining an E&O insurance policy early in your professional career is important because of how claims are covered. A “claims made” policy provides insurance coverage for all claims made for acts and errors that occur after the date your first policy begins (which is called your “prior acts retro date”) and are reported to your insurance company during the policy period. Coverage continues uninterrupted as long as the insured continues to pay premiums for the initial policy and subsequent renewals. Each succeeding year that the policy is continuously renewed, the “coverage period” is extended. Most insurance companies that write lawyers professional liability insurance will typically match and maintain your prior acts retro date. This means you do not have to renew your coverage every year with the same insurance company; you can shop around for your coverage and keep your accumulated prior acts protection.
Typically, lawyers professional liabiity insurance policies have lower rates for the first year a lawyer is in private practice. These rates will increase each time you renew your policy until you have reached a mature rate, which typically occurs at your sixth or seventh renewal date. These annual increases are called “step rates” and are designed to adjust the premium to reflect the insurance company's growing exposure to the risks it faces in insuring your accumulating prior acts (back to the date your first policy began). As lawyers become more experienced and take on cases that are more complicated, riskier, and have larger case values, they can increase their protection to these risks by buying higher limits of liability. When you begin coverage early, these higher limits of liability will relate back to the original date the continuous coverage began.
What this means in practice is that a lawyer who is sued five years into her career for an alleged error that occurred in her first year of practice can enjoy coverage at her current limits of liability for that occurrence, as long as she’s maintained continuous coverage. If she didn’t purchase coverage in that first year, she won’t be covered by a current "claims made" policy when the claim is brought. Beginning coverage immediately when beginning to practice allows young lawyers to ensure they will be covered for any complaints that may arise throughout their long careers.
Protect Yourself with Professional Liability Insurance
Besides providing representation and paying defense and indemnity costs, lawyers professional liability insurance providers typically offer resources to help you avoid lawsuits and complaints as you become proficient in your practice areas. These can include links to practice guides, sample forms and engagement letters, continuing education and loss-control services, and referral services to attorneys with experience in many diverse areas of practice, and more. Contact your professional liability insurance agency to learn more about the practice resources it provides to help lawyers enhance their practices and avoid malpractice actions.
ProDefender's professional liability plan offers generous premium discounts for new lawyers: 40% the first year, 30% the second, and 10% the third year. Our Texas-based team has over 35 years of experience underwriting and servicing lawyers professional liability insurance policies. To learn more about our comprehensive errors & omissions insurance plans and our other professional risk services, contact your ProDefender agent today at (866) 434-8557 or firstname.lastname@example.org.