Understanding how to obtain the right insurance products for your firm can be daunting.  We've compiled a list of questions that we are frequently asked.

Some questions you may have...

We have compiled a list of questions that we are frequently asked.

Click on the question to display the answer. If you have further questions about your insurance, please give ALIA a call.

Q: Why do I need to insure?                                                        Back to Top
A: Although most states do not require attorneys to maintain malpractice insurance or other types of liability insurance, it is just not smart to be underinsured in today's world. In the past, malpractice suits among lawyers were relatively uncommon because attorneys were generally reluctant to sue each other; however, that no longer holds true. And, the number of potential litigants has mushroomed -- unhappy clients, disgruntled employees, federal and state agencies, corporate shareholders, etc. -- even third parties and adverse parties can sue.

Some lawyers believe that carrying E&O insurance makes them sitting ducks for lawsuits. But going bare is no guarantee of immunity. There have been cases recently where several million dollar judgments were made against uninsured attorneys.

If you think you want to go it alone, take these factors into consideration:

  1. If you have no insurance your personal assets are unprotected. Although you may not have a lot starting out, you will accumulate assets as you progress in your career. If you become prosperous, you are risking it all. And, remember that most insurers will not cover you for any work performed while you were not insured.
  2. Litigation expense. Although a claim can be frivolous or entirely groundless, it can be very expensive and time-consuming to defend yourself. Think of how expensive it could be, regardless of whether there is an adverse judgment or settlement. It is estimated that over a third of all insurance payments (35%) in professional liability are for defense costs.
  3. You are protecting your clients. In the event that you make a mistake which proves costly to your client, your client is protected. You may also be able to settle the claim without the legal community becoming aware of it.
  4. It may assist you to generate business. Referral services generally require that law firms or attorneys on their rosters be insured. Clients more and more frequently are requiring proof of insurance before engaging a law firm or attorney. You are required to carry malpractice insurance if you are working for a governmental body (local, state or federal), even if you are indemnified by that entity for your work

Q: What is E&O insurance and what does it cover?                             Back to Top
A: Professional Liability Insurance (E&O insurance) protects your company from claims if your client holds you responsible for errors and/or omissions, or for his dissatisfaction with the results of your work. Clients and lawyers frequently disagree on interpretation of the contract between them. E&O coverage includes legal defense costs - no matter how baseless the allegations - and for any resulting judgments against you, including court costs, up to the coverage limits on your policy. Professional Liability Insurance coverage can extend to both W2 employees and 1099 subcontractors, and can be worldwide in scope.

Q: What is EPLI (Employment Practices Liability Insurance)?                Back to Top
What does it cover? Why do I need it?
A: Employment Practices Liability Insurance provides protection to an employer for claims made by current, former or potential employees. It covers claims of discrimination (age, sex, race, disability, etc.), wrongful termination of employment, and sexual harassment, etc. It covers you and your firm, including your directors and officers. EPLI is needed as soon as you start to hire employees. Why? It is estimated that three out of five firms will experience an employment-related claim at some point during their existence. Protect yourself.

Q: What is BOP (Business Owner's Package) insurance?                  Back to Top     
What does it cover? Why do I need it?
A: All businesses need standard protection for fire, theft, building and personal property liability, business liability, vandalism and water damage. Lawyers should take advantage of expanded coverage, now especially designed for them by a few insurance companies, which includes coverage for electronic vandalism, equipment breakdown, the work to restore valuable papers and records, clients' papers and other property, money and securities, law libraries, signs and fine arts, among others.

Q: Is it advantageous for me to have all of my liability insurance          Back to Top
with one carrier?
A: Some carriers give discounts to law firms that place all of their liability insurances with them. Additionally, law firms find it convenient to maintain all their liability information in one spot with one producer, who is responsible for tracking renewal dates and seeing that continual insurance is made available to them.

Q: Why have I received a non-renewal notice?                                  Back to Top
I haven't had any claims.
A: A non-renewal notice is not necessarily a reflection of you or your firm -- it could just be that your insurer has evaluated the market and has decided to stop writing certain lines of insurance, or that new company guidelines have eliminated the insurer's capacity to insure lawyers who practice in certain areas.

Q: How do I know if my insurer is financially sound?                          Back to Top
A: There are several ways you can check on the financial soundness of your insurance company. The best way to do so is to access the insurance company's website financial pages, and read the company's financial reports for yourself. Additionally, financial rating services such as A.M. Best, Standard & Poor, and Moody's provide ratings of insurance companies. The web sites for the rating services are as follows:

All insurance professionals recommend that lawyers avail themselves of this tool. An informed lawyer is the best ally an insurance company can have, and a sound, responsible insurer is the best ally an attorney can have.

Q: Why is my premium so high?                                                       Back to Top
A: If you are insured with a general insurer, how well that insurer is doing in other markets can influence the price of your insurance. Risk is spread between lines as well as within lines of insurance. For obvious reasons, the general insurance market has been quite tight over the past several years: claims related to September 11, natural disasters, (i.e., Hurricanes Andrew, Ivan and Katrina), high losses on insurance of worker's compensation, medical malpractice and corporate officials (boards and directors), and the overall financial climate (insurance companies just aren't making as much money on their investments as they did during the late 90's). There are bright spots, however. Some large insurers have isolated subsidiaries which insure only casualty risks, and therefore are exempt from fluctuation due to high losses from natural or other disasters named above. Your producer should be able to inform you which these are. Other reasons for higher premiums could be the frequency and/or severity of claims in your practice area or your geographic region and/or increases in reinsurance rates. Additional factors which can negatively influence premiums prices:

  • Longer periods for prior acts coverage
  • Overall claims experience of the insurer
  • Higher liability limits
  • Your claim history
  • Lower deductible
  • Your risk management practices
  • Areas of practice
  • Your firm's office practices
  • Disciplinary actions

Q: What are risky areas of practice and why?                                   Back to Top
A: The focus of your practice can impact your premium. If you practice in areas of high-liability potential, such as patent/trademark, other intellectual property, securities, construction litigation, class actions, commercial real estate development, entertainment, or formation of financial institutions, you will most likely pay a higher premium than an attorney who specializes in, say, criminal defense or elder law. Some insurers regard personal injury (plaintiff) work as an area of risk. Others value that area. One reason lawyers consult insurance professionals is that they know which companies can insure you best for the least expense to you.

Q: Why is it so important to maintain continuous coverage?               Back to Top
A: Continuous coverage is important because once a policy has lapsed, for any reason at all, coverage stops, regardless of whether or not coverage was in force at the time a claim triggering incident occurred. A policy must be in force at the time a claim is made in order to have coverage. If a new policy is obtained later, it is difficult, if not impossible, to reinstate your prior acts date with your new carrier. Even specific career coverage options insist on the lawyer's having maintained continuous E & O insurance.

Q: What can I do to avoid paying such high premiums?                       Back to Top
A: Many factors can contribute to reducing the cost of your premium. If you institute effective risk management procedures, you will save money. (See our Risk Management Tips page.) Clear, specific engagement letters or fee agreements which clearly state your fee requirements effect better understanding between you and your clients. Specific, date-sensitive conflict checking and docketing procedures with provisions for regular cross-checking by several persons or in several systems will help you immeasurably. Response to clients' questions and telephone calls goes a long way toward keeping them happy, as does your client's contact with a courteous and responsive staff. Any procedure you can devise that contributes to your and your clients' comfort and satisfaction will bring you many happy returns and will save you money.

Another very helpful factor is a clear evaluation of your areas of practice. In many instances, attorney work is miscoded on the report of your areas of practice, resulting in an erroneous evaluation of your activities, and higher premiums. A trained insurance professional can be of major help to you in evaluating your correct areas. Don't be afraid to shop. Many lawyers remain blindly with an insurance company because it seems to them to be easier, or because their local or state bar has recommended it, or because they have not been apprised of the carriers actually available to them. Use the internet. It is a very effective tool in informing you of who and what are available to you.

Q: What does 'prior acts coverage' mean?                                        Back to Top
A: The Declarations Page of your policy contains a Prior Acts Date. This may be the date the firm was formed, or the date of inception of the policy; it may say "per policy form" or include an endorsement with a specific date of prior acts coverage for each attorney in the firm, or it may read "Full Prior Acts". Usually your prior acts date is the same date from which continuous coverage was first obtained by your firm or its predecessor firm. Claims triggered by events occurring before this date are not insured. If a firm changes insurance carriers, it is important that the same prior acts date appears on the new policy. The Prior Acts date is also referred to as the Retroactive Date.

Prior acts restrictions exclude coverage for acts that occurred before a certain date or on behalf of a certain firm. Look for a "retroactive date" in proposed policy terms. A policy with a retroactive date does not cover acts occurring before the retroactive date.

Insurers may refuse to cover your prior acts because of your claims history or the history of your former firm. In general, if you have left a large firm that is likely to maintain insurance, then you are not as much in need of prior acts coverage, since most E & O policies cover former members of a law firm for their acts on behalf of the firm. If, however, your former firm has dissolved, or if you wish to protect your personal assets in addition to the former firm's protection, then you may want to try to obtain coverage for yourself through purchase of career coverage or an ERP.

We recently saw a situation where an attorney had maintained continuous insurance for many years, but one year an error by his insurance agent allowed a new insurer to insure him with a date of inception retroactive date. This caused a gap in his coverage, which was difficult to explain. Always carefully review the retroactive date provisions of an insurance proposal to assure yourself that you have not lost years of prior acts coverage.
 

Q: What is a tail?                                                                        Back to Top
A: Tails can be quite complicated. Extended Reporting Periods are known as tails. Because a tail is an extension of your existing policy, it can only be purchased from your current insurance carrier.

An ERP tail permits an attorney to report to his former carrier any claims which occur after his/her policy has expired, since the coverage goes back to the date specified as the prior acts date or date of inception on the policy. The extent of tail coverage varies greatly among insurers. For example, some insurers offer 'unlimited' tail coverage, while others only offer coverage for one year into the future. The ERP premium is a percentage of the premium charged for the last policy year. The percentages vary with the length of the ERP, culminating in an unlimited ERP, which can cost up to 300% of the premium for the last policy year. Because tails can be used as a means to reduce future policy costs, you should talk to your insurance broker about how best to utilize this option. Tails are also usually available to retiring attorneys, and can provide great peace of mind to the retiree.

Q: What is career coverage?                                                        Back to Top
Can I obtain it for existing attorneys? Can I obtain it for lateral hires?
A: A few insurance companies offer options for career coverage, but it must be acknowledged that they are pretty picky about it! The career coverage application asks questions about the applicant's general history. There are penetrating questions about the applicant's background, former firms, and his claims and/or disciplinary history. A career coverage option can insure both an existing firm attorneys and lateral hires, if they qualify for it.

Q: Are contract attorneys covered?                                             Back to Top
A: Some policies cover contract attorneys automatically, while others exclude such coverage. Still other will cover contract attorneys if informed who they are and provided with information about them. When taking on a contract attorney, some questions you should ask are: Am I covered under my policy? Do I need to report this to my broker for transmittal to the company? Does the contract attorney I am about to employ carry his own coverage? Don't just assume that coverage is in place. It's better to find out at the beginning of the relationship where you both stand, rather than be sorry later.

Q: Do I need coverage for my 'Of Counsel' attorneys?                          Back to Top
A:  Yes, you should report the 'Counsel' and report the number of hours per week they consult to your firm or perform other services on your behalf.  Most companies insure 'Counsel' at no charge if they work a limited number of hours.  This protects both you and them and costs you no more for the courtesy.

 Q: What about the carrier that my state bar has endorsed?                Back to Top
A: The endorsement of a specific program by a lawyer's organization is simply a marketing tool - nothing more; nothing less - and does not indicate the superiority of one carrier over another. While there is nothing illegal or unethical about seeking or giving such endorsements, many associations receive a fee for such an 'endorsement' from a producer or general agent, which may be characterized as a donation to the association. It certainly doesn't take a rocket scientist to figure out where the money is really coming from. Can you say, "higher insurance premiums?" Always educate yourself as to what is available to you. Don't just accept a recommendation which may cost you money!

Q: Size does matter.                                                                   Back to Top
Why does the size of my firm affect what carriers will cover me?
A: Some insurance carriers have divisions which specialize in writing very large firms.  Most emphasize coverage for a specific 'niche'.  Some specialize in mom-and-pop size firms, or defense firms, some love plaintiffs p.i. firms, while others will not even insure them.  The size of your firm, and what you do, materially affect your choice of carrier, or their acceptance of you.  Consult your insurance producer to determine that you are approaching the right carriers for your needs.
  

Q: What is 'first dollar' defense?                                                    Back to Top
A: The option to purchase 'first dollar' defense is sometimes offered to law firms.  This permits the firm to apply its deductible only to actual damages, with claims expenses covered on a "first dollar" basis by the insurer  Only firms who have demonstrated effective risk management procedures and an excellent (no) claims history are offered this option.

Q: What is meant by 'claims expenses outside the limits''?                    Back to Top
A:  Sometimes law firms are offered the option to purchase insurance with 'claims expenses outside the limits'. This means that, if a claim is made, the purchased limits must have been exhausted by indemnity and defense costs to the maximum allowable for a claim, and then additional limits for defense costs come into play, up to the purchased limits, to defray additional defense costs.
 

Q: What is a 'loss only deductible''?                                               Back to Top
A: This is an option offered only to law firms which have been evaluated by the insurance companies to be the most desirable risks. It requires that you pay your deductible only if an indemnity loss is paid to a claimant by the insurance company on your behalf. Then your deductible is applied, and after that the company pays additional defense costs or losses. This is helpful to the law firm, since nuisance or frivolous claims which have no merit cost the firm nothing.

Q: What is an appropriate liability limit for my firm?                             Back to Top
A: Primary LPL limits are available from as little as $100,000, to as much as $50 Million. Excess coverage can also be obtained to limits of $100 Million, or more. It is important that policy limits are adequate to cover both the cost of defense and damages. In choosing limits, the insured must consider any number of factors: primarily, the maximum dollar value of his typical case, his business and personal assets, his practice areas and whether he deals with litigious clients, etc. He must isolate the circumstances that might lead to a worse case loss to the firm. Of course, higher limits increase the premium you pay. But. since few claims rise to the level of maximum possible loss, the extra charge for higher limits is on a sliding scale and therefore affordable basis. Policy limits are usually designated as Per Claim and Aggregate limits. The latter allows for more than one claim, which in the aggregate only amount to the specified limit. In other words, if a firm carries limits of$1,000,000/ $3,000,000, and three claims occur during the policy year, each of which is a $1,000,000 claim, the aggregate is used up. (And just you try to get insurance again!) One final thought. In choosing an adequate limit, multiple claims that result from a single or related group of incidents will be considered as one claim under your policy.

Q: What is an appropriate deductible for my firm?                              Back to Top
A: Deductibles or retentions can range from as little as $0 or $1,000 for a solo practitioner, to as much as $250,000 for a large firm. Some very large firms can carry a retention of as much as $1 Million. This allows the firm greater flexibility in not involving their insurers in relatively small matters, but still protects the firm and its members from catastrophic claims. Generally, small to midsize firms choose deductibles between $2,500 and $25,000. As stated previously, policies vary in terms of whether claims costs are charged against the deductible. Some firms prefer the simplicity of one deductible amount, applicable to both claims and damages. Additionally, some options available include a higher deductible for damages, but a lower deductible for claims expenses, or what is referred to as a "50/50" retention, with only 50% of the deductible applying to claims expenses. Another important option to understand is whether your claims expenses are included within the limits of liability or whether they are payable in addition to the limits of liability.

Q: What is the difference between surplus lines                           Back to Top
     and excess coverage?
A: A surplus lines carrier is a carrier which is approved to sell insurance in your state, but which is not ADMITTED. By this we mean that the carrier has not filed rates and forms with the state insurance department, and is not covered by the department's devices set up to protect the consumer (lawyer).

Admitted carriers are covered under the states' guarantee funds, which are designed to protect the consumer from a carrier's becoming insolvent and unable to pay claims. Most states require that the potential of quotes from admitted carriers must be exhausted before the producer offers surplus lines quotes (coverage) to an insured. However, many producers ignore this requirement and offer surplus lines carriers. Law firms should protect themselves against such practices by refusing to deal with producers who suggest it.

Excess insurance is an entirely different matter. Excess insurance is that which is obtained in order to augment the insurance a firm currently has. Here are two examples of excess purchases to answer specific needs: 1) In states where insurance coverage is a state maintained right (e.g., Oregon), many lawyers wish to have more coverage than the state offers; 2) Sometimes an insured's main insurance carrier will offer that insured a maximum set of limits, but the insured desires higher limits. In these or other scenarios, the insured will then buy an excess insurance policy which provides them coverage after their initial coverage limits have been used up.

For your education & information

Please note that these answers are for general education and information only and are not intended to be specific to your insurance needs. These answers represent our interpretation of the provisions of insurance policies and should not be taken by you as factual information. They do not represent actual statements made by insurance companies policy terms.

Our producers work very closely with our clients to ensure that their insurance coverage is specifically targeted to their insurance needs.  We would welcome the opportunity to discuss your insurance needs and to answer any questions you may have.

Toll Free: (800) 820-9220 Direct: (775) 624-2400
Fax: (775)624-2410
Email: info@alia-ins.com
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