For a Good Night’s Sleep, Get Malpractice Insurance

Imagine the Worst, and Prepare for It
By Carolyn Elefant, Esq.

One absolute rule I have for new solos is that they must purchase malpractice insurance. In the interest of full disclosure, though, I do admit to not following my own advice during my first three years of practice! Back then, I was young and cocky, and I calculated that my potential exposure was low given my regulatory practice, my “long shot” litigation matters and criminal defense work.

I assumed legal malpractice insurance was as costly as health insurance and probably couldn’t afford it. I had a nothing-to-lose attitude back then, figuring that if anyone sued me I’d simply pack up my firm and walk away. I see things differently now with my practice well under way. I have so much invested in my practice that I am unwilling to sacrifice my firm if a client sues me. Also, after a couple of close calls, I realize that – despite my diligence – I am only human, and capable of mistakes that could morph into a grievance or a malpractice action. Once I understood this, the purchase of malpractice insurance to protect myself from future claims was better than berating myself for my mistakes, or worse, waking in a cold sweat in the middle of the night. When I finally shopped around for malpractice insurance and spoke with other solo and small firm lawyers, I discovered that it was not as expensive as I had thought. Of course, this is just my story.

Read what a solo in family law wrote to the ABA’s solosez listserv about an experience that happened to them:

“I’ve heard it said that if you have never had a client file a claim against you, you haven’t been practicing long enough. By this measure, I have now been practicing law long enough.

“Several years ago, a disgruntled former client filed a complaint with the Attorney Discipline Office. The claims specialist assigned to my case offered insight, provided a sounding board, reviewed my response and other documents, and confirmed that I could either handle this pro se, or with counsel. For a variety of reasons, I handled it pro se. The ADO dismissed the complaint, and concluded that this was merely a matter of differing opinions. The former client then filed suit in court … also suing his former spouse, the judge, the guardian ad litem, the parenting counselor, and advised the screening officer and chair of the ADO that he would be suing them, too.

“I am absolutely delighted that I can leave this in the hands of my attorney, and I am absolutely delighted that my insurance company rejected a settlement offer from the Plaintiff for half the policy limits (which means they feel quite strongly that a judgment will either be in my favor, or for an amount less than half the policy limit). And I am absolutely incensed that my attorneys will be spending at least $5,000 worth of time on my behalf, which means that a judgment in my favor will still cost me $5,000 (my deductible). But I am thankful that I was not practicing ‘bare’, which would have deprived me of the advice I received in the ADO matter, and would have seriously interfered with my ability to defend myself in this suit. I am not a bad attorney. I don’t deserve this. But this is part of practicing law. Please, please, please think long and hard before going bare.”

Here are some of the factors you should consider in purchasing malpractice insurance as well as suggestions on how to procure the best plan:

Does your state require malpractice coverage or have a mandatory disclosure policy? – You may not even have a choice about whether to get legal malpractice insurance or not. In fact, one state, Oregon, requires all lawyers to buy malpractice insurance. Other states, including South Dakota, Alaska, Ohio, and others, have “mandatory disclosure” rules that require attorneys to reveal to prospective clients whether they have malpractice coverage. As a practical matter, a mandatory disclosure rule has virtually the same effect as a mandatory requirement. In a mandatory disclosure jurisdiction, lack of malpractice coverage gives prospective clients the impression that you’re running a fly-by-night operation, and they’ll likely pass on hiring you. On the other hand, if you don’t disclose a lack of malpractice coverage, you run the risk of disciplinary reprimand if your concealment is later discovered. You might as well avoid all of these hassles in a mandatory disclosure jurisdiction at the outset by obtaining malpractice coverage.

Do you need malpractice insurance for business opportunities? – Another factor to consider is whether you need malpractice coverage for business opportunities. Some referral services will not refer cases to lawyers who do not carry sufficient malpractice coverage. Many times, an RFP (request for proposal) for legal services also require coverage. Even law firms and attorneys who retain lawyers for per diem or contract work often require some amount of malpractice coverage. In short, malpractice insurance is a worthwhile investment economically if it allows you to take advantage of lucrative opportunities that would not otherwise be available in the absence of coverage.

How much does your degree of exposure matter? – Quite frankly, your own assessment of your degree of malpractice exposure should not serve as the deciding factor in your decision regarding coverage. Because even though the chances of client actually winning a malpractice action against you and collecting a judgment are probably low, it doesn’t take much for a client to initiate such an action in hopes of pressuring a quick settlement – or worse, to file a bar complaint which, if unfavorably resolved, can cause damage to your reputation and lead to a suspension. These days, many legal malpractice plans cover the cost of defense both in malpractice actions in court and, equally importantly, in grievance procedures where lawyers who are represented almost always fare better than those who participate pro se. Thus, malpractice insurance buys you the peace of mind, and gives you one less thing to worry about when that client who initially seemed so reasonable starts threatening a grievance. Moreover, if your risk of exposure is low anyway, you’ll probably be able to find a relatively inexpensive coverage plan.

What can you afford? – Even though malpractice insurance is a good investment, cost matters when you’re just starting out. There are some practice areas (such as certain IP matters) where malpractice insurance can be prohibitively expensive. But if you expect that IP will generate substantial revenue for you, bite the bullet and write the check. On the other hand, if you’re only intending to handle a smattering of IP work and focus on other areas, you might consider dropping that practice area or figuring out other ways to do it – maybe on contract basis for another firm – that will limit your exposure and the concomitant costs of coverage.

How to purchase malpractice insurance – Many state bar associations have an insurance company that is designated as a “preferred provider” or bar association sponsor. Be wary of these designations; they do not necessarily guarantee that the company offers the lowest cost or is the most reliable. In fact, as I discovered when I signed up to use the DC Bar’s preferred provider, the opposite was true. In my case, the provider charged roughly 20 percent more than my current insurer and also went out of business a year after I signed up. Essentially, a preferred provider is nothing more than an insurer which has paid the bar a certain amount of money in exchange for exclusive billing.

A preferred provider may in fact offer the lowest price; just don’t automatically assume that it will:

– To find potential malpractice companies, seek advice from other attorneys who have personally procured the plan and who practice in the same jurisdiction. Getting advice from an associate at a firm that uses, say, Ajax Insurance, isn’t much value since the associate won’t know the terms or cost of coverage. Likewise, information about a cheap plan in California won’t do much good if you practice in Florida. Your best bet is a recommendation from a fellow attorney with a similar practice, who can share his or her personal experiences with the provider, and perhaps even give you a sense of what he or she pays for the policy. Once you’ve gathered a list of two or three prospective providers, shop around for quotes. Ask for a range of costs depending on variables such as the size of your deductible or coverage per claim.

– Most legal malpractice plans are claims-based, which means that coverage applies for any claim made during a specified period. In addition, even if you’ve gone “bare” for several years, you may be able to negotiate insurance for “prior acts,” past incidents that pre-dated your plan but for which no claim has yet been filed. And when shopping for a plan, make certain that it will cover defense costs, both in civil suits and disciplinary actions. Also ask what other benefits the plan offers. Some plans might offer a free legal research package or discount pricing, others include risk- management training with a discount on the cost of insurance to those who participate.

The ABA has an entire Web site devoted to purchase of malpractice insurance at www.abanet.org/legalservices/lpl/home. It includes some reasonably current information on purchasing malpractice insurance and statistics, reporting claims and minimizing malpractice risk.

– Excerpted from Solo By Choice: How to Be the Lawyer You Always Wanted to Be (Carolyn Elefant, 2008)