Words of wisdom from our business insurance experts.
How Much Does Errors and Omissions Insurance Cost for a Law Firm?
All businesspeople, including legal professionals, require a safety net for their business. Various insurance policies protect companies against asset loss from lawsuits. Errors and omissions insurance, or professional liability insurance, covers a law firm's assets in specific circumstances, including cases involving inaccurate advice, negligence and misrepresentation.
Understanding Errors and Omissions Insurance
Malpractice insurance protects lawyers and their firms against claims of misrepresentation and other professional missteps. Unlike general liability, which covers lawsuits due to injuries and property damage, professional liability covers a client's claim that a lawyer made a mistake, gave bad advice or acted negligently. Understanding the different claims associated with E&O insurance can help a firm decide if it needs this type of policy.
Conflict of Interest
A conflict of interest happens when a lawyer puts his or her interests before the client's. A client might claim that a member of the firm had a relationship with an opposing party or represented two sides of a dispute.
There are various deadlines involved in most cases, and failing to meet deadlines can be devastating for a case. For example, missing a deadline can result in a judge declaring a mistrial or throwing out a case, among other outcomes. To avoid negative consequences, attorneys must stay on top of the deadlines for the client. If a client loses money or otherwise suffers because his or her legal team failed to ensure they met all deadlines, the client may have a claim.
When a case does not go as planned, errors and omissions insurance protects the law firm against the costs associated with a malpractice claim. Clients may state that you made errors or failed to adequately prepare. They may claim that you had poor judgment or did not apply the law correctly to their case. Clients expect the legal team to have specific knowledge about the areas of law they practice. If a lawyer misunderstands a law or fails to track changes in the law, a client may file a legal malpractice claim.
Regarding communication, lawyers must keep the client in the loop. Clients expect regular communication. If a lawyer fails to answer phone calls or call the client back, that lawyer could face a claim based on lack of communication. When there is relevant information or vital knowledge, attorneys must share it with the client. Failing to provide this information without a relevant reason could lead to a professional liability claim.
Understanding the Costs of a Malpractice Case
Errors and omissions insurance protects lawyers against the costs associated with a malpractice lawsuit. When a client brings such a claim, there are various damages he or she might try to recover.
With a legal malpractice case, the typical economic damages include the original claim's value. This means that if an error or omission by the legal team causes the client to lose, the client will likely ask for damages that include what they would have won in the case, as well as the overall costs of bringing the case. If the client won but still lost some money, the individual would likely ask for the difference between what they recovered and what they might have recovered without the mistake.
Sometimes, the client may try to recover attorney fees. The only way the client can demand the fees is if the legal team did not perform the contracted work or was negligent after receiving payment. There may be questions about whether the amount paid to the client should be reduced by the contingency fee.
Dissecting the Costs of Errors and Omissions Insurance
There are various conditions that can alter the amount a law firm pays for E&O insurance. The best way to understand a cost breakdown is to receive a quote based on the firm's specific situation.
Many small law firms will pay between $500 and $3000 yearly for E&O insurance. However, one attorney's cost cannot determine the cost of another attorney's coverage. Both size and revenue can impact how much a firm pays in premiums. Additionally, the types of coverage and limits will directly impact the cost of a policy.
Attorneys who work with other businesses typically take on higher risks and deal with high-dollar cases. Because of this, they will typically pay more for malpractice insurance. For instance, firms that work with other businesses may need to budget between $5000 to $10,000 per year. Those firms that have not had prior E&O claims will usually pay less than firms with claims against them.
Ways To Save
For attorneys that worry about the overall cost of errors and omissions insurance, there are ways to lower their premiums. Some insurance companies will offer lower rates to firms that they view as more responsible or less risky. For example, a law firm with strong quality control measures and policies may have lower premiums. The insurance company recognizes that these policies will likely mean fewer claims.
Keeping clear communication with clients at all times reduces the risk of misunderstandings. When a client understands the reasoning behind the legal team's actions, he or she is less likely to attribute a negative outcome to negligence or malpractice.
Lawyers are responsible for a lot of sensitive information about their clients. A cyberattack could cause that information to end up in the wrong hands. A law firm can reduce the risk of professional liability claims by ensuring that computer systems are secure and that there is little chance of information getting into the wrong hands.
Increasing policy deductibles will reduce overall costs throughout the year. The higher the deductible, the lower the premiums will be. Some attorneys appreciate higher deductibles when worried about expensive claims.
Protect Your Law Firm With Errors and Omissions Insurance
Fullsteam is a brokerage service that helps attorneys and other professionals with risk management and insurance solutions. We can help ensure that you have superior coverage and protection. Contact us to receive a quote or more information about errors and omissions insurance.