Hiring a lawyer is a costly chore, but it is necessary when you have a complex legal problem. They are paid so much because complex legal problems require expertise and significant time. Do lawyers have to have malpractice insurance? Clients want to know that this investment is protected if the lawyer makes a mistake, but it is possible their lawyer does not have malpractice insurance.
In many states, lawyers do not have to have malpractice insurance. In other states, either they only have to have a certain limit of insurance or only certain law firms are required to have malpractice insurance. Where no malpractice insurance is required, only some of those states require the lawyer to report a lack of coverage.
Definition of Malpractice and Malpractice Insurance
Malpractice is basically a mistake made by a professional, like a lawyer. Everyone makes mistakes. That includes lawyers. A lawyer may make a mistake due to many reasons.
Most commonly, being overworked leads to mistakes. It can cause a lawyer to miss a deadline or hearing. The consequences of this can be dire. There are limits on how long a client has to file certain motions and claims, so missing the deadline means the client can no longer pursue their rights. One Alabama even lost his right to appeal his death sentence due to the lawyer missing the deadline to appeal.
Being overworked also leads to poor communication with clients. Given enough complaints from clients, the attorney may be punished by the state bar. If this happens, the clients may have a malpractice claim against the lawyer.
Another common mistake lawyers make is inadequate representation. Lawyers have a duty to fully represent their client’s interest. This requires thorough investigation and legal analysis. Lawyers lacking the ability to do this well enough may commit malpractice.
Finally, financial errors are common malpractice claims. Lawyers have a duty to properly handle client funds. Retainer fees must be held in a special trust account. Excess retainer fees must be refunded. Failure to do these two things tend to result in a malpractice claim.
If these mistakes are bad enough for a malpractice claim and if the lawyer has malpractice insurance, then the insurance provider will pay for defense and costs associated with the malpractice claim. Without malpractice insurance, the lawyer and maybe their law firm, will have to pay these costs.
Which States Require Lawyers to Have Malpractice Insurance?
Very few states require lawyers to have malpractice insurance. Idaho and Oregon require significant coverage. New Jersey requires limited liability law firms to have malpractice insurance for every attorney.
Rhode Island has requirements if the law firm is a corporation, limited liability company, or limited liability partnership. Texas requires lawyers to have malpractice insurance if they operate as a limited liability partnership. Finally, West Virginia requires coverage for law firms operating as a professional limited liability company.
Cost of Malpractice Insurance
The cost of malpractice insurance for lawyers varies from $500 to over $9,000. Many factors affect how much malpractice insurance costs.
A significant factor affecting the cost is areas of law practiced by the lawyer. Some areas, such as patent law, involve such costly litigation and difficult valuation, that many insurers do not even offer patent law malpractice insurance. The ones who do, charge much higher than malpractice insurance for other attorneys.
Another factor affecting the cost of malpractice insurance is whether the lawyer has had malpractice claims against them before. If they have already been accused of malpractice, then insuring them is more risky. As a result, the policy will cost more for these lawyers. Other factors include where the attorney practices and how many attorneys are in the firm if the policy is to be firm-wide.
The cost of the malpractice insurance policy sometimes discourages lawyers from having malpractice insurance. This is why clients should inquire into whether the lawyer has malpractice insurance.
What is Included in a Malpractice Insurance Policy?
Most brokers offer a few options for what is covered in the malpractice insurance policy. At the lower end is a policy that only covers errors and omissions for the lawyer and law firm. It covers some costs like legal defense costs for malpractice claims, but not others like defense costs for hearings before the state bar association.
Insurance policies usually do not protect lawyers when the mistake is actually fraudulent, criminal, or malicious. Legal defense costs and penalties from this sort of conduct will have to be personally paid for by the lawyer. If the lawyer does not have the money to pay, then the clients will be out of luck.
Malpractice Insurance Coverage is Important
Both the attorney and the client should ensure the attorney has malpractice insurance coverage. Between four and five percent of attorneys face a malpractice claim during their careers. Disgruntled clients happen to everyone. If the situation gets out of hand, it may develop into a costly malpractice claim, even if the lawyer did not make any mistakes or commit malpractice.
Malpractice insurance is important for clients because the consequences of malpractice are significant for clients. They could be barred from bringing action on their legal interests. This results in possible loss of money or, in the worst circumstances, even life.
What are Malpractice Insurance Ratings?
Malpractice insurance providers are rated by AM Best. The ratings are based on financial strength, credit ratings, issue ratings, and a national comparison to other providers. The ratings range D to A++.
A D rating is assigned to insurance providers who may not be able to actually provide the coverage they claim they provide. So if there is a malpractice claim against the lawyer, the insurance company may not be able to pay. This hurts both the lawyer and the client.
Ratings of C-, C, C+, and C++ are assigned to carriers with marginal or weak ability to provide the coverage they offer. These are quite risky, as well. They may be more affordable, but the risk is likely not worth it.
Ratings in the B range represent a fair or good reputation, but this still may not be worth the risk. These insurance providers may be more likely to suffer from things like recessions. Even though a B rating sounds good enough, it is not.
Lawyers should pick either A-, A, A+ or A++ rating carriers. This provides enough of a range of costs without risking the provider not providing the expected coverage. Lawyers willing to pay to have malpractice insurance should ensure they are paying for a quality product.
Claims against Lawyers for Malpractice
Usually, malpractice claims must be made while the policy is in effect. If the lawyer paid for a one year policy, then the lawyer needs to notify their insurance provider about the malpractice claim during the year of the policy. Sometimes, there is a short grace period after the policy ends during which the lawyer may still notify the insurer about a malpractice claim.
Lawyers become aware of malpractice claims a couple of ways. The lawyer may discover a mistake that could result in a malpractice claim. The lawyer must then determine the likelihood that a client will also know of the mistake and pursue the malpractice claim. Alternatively, a former client may hire another lawyer to pursue a malpractice claim against the lawyer. This may be with the filing of a lawsuit or with a demand letter to settle.
When the lawyer is informed that a client has a malpractice claim, the lawyer needs to fill out the appropriate paperwork for the insurance provider. They also need to update the insurer when anything happens with the claim. The insurance provider usually then covers the costs for defense against the malpractice claim.
Final Thoughts – Do Lawyers Have to Have Malpractice Insurance?
Not all lawyers have malpractice insurance. It is not even required in most states. The states that do require it, only require it for certain kinds of law firms. The cost of malpractice insurance varies widely, but it is usually higher for attorneys who need it most.
Despite all of this, many lawyers do have malpractice insurance. Some are required to report if they do, some state bar websites have this information, or clients may need to ask about whether the lawyer or law firm has malpractice insurance.
Malpractice insurance is important, because clients may suffer from attorneys’ mistakes and then the attorney may be unable to pay for defense and costs in addressing the malpractice claim. Lawyers should have malpractice insurance with highly rated providers. This is because, if there is a malpractice claim against them, they need to have the legal defense and costs covered. If the lawyer cannot pay settlement or verdicts for their malpractice due to their own or their insurer’s financial inability, the client then suffers all of the punishment of the lawyer’s mistake.
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