Just like any other person starting a business, there is a steep learning curve when an attorney is establishing a solo practice. Despite their high levels of training and experience, the attorney might not have the requisite resources and knowledge to straightaway start operating a business that can have various dynamic elements.
One aspect of a solo practice that is usually ignored is malpractice insurance. Actually, a lot of solo practices run without any form of malpractice insurance or attorney professional liability insurance. This is not advisable for solo practitioners given that between five and six percent of all attorneys are likely to be hit with a malpractice claim during the current year. Note that the cost of a malpractice claim is normally greater than the cost of insurance.
If you are thinking about setting up shop, or you find the malpractice insurance arena too daunting, you do not have any reason to postpone it any longer.
Here is what you need to know when buying legal malpractice insurance:
It is not mandatory to buy malpractice insurance in all states
The majority of states do not require attorneys to take out malpractice insurance policies, unlike what happens in the medical field. As a matter of fact, Oregon is the only state that makes it mandatory for practicing attorneys to have legal malpractice insurance. Even though attorneys are not obligated to purchase this type of insurance, many lawyers across the US prefer to become insured in order to protect themselves.
More states are passing laws that require disclosure
Legal malpractice insurance remains generally optional, in spite of pressure from some consumer advocacy groups. If an attorney does not have legal malpractice insurance, states such as Washington, California, and Colorado require them to reveal this fact to their clients. In several states, the client needs to sign a disclosure statement when engaging an attorney that indicates that he or she knows that the selected attorney does not have any form of malpractice insurance. Such laws are increasingly becoming commonplace and it is likely that more states will start to make it mandatory to have insurance. That means it is the right time for a solo practitioner to buy a malpractice insurance policy.
An outside the limit policy is better
A lot of attorneys may not think about being recipients of a legal invoice. But if you ever get sued for malpractice, you will probably need to hire an attorney and incur other legal costs when defending yourself, even where it does not reach the trial stage. One important thing to consider when buying malpractice insurance is whether it covers these fees. A policy that deducts the legal costs out of the total coverage and thereby reduces the money available to pay for any damages that may be awarded is called inside the limit. On the other hand, an outside the limit policy covers both the legal fees and any damages awarded. All in all, it is usually more prudent to get an outside policy.
Premiums rise with time
Your premiums will probably decrease if you have car insurance and remain accident-free for a long time while on one policy. But this does not apply to legal malpractice insurance even where your record is untainted. Your premium will increase the longer you are covered by legal malpractice insurance. But everything becomes clear when you understand that.
Malpractice insurance includes prior acts
In contrast to car insurance that will only provide coverage for accidents that happen once you buy the policy, a legal malpractice insurance policy covers what is referred to as ‘prior acts’. Provided you had a policy that was effective at the time of the incident (even though it was a different policy from the one you are currently thinking of buying), you will get coverage against malpractice suits originating from your legal practice over that duration. Such clauses are a sufficient reason to take out malpractice insurance the moment you decide to establish a solo practice. Any claim that is made when you are not insured will not be covered and may cause you a lot of grief.
Do not append your signature before you read
Needless to say, an attorney should never put their signature on something they have not read, and this applies to your malpractice insurance policy. Each policy is unique with regard to its premiums and coverage. It is not sufficient to just choose the cheapest-priced policy because this can lead you down the path of bankruptcy.
Establishing a new business is a challenging undertaking, both financially and physically. Consequently, a new practitioner can be tempted to disregard malpractice insurance because it is generally not required. But in reality, malpractice insurance is usually very affordable and is much less of a hassle in the long-term than a drawn-out and costly legal battle.