Malpractice insurance, professional liability insurance, whatever you want to call it, the six weeks before my policy renews are my least favorite time of year. They’re even worse than tax season. During this six weeks I fill out a dozen different applications, closely examine each prospective policy for exclusions and limitations, and I always seem to sign the letter to bind coverage at the last possible minute. The process is time-consuming and maddening.
When I first started my practice, I didn’t know anyone and I had no idea where to go for insurance. I think I attended one networking event and called the only insurance guy I’d met. I know, ONE insurance guy at a networking event. Crazy, right?
Anyway, he sent me the application. This monster, 20-page application. I had no clue how to fill it out. I did the best I could and he came back with a quote of $2,500. Seemed a little steep but what did I know? (Not to worry, most companies allow you to make monthly payments toward your premium.) Later I learned that the premium depends in large part on the type of practice areas you list and your years of experience. The longer you’re in practice, the higher your premiums because with each passing year, you have represented more clients that could come back and sue you.
The following year I had been networking like a maniac so I had a few insurance brokers in my address book. I contacted one of them and he managed to get me the same exact policy, with the same exact carrier, and the same exact limits…for $745. Lesson #1: Shop your policy around.
The following year I had a conversation with that broker about how best to fill out the application. You’ll see a section that lists about 50 different practice areas and you have to allocate the 100% of your practice to the different areas. He told me that, unless you’re actively pursuing business in a practice area, don’t allocate any more than 5% to it. More than 5% triggers a new practice area and tends to increase your premiums. Not to worry, according to this broker, allocating nothing to a particular practice area does not mean the insurance company won’t cover you if a claim arises out of a representation in that area. Lesson #2: Minimize the number of practice areas you list.
Lesson #3: Save your applications from the previous year. They will help you fill out the renewals so you don’t spend so much time hunting down information.
Lesson #4: Start shopping your policy around at least six weeks before your renewal date. It will take a while for you to fill out the application(s), for the broker to find some quotes, for you to review the policies, and for coverage to be bound.
Lesson #5: There are certain things that you have to disclose on every application. These include: suing a client for fees, taking an equity stake in a company you also represent, representing a bank, representing two potentially adverse parties to the same transaction (even if you get a conflict waiver).
Lesson #6: You may not need insurance, but you probably still need insurance. I was floored to learn that not all state bars require lawyers to maintain malpractice insurance. Even if it’s not a requirement where you practice, it’s probably still smart to have it. Unless you want to stockpile money for that crazy client who decides to make your life hell.