Lawyers Professional Liability Insurance: Nuances to Know

Liability insurance for legal professionals is relatively new product though it has caught on both in Ukraine and worldwide. Moreover, it is considered to be one of the most complicated and specific insurance products.

Let’s take, for example, general third-party liability insurance. Underwriters usually have definite and measurable criteria at hand such as the area of the premises, the number of visitors or contracts, working hours and so on, to calculate the insurance rate. The issue of professional services firm reliability is quite different. It is influenced by completely different factors such as number of years in business, managers’ experience, brand’s reputation in the market. They are more difficult to measure, though their influence on the risk assessment as well as insurance rate evaluation is hard to underestimate. It shouldn’t be left out of consideration that lawyers’ professional liability insurance is not a mass-consumption product. Each policy is tailored to the particular request. For example, a law firm which has its experts registered as individual entrepreneurs and a law firm with the experts registered as its official employees will need completely different wording of an insurance policy. There is a simple explanation for such situation.  Individual entrepreneurs are not considered as employees insurance wise, that’s why their activities are normally not covered by the insurance policy. Even if the individual entrepreneurs are not actually independent outsourcers, they formally remain the Insured’s contractors. Insurance, in its turn, is first and foremost based on a written agreement between the parties.

There is a common notion that professional liability insurance for a law firm is another attribute of its status along with prestigious office or expensive suit. It is partly true. Evidently, only top-class lawyers can actually afford professional liability insurance coverage, though they have no reasons to worry about their lack of competences. It really is so. A number of firms do purchase professional liability coverage only to raise their status instead of securing their interests. At the same time, the higher the status of a law firm is, the more complicated cases it is being trusted with. Of course, the level of responsibility associated with them is also higher. Even a competent lawyer can make a mistake which can turn to be catastrophic for his client. For example, if a lawyer is negligent in a standard divorce process, the worst thing that can happen to him is losing a client. However, if he makes a mistake in a course of litigation regarding the majority interest in a subsidiary, it is quite probable that the next lawsuit filed by the client will be against the lawyer himself.

As to the insurance aspect of this issue, one should keep in mind that the lost case is not an insured event itself. The Insured is entitled to indemnification only if the case was lost due to the mistake of a lawyer who, for example, incorrectly drafted the documents or missed the crucial deadline.

Statistics show that seven out of every ten big law firms either insured their professional liability in the past or are currently under the effective coverage.

If the law firms you work with buy expensive insurance coverage from a reputable insurer, it is a plus to their image. But make sure to inquire about the limit of liability under the policy. If you entrust your lawyers with a $ 200 mln worth lawsuit, the UAH 100,000 limit of coverage will not make much difference to you, let alone if the reputation of an insurer leaves much to be desired. Remember that demand triggers supply. The more interest clients show in their lawyers’ insurance coverage, the more frequent such agreements will be in the market.