Left to right: Randy Evans and Shari Klevens, Dentons partners ()
When it comes to legal malpractice insurance, many law firms may be comfortable using the “if it ain’t broke, don’t fix it” approach. As a result, firms may renew their current legal malpractice policy without checking to see whether there are better options available on the market, or without discussing with their insurer whether there are other perks available to them by staying. By failing to take advantage of these options, law firms may be losing out on cheaper premiums or better coverage (or both) available from other insurers or even from their own insurer.
Of course, there are many good reasons to stay with the same insurer every year, especially if a firm has a good relationship with its insurer. However, it can be helpful to be aware of developments in the market, as new products are constantly introduced that may be a better fit for the particular risks faced by a law firm.
While every firm typically has unique considerations in deciding whether to change insurers, there are certain issues that may warrant exploring the options when renewal time is approaching. Below are three key factors that can persuade law firms to change insurance companies—even when they are generally satisfied with their current insurer.
As with any other business, legal malpractice insurers compete with one another, and there are regularly new companies entering the market. As a result, a law firm that shops around may find that there are other insurers eager to offer the firm a discount on its current premium.
This is especially true for law firms with a positive claims history, as insurers may be more inclined to take a chance by offering a lower premium if the law firm has had few prior claims. Just like a driver with no prior accidents, these types of insureds will be in a strong position to command lower premiums.
However, all is not lost for firms with a less than ideal claims history. Rather than going without insurance or buying prohibitively expensive insurance from traditional insurers, these firms can go to insurance companies that specialize in providing insurance to these types of practices at manageable rates.
In addition, lower premiums may be available depending on the law firm’s practice areas. Insurers typically consider the frequency of legal malpractice claims in a given practice area when pricing policies, and thus changes affecting that practice area may justify a lower premium. In addition, new insurers and insurers eager to expand their presence in the marketplace may offer bargains for attorneys and law firms engaged in lower-risk practice areas.
Although law firms can price their options competitively, most will not use price as the sole factor in choosing among potential legal malpractice insurers. Some law firms have learned the hard way that a lower price for an inferior policy is not always better than a higher premium for superior coverage.
In light of the changing marketplace and the constantly evolving risks faced by law firms, the coverage provided by legal malpractice policies has changed dramatically in recent years. Insurers now offer many different types of coverage enhancements or expansions designed to give individual insurance companies a competitive edge in the marketplace.
Law firms that automatically renew their existing policy thus may be missing out on additional coverage that is now standard in the marketplace. Instead, law firms may want to investigate what coverage enhancements and expansions are available. For example, many legal malpractice policies now provide an attorney or law firm with a defense to a bar complaint, even if the bar complaint does not otherwise constitute a claim under the policy. Other policies offer pre-claim intervention coverage that can help mitigate a potential loss even before a claim has been made.
In addition, some policies allow the law firm to choose the defense counsel who will defend a claim, instead of being assigned an attorney by the insurer. Law firms thus may want to confirm that their current policy provides these types of coverage enhancements and, if not, it may be a reason to look at other insurers.
Finally, in addition to the actual coverage provided by the policy, some insurers offer services aimed at loss prevention, such as continuing legal education courses or online resources. These additional perks can help reduce the risk of claims and thus reduce the likelihood that the firm will need to rely on its insurance coverage in the first place.
Better Insurance Company
A cheaper policy that purports to provide better coverage can be of little help if the insurance company is failing or if it provides poor claims-handling services.
Inevitably, with new insurance companies entering the market, there are also struggling insurance companies that may eventually leave the market. Rating services such as Moody’s or A.M. Best can be valuable resources for law firms to confirm that their current insurer or a potential insurer is financially viable.
However, there is more to an insurance company than simply being able to pay defense costs and indemnity. When a claim is asserted, the insurance company effectively becomes a partner with the law firm in defending the claim. Some attorneys find that their current insurer is unresponsive to their needs or is otherwise difficult to work with, and there may even be situations where the insurer acts in bad faith. A bad experience with an insurer is a good reason to seek out alternatives.
The decision to change insurers is not one that should be made lightly and, depending on the circumstances, it may not be worth the hassle and potential complications that come when transitioning from one insurer to another. However, by at least being aware of the options available on the market, law firms can confirm that their current policy and insurer are the best fit for the risks facing the firm.