Myth #1: Since most NC lawyers buy their malpractice insurance from the same company, that company must have the best price.
The truth is that many North Carolina lawyers are paying substantially higher premiums than competitors’ rates for a policy that provides substantially less coverage. Yes, that’s right – they are paying more to get less.
Those lawyers that have poor claims experience, practice in high risk fields such as intellectual property, syndicated real estate development, entertainment law, plaintiffs’ class action or medical malpractice sometimes pay a lower premium than generally available in the marketplace when insured by a mutual company. Many North Carolina lawyers, however, most who practice in solo or small firms, could be subsidizing the rates of their colleagues that have higher risk and more lucrative practices. Lawyers who practice primarily defense work, criminal defense, workers compensation, social security disability, mediation and family law can usually enjoy significant savings when they switch from a mutual company to a commercial carrier. Even real estate lawyers without any prior claims can save money.
Myth #2: Since most NC lawyers buy their malpractice insurance from the same company, that company must provide the best coverage.
Regardless of premium, many North Carolina lawyers have a professional liability policy that can only be described as “bare-bones” when compared to the competition. A number of lawyers’ professional liability policies include these benefits that are not provided by the policy most often purchased in North Carolina:
- Coverage for disciplinary proceedings
- Reimbursement for loss of earnings
- Free tail coverage upon retirement from the practice of law and 3 years of consecutive coverage
- 50% credit against the deductible if a claim settles as a result of mediation or arbitration
- Coverage for independent contractors and employees
- Coverage for service as a director of a nonprofit organization
- First dollar defense costs paid up to $2500 or $5000 depending on the company
- Coverage for predecessor firms and retired partners
- 60 Day Automatic Extended Reporting Period when upon policy expiration
A “Checklist for Purchases of Professional Liability Insurance” from the American Bar Association can help a firm compare their current policy to one offered by a competitor.
Myth #3: If a law firm changes insurance companies, the new insurance company will leave North Carolina and then the firm won’t have any coverage.
This myth is based on the fact that about 40 years ago, the number of negligence claims against lawyers suddenly increased and insurance companies experienced unprecedented losses. Insurance companies in many states, not just North Carolina, stopped offering lawyers’ professional liability coverage. Well, times have changed. According to the American Bar Association, today over 30 companies offer lawyers’ professional liability insurance in North Carolina. With so many affordable options for superior coverage, it doesn’t make sense to purchase insurance based on what happened 40 years ago or what might happen 40 years from now.
Law firms that purchase their insurance through an independent insurance broker have assistance obtaining alternative coverage if a carrier raises rates, declines to renew, or withdraws from the market. An agency or company that underwrites for only one carrier offers only one choice.
Myth #4: If a law firm changes its professional liability carrier, the new company won’t cover claims arising out of legal services provided before the firm switched.
Some companies may attempt to scare their policyholders away from shopping for insurance by suggesting that other companies will not cover their claims. Such a statement could be a violation of North Carolina law which prohibits anyone from making a misrepresentation or misleading statement about the insurance business. N.C. Gen. Stat. Sec. 58-63-15(2).
The truth is that professional liability carriers typically provide prior acts coverage to eligible policyholders. With so much competition in the marketplace, it just makes good business sense. Although a law firm usually has the option of purchasing an extended reporting endorsement (tail policy) from a previous carrier, it’s usually more cost effective to buy a policy that includes prior acts coverage. When a firm’s insurance company declines to renew their coverage due to previous claims experience, it is sometimes more difficult to obtain a policy that includes prior acts coverage. Under those circumstances, it’s advisable for the firm to purchase a tail policy from the previous carrier.
Myth #5: Some companies won’t provide coverage if I serve as a mediator, arbitrator, executor, administrator, trustee or fiduciary.
Not true again. This is standard coverage under most lawyers’ professional liability policies. If your insurance company suggests otherwise, they are misinformed.