We get this request frequently. A law firm’s practice has changed. They are no longer doing the big time plaintiff cases or the mergers and acquisition work. They are looking to cut costs. One of the Law Firm’s larger expenses is Attorney Malpractice Insurance. Cutting the policy limits from $5,000,000 per claim to $1,000,000 will save over 50% of the premium. We can save $20,000 a year on premium. Sounds like a good deal. Stop right there!
All Lawyers Professional Liability Insurance policies written in the USA are written on a “Claims Made” or “Claims Made and Reported Form”. This differs from an “occurrence form” in which carrier and policy form is responsible for addressing a claim. One of the biggest differences is that with a “Claims Made” form is the law firm will settle on the limits that are inforce at the time a claim is made not when the act occurred. With an “Occurrence” form, the claim is settled on the form that is inforce when the act occurs not when the claim is made.
Given this, your Lawyers Professional Liability policy settles with the limits inforce at the time the claim is made. By lowering the limits, you lower the limits back to the inception date of coverage for any newly reported matters. If you needed to have higher limits in the past, you need to maintain the higher policy limits until you are sure that the statute of limitations has run on any matters that you needed the higher limits for. Finding the law firm underinsured just when you need the Lawyers professional Liability Insurance Policy the most can mean that facing the potential $4.5 Million claim with only $1 Million in coverage.
The fact is that once the malpractice insurance carrier writes its check for the $1 Million, you are on your own for defense costs and the $3.5 Million difference.