By Michael Carroll
A lawyer's professional liability (LPL) insurance policy or contract has many different sections full of inclusions and exclusions, as does any insurance policy. Many lawyers want to know the easiest and most powerful ways to get protected properly on the LPL, and there are two:
Almost all LPL insurance includes a policy deductible. Typically, insurers seek deductibles in the range of $2,500 or more per attorney in a firm. Deductibles also vary by the liability coverage limits sought by law firms.
Most insurers also offer “loss only deductibles,” also known as “first-dollar defense” coverage. As the name implies, a law firm’s deductible only applies if you are found to be negligent and a claim is made by your insurer on behalf of your firm. The best part is that your deductible does not apply to defense costs. This coverage is attractive because defense costs are the first costs that your law firm incurs in a claim, and with meritless claims, usually law firms incur only defense costs.
This optional endorsement is available for an additional premium, but it is also subject to your insurer's underwriting standards. If your firm and its area of expertise in your practice has shown a propensity for facing a large number of small claims or incidents, most likely your insurer will decline to offer you this option. In other words, the underwriter may determine that the additional premium that they will incur will not likely offset the costs that they will incur by defending your firm from the first dollar.
The amount of additional premiums for the “loss only deductible” optional endorsement varies by the size of the deductible. Also, each insurer has its own unique pricing structure for these options.
Defense costs can erode the amount of liability available to pay a claim. For example, if you carry a $500,000 limit of liability on your LPL and incur $100,000 in defense costs, you will only have $400,000 remaining of liability coverage if you carry what is known as Claims Expense Inside Limits (CEIL).
Whereas if you have your LPL policy endorsed for a nominal annual premium with Claims Expense Outside Limits (CEOL) then you have defense limits from a minimum of 50% of your liability limit up to unlimited defense liability. Every insurer offers different limits based on the merits of your firm. Yet in the example above you’d still have $500,000 to pay your claim if you had CEOL.
The market for LPL insurance is usually very competitive. It is your firm’s financial health and reputation that is on the line. A good LPL insurance policy should not be viewed as “good enough.” It is worth your time to read the policy, ask for what you want, and realize the coverage that you need.
An expert LPL insurance broker is your advocate in this process and can greatly aid you in this process. So be as detailed as possible to allow the expert LPL insurance broker craft coverage enhancements that you need and want as ultimately, it is your firm’s responsibility to make sure that you have great coverage in place.
Michael Carroll has spent the last 27 years protecting Lawyers and Law Firms. Insuring Lawyer has offices in Maumee, Ohio, which is a suburb of Toledo, and in Phoenix, Arizona. You may get a FREE copy of Michael’s best-selling book The Naked Insurance Lawyer by visiting www.insuringlawyerbook.com or by calling 24/7 to 866-843-0101.
