For any attorney starting a solo practice – or indeed any individual setting out to start a business – there can be a steep learning curve. Every a highly trained and experienced attorney may not have the knowledge or resources to immediately start running a business, which can including many different moving parts.
One piece of the solo practice puzzle that is often overlooked is malpractice insurance. In fact, many solo practices operate without any malpractice insurance at all. Considering the fact that five to six percent of all attorneys will face a malpractice claim this year, the cost of which usually outweighs the cost of insurance, this may not be the best choice for a solo practitioner.
If you are considering striking out on your own, or if you have been too intimidated by the malpractice insurance marketplace, there is no reason to put this decision off any longer. This post covers the most important details you will need to know in order to feel confident shopping for legal malpractice insurance.
- It’s Not Required in Every State
Unlike the medical field, most states do not have laws requiring attorneys to carry malpractice insurance. In fact, Oregon is currently the only state that requires legal malpractice insurance for all practicing attorneys. Although the law does not compel most attorneys to carry this type of insurance, there is still a large percentage of lawyers throughout the U.S. who choose to become insured for their own protection.
- Disclosure Requirements are Increasingly Common
Despite pressure from some consumer advocate groups, legal malpractice insurance is still largely optional. However, groups like Help Abolish Legal Tyranny (HALT) have lobbied successfully for disclosure laws in 26 states. These states, including California, Colorado, and Washington, require attorneys to disclose to their clients if they do no have legal malpractice insurance. In some states, the client will have to sign a written statement of disclosure when hiring an attorney that denotes the fact he or she is aware that their attorney of choice is not covered by any type of malpractice insurance. These laws are becoming more and more common and it is not unlikely that more states will begin to pass legislation requiring insurance outright. That makes it a perfect time for solo practitioners to shop for malpractice insurance.
- Inside vs. Outside Can Make a Big Difference
One thing that many attorneys may not ever consider is being on the other side of a legal invoice. But in the event that you are ever subject to a malpractice suit, you will likely have to pay an attorney and other legal fees in order to defend yourself, even if you do not go to trial. A major distinction to consider when shopping for malpractice insurance is whether those fees are covered. A policy that is termed “inside the limit” will take your legal costs out of your overall coverage, meaning there is less money left to pay out any damages, should they be awarded. A policy that is “outside the limit,” on the other hand, pays for legal defense fees on top of the policy itself. All other things being equal, it is generally more cost effective to find a policy that is “outside.”
- Premiums Go Up
When you have car insurance, if you drive safely over a long period of time and stick with the same policy, your premiums will likely go down. This is not the case with legal malpractice insurance, even if you keep a pristine record. The longer you keep legal malpractice insurance, the higher your premiums will be. But it all starts to make sense when you realize that…
- Malpractice Insurance Covers the Past
Unlike car insurance that will only cover accidents that occur after you purchase the policy, legal malpractice insurance covers what are known as “prior acts.” As long as you had a malpractice policy in place at the time (even if it is not the same one you are thinking of buying now), you will be covered for malpractice suits arising from your practice during that period. These types of clauses are reason enough to get insurance as soon as you decide to begin a solo practice. Anything that occurs while you are uninsured will never be covered and could lead to a lot of trouble .
- Read What You Sign
It should go without saying that as an attorney you should never sign anything you do not read. A malpractice insurance policy is no exception. Every policy is different in terms of its coverage and premiums. It is not enough to simply go with the lowest price or you could end up at the wrong table in bankruptcy court.
Starting a new business is overwhelming, both physically and financially. That means it can be tempting for a new solo practitioner to ignore malpractice insurance, since it’s (mostly) not required. But the truth is that the expense of malpractice insurance – which is generally quite affordable – is a lot less headache in the long run than a protracted and expensive legal battle.