There are many benefits to being an attorney, but the legal profession comes with a certain degree of risk. That’s why lawyer insurance is essential for helping law firms mitigate risk and best serve clients.
It’s natural for a law firm to try to keep expenses low with minimal lawyer insurance. However, inadequately insuring your firm can be more costly in the long run. From malpractice lawsuits and cybersecurity threats to the normal risks of doing business, insurance for lawyers can go a long way to protecting your business and financial well-being.
The exact mix of policies your firm needs will vary depending on your firm’s specific situation. But researching what’s out there and asking the right questions can help ensure that your cover your bases—so you can protect your firm and clients.
This blog post will cover why it’s so important for lawyers to invest in insurance. We’ll also review key factors to consider when choosing an insurance provider and plan. In addition, we’ll cover several key types of insurance policies that benefit law firms.
What is lawyer insurance?
Lawyer insurance can take many forms. From general liability insurance to malpractice insurance, lawyers are best protected by a range of policies that cover both the business aspect of being a lawyer and any potential for error in the practice of law.
Why do lawyers need insurance?
Being a lawyer involves many risks. Lawyer insurance for lawyers is an essential element of risk management. Insurance allows lawyers to practice with less worry about unexpected claims and expenses that can put their practice in financial jeopardy.
In addition to the common risks that any business faces (like the risk of employee injury, property damage, or accidents), lawyers face unique risks that may require additional insurance. These additional risks for lawyers include potential cybersecurity threats and malpractice claims. Even if you do excellent legal work and follow the letter of the law, no attorney is immune to malpractice claims.
The right insurance coverage can help lawyers and law firms:
- Mitigate the financial strain of legal expenses and settlements.
- Ease the stress of dealing with lawsuits without coverage.
- Ensure their clients are protected and well-served.
Aside from protecting yourself, it’s also important to note that some jurisdictions require practicing lawyers to have certain types of professional liability insurance coverage. For example, attorneys in Oregon need to have legal malpractice coverage. Be sure to check for any professional insurance requirements for lawyers in your jurisdiction so you can follow the rules.
Things to consider when choosing an insurance provider
Just as not all lawyers are the best fit for every client and matter, not all insurance providers and coverage for lawyers are created equal. With this in mind, it’s important to:
- Do your research when vetting any potential insurance provider.
- Thoroughly discuss and understand the scope of coverage of any potential insurance plan. That way, you don’t inadvertently leave yourself or your firm vulnerable to gaps or underinsured areas of coverage.
To help lawyers learn what topics to review and what types of questions to ask potential insurance providers, the American Bar Association (ABA) compiled a Checklist for Purchasers of Professional Liability Insurance as a guide. We’ve highlighted a few key questions from the guide to consider:
- Does the broker or insurance company specialize in law firms? If so, do they work with law firms in your particular industry?
- What are the limits of liability?
- Is there automatic coverage for future lawyers, partners, officers, directors, and shareholders?
- What are the deductibles?
- Is coverage provided for all legal services provided by the firm?
- What are the terms of coverage?
7 Insurance policies that every law firm needs
The exact range of policies that you and your law firm need will vary depending on your specific situation (and jurisdiction requirements). As a starting point, consider the following types of insurance policies:
Business Owner’s Policy (BOP)
Just as a homeowner purchases an insurance policy that covers various areas of risk to protect their home, a Business Owner’s Policy (BOP) is a type of bundled insurance policy that covers multiple areas of risk for a business. This type of combined policy should protect a range of issues related to the business and property, and may include policies for:
- General liability insurance (more on this next)
- Commercial property insurance (which focuses on your law firm building and assets like computers)
- Business income or business interruption insurance (which covers business income lost due to events like natural disasters)
By bundling key policies together, a BOP can help law firms get basic and essential coverage, often at a lower cost.
General liability insurance
General liability insurance (which may or may not be included in a BOP—so be sure to check) is essential for any business. This insurance helps protect from lawsuits that arise should your law firm—as a business—cause property damage or injury. Depending on your specific policy, general liability insurance may cover instances like a client tripping and falling while in your office, as well as potential claims for slang or libel.
Professional liability insurance
Whether you call it professional liability insurance or legal malpractice insurance, all practicing lawyers must have adequate insurance coverage. Legal malpractice insurance helps protect against claims that arise from mistakes made during professional legal services. These may include claims regarding issues of professional negligence such as—most commonly—malpractice.
Unfortunately for attorneys, legal malpractice claims are on the rise—in their frequency and severity. As reported by insurance broker Ames & Gough’s annual survey of leading lawyers’ professional responsibility insurers, legal malpractice claim payouts from 2019 through mid-2020 were the highest on record. While the pandemic significantly impacted the surge in the size of payouts, this trend reinforces the need for attorneys to acquire adequate coverage in today’s legal landscape.
Whether a malpractice lawsuit has merit or not, it can be expensive and incredibly stressful to deal with. Depending on the policy, professional liability insurance coverage can help lawyers mitigate legal defense costs against these types of lawsuits. Malpractice insurance may also cover settlements or damages awarded against the firm.
To help guide you through the process of acquiring legal malpractice insurance, read our step-by-step guide. It may also be helpful to check out the ABA’s Lawyers’ Professional Liability Insurance Directory, which offers a state-by-state list of potential insurers.
Cyber liability insurance
In today’s legal landscape, lawyers—who deal with clients’ sensitive data and personal identification information—are increasingly targets for cybersecurity issues. The ABA’s 2020 Legal Technology Survey Report found that 29% of firms reported experiencing a security compromise—a marked increase from the 26% reported in 2019.
While law firms can take steps to help keep their practice secure and lessen their risk, it’s still necessary to protect yourself and your firm with the appropriate insurance to cover cyber liability issues. For example, using the cloud to store your firm’s data is more secure than using servers.
That’s why it’s more and more critical for law firms to consider cyber liability insurance. No insurance policy can prevent a security breach or cybercrime. But cyber liability insurance can help your firm cover claims. It can also help you deal with the financial implications of data recovery in the event of a cyber attack. This added protection is gaining popularity for law firms. Specifically, the Legal Technology Survey Report also noted that a growing number of firms—36% of respondents—committing to cyber insurance policies in 2020.
Directors and Officers insurance (D&O):
Directors and officers insurance (D&O) is a type of business liability insurance designed to protect a company’s board of directors against lawsuits related to mismanagement. Examples of business mismanagement include misuse of company funds.
For law firms, D&O insurance similarly helps protect the firm (and the firm’s directors and officers) against suits alleging firm mismanagement. This type of policy could potentially cover defence costs or reimburse settlement costs for such claims. Law firm D&O insurance should be customized to meet the unique needs of a law firm—which includes the risk that attorneys could potentially sue the firm.
Law firms may want to invest in D&O insurance to help mitigate the personal financial risk for the firm’s leadership and business.
Employment practices liability insurance (EPLI):
If your law firm has employees, your firm should consider a policy for employment practices liability insurance (EPLI).
EPLI helps protect law firms from potential employment-related lawsuits and claims that its employees make against employers about a violation of their rights, such as:
- Discrimination (due to factors like gender or sex, race, age, or disability).
- Wrongful termination.
Workers’ compensation insurance:
Another type of insurance that law firms with employees may need is workers’ compensation insurance.
Law firm employees do not typically face many physical hazards and risks that lead to work-related injuries. But there’s always potential for workplace accidents to happen. A workers’ compensation insurance policy can help protect the firm from damages (such as medical bills and lost wages) should an employee sustain an injury at work or while fulfilling their professional duties.
What does lawyer insurance cost?
The exact cost of lawyer insurance varies depending on various factors, so it’s important to do your research and get a few quotes. Factors that can influence the pricing of insurance for lawyers may include:
- The number of attorneys at a firm.
- Area of practice (certain practice areas, such as real estate law, may have higher premiums).
- Geographic location.
- Prior claims history.
Factors related to prior claims can have a major influence on your lawyer insurance premiums, so keep that in mind when considering costs. These factors include:
- The number and nature of claims you’ve had in the past.
- The cost of these claims.
- The degree to which your firm was at fault.
Experience can also influence insurance costs for lawyers. There may be an assumption that insurance costs go down over time. But this is not always the case for attorneys—especially in the realm of professional liability insurance. Because more experienced lawyers have a longer history of cases, take on more complex cases, and have more potential for past errors, they often face higher insurance costs than newer attorneys.
Specifically, newer lawyers (in private practice for less than five years) report around 3.5% of malpractice claims. The likelihood of claims grows with time for attorneys, as lawyers practicing law for 11 to 20 years report closer to 37% of malpractice claims.
Remember: When it comes to lawyer insurance, you aren’t necessarily looking for the lowest price—you’re looking for the best coverage and protection.
Insurance for lawyers may be an expense, but it’s a cost that’s well worth it. While certain insurance may be required for you to practice law or run a law firm as a business in your area. But when it comes to insurance, it’s not in your best interest to stick to the minimum.
Because law firms face both the common risks of running a business and the unique risks of being legal professionals (such as cybersecurity threats and malpractice claims), it’s extra important to invest in a range of insurance policies to suit specific needs. Start by researching what insurance for lawyers your firm has to have. Then, look for any additional policies that might apply to your firm.
The right lawyer insurance policies can mitigate risk and bring peace of mind—so don’t delay getting insurance for your firm.