Considerations for buying legal malpractice insurance

Unlike some other states, Missouri does not require that lawyers carry legal malpractice insurance. While not legally required, malpractice insurance is a practical necessity for any lawyer in private practice.

You don’t need to make a mistake to be sued. Even if you do everything right, you may still be sued for legal malpractice by an unhappy client, or you may be sued for other claims like malicious prosecution by your opponent’s client. Many legal malpractice suits are frivolous but still cost tens of thousands of dollars to defend. That is why it is critical to be properly insured.

Here are some of the primary issues to consider when buying legal liability insurance.

Before you buy insurance, you should know the insurance company’s financial rating. A.M. Best is the gold standard for rating the financial wherewithal of insurance companies so you should ask for the current A.M. Best rating. If the company’s rating is low or if they don’t have an A.M. Best rating, you should ask more questions or just look for another company.

It is best to purchase insurance through an independent agent who can help you evaluate insurance companies and compare their policies. An independent agent is likely to save you money by helping you find the most cost effective policy that meets your needs.

How much coverage do you need?

According to Mark Berry, a partner with Kaestner & Berry Insurance Agency (an agency that caters to the legal community), the amount of coverage you need depends on the type of practice you have, the size of the practice, the value of the matters you are handling and your appetite for risk. It is a cost benefit analysis because the amount of coverage will affect the cost of insurance.

Do not make the mistake of buying a policy with only a $250,000 coverage limit or less. That will likely only buy you a defense, and not be enough to cover many claims. If the policy declines with defense costs (see below), you may get a defense but your lawyer and the insurance company may have no choice but to settle the case early to avoid reducing the policy below the amount necessary to cover the claim itself.

Does the policy limit deplete as defense costs are spent?

Many insurance policy limits will be reduced as the insurance company expends legal fees and expenses. For an additional premium, some insurance companies will provide a separate limit for defense costs outside of the coverage limit and the coverage limit will not reduce until the separate defense limit is spent.

The deductible

The amount of the deductible will affect your premium, so you should choose a deductible that is the most cost effective for you. Sometimes the deductible applies to defense costs. For other policies, the deductible applies only to indemnity payments (settlement or judgment). Some insurance policies will reduce the deductible if the case is settled at mediation or within a certain period of time after the claim is made.

Choice of counsel

Some insurance policies give the choice of counsel exclusively to the insurance company or limit the insured’s choice of counsel to those lawyers who are on the insurance company’s panel list. Other policies allow the insured to choose counsel (within some limits), or the policy may require that both the insurance company and the insured agree on the chosen lawyer. If you are buying a policy that limits you to the defense lawyers on the insurance company’s panel list, you should ask to see that list before you buy the policy.

Coverage for claims of fraud, intentional acts, malicious prosecution and punitive damages

There are broad differences between insurance policies when it comes to coverage for claims of fraud and other intentional torts like malicious prosecution. Most policies will provide a defense for those claims but will not pay a judgment if the lawyer is found to have committed the intentional act. Some policies will cover punitive damages in certain situations.

Most importantly, don’t practice without insurance. Some lawyers think that having insurance just makes them a target for lawsuits. However, practicing without insurance exposes the lawyer’s personal assets and can have disastrous results.

Steven Schwartz is a principal at Brown & James in St. Louis who has defended lawyers in legal malpractice cases, malicious prosecution cases and ethics complaints for more than 30 years. He can be reached at sschwartz@bjpc.com. Brian Sableman contributed to this column. Mr. Sableman is a senior associate with Brown & James. He can be reached at bsableman@bjpc.com.