This is your worst nightmare.
You’re out of town during a trial and your trusty paralegal drives an expert witness to the courthouse. While driving to the courthouse, your paralegal blows through a red light and plows into an innocent mother of 7 children. The damages are huge, your paralegal is 100% at fault…and you are facing a monster lawsuit.
Days after the crash, the injury victim’s lawyer discovers that your paralegal was driving to the courthouse as part of her job for your law firm. The injury victim’s lawyer begins hyperventilating and drool seeps down the corner of his mouth, as he realizes that your law firm is vicariously responsible for the crash. The injury victim sets her sights on suing your law firm and without the right insurance coverage, you’re screwed.
When you get the summons and complaint listing your law firm as a defendant, your mind races with a horrible thought: this multi-million $ lawsuit might be the end of your law firm. You rush to call your insurance agent to ask if you’ve got coverage for the claim and you’re brushed off with the response, “I’ll get back to you.” Everything you’ve ever worked for is suddenly at risk.
But there’s a happy ending to this story. Your insurance agent shows you the policies insuring your law firm and assures you that you’re covered for the motor vehicle crash. Your agent tells you that you’ve got “Hired and Non-Owned Auto Coverage” as part of your office business insurance, and this coverage insures your law firm against claims made against your employees while driving to the courthouse or running errands for your law firm.
6 Coverages that All Lawyers Should Have
It’s your job to make sure your law firm has the following coverage:
- Hired & Non-Owned Auto Coverage,
- Data Breach & Cyber Liability,
- General Liability Insurance,
- Employee Theft Coverage,
- Employment Practices Liability Coverage,
- Umbrella/Excess Liability Coverage
#1: Hired & Non-Owned Auto Coverage
Whether your paralegal is driving her personal vehicle or a rental car, the Hired and Non-Owned Auto coverage insures your law firm for up to $1 million in damages and pays for defense costs. Even better, your agent tells you that you’ve got umbrella insurance providing an additional $5 million of coverage that applies to the Hired and Non-Owned Auto coverage. Not only is your law firm covered for the auto crash, you’ve got $6 million in coverage and you won’t have to pay a penny in defense costs. Whew! You just dodged a bullet.
The cost of the additional coverages and endorsements are less than $1k per year. Office business insurance, which may include Hired and Non-Owned Auto Coverage, usually costs $550/year, umbrella coverage only costs a few hundred bucks and some coverages can be bundled with a general liability policy. Not bad for the peace of mind the added coverage gives you.
#2: Cyber Liability Insurance
Cyber liability and data breach protects you when your clients’ personal information becomes compromised, including third-party damages and defense costs. If you lose your smart phone, iPad or laptop, your clients’ private information might get into the wrong hands and subject you to damages for a data breach. Cyber liability insurance may be included in the Office Business Insurance.
If your client sues for damages over loss of private data, or stolen identity, cyber liability insurance pays for legal fees, settlements and court costs. If client information is stolen, there can be hefty fines of up to $250k for failing to notify clients of a data breach. With cyber liability insurance, your insurance company must notify your clients of the data breach.
#3: General Liability Insurance
General Liability Insurance covers property and personal injury claims that occur at your law firm. The costs of defending a lawsuit can cripple a law firm and this protects you from exorbitant legal fees. Your professional liability insurance (a/k/a Errors and Omissions) will not provide coverage for property and personal injury claims that are unrelated to legal malpractice. General liability insurance is worth a few extra bucks.
#4: Employee Theft/Crime Coverage
If your bookkeeper steals from your attorney escrow account or operating account, employee theft/crime coverage protects you. Employee theft/crime coverage pays for your losses as well as the legal fees for bringing your employee to justice. Employee theft/crime coverage can be bundled with an office business insurance.
#5: Employment Practices Liability Coverage
Employment Practices Liability coverage (“EPLI”) protects you against claims brought by employees alleging wrongful termination, sexual harassment, discrimination (age, sex and gender) and retaliation, including defamation, invasion of privacy, failure to promote and deprivation of a work opportunity and negligent evaluation.
Employment Practices Liability coverage will reimburse your law firm against the costs of defending a lawsuit and for judgments and settlements. EPLI may be added as an endorsement to the Office Business Insurance or as a stand-alone coverage.
#6: Excess/Umbrella Coverage
Umbrella coverage costs a few hundred dollars a year for $1 million in coverage and can apply to several policies. If your paralegal gets into an auto crash, the umbrella coverage will give you an extra layer of insurance to your Hired and Non-Owned Auto Coverage.
Your umbrella coverage should match your law firm’s annual revenues. If your law firm has revenues of $5 million/year, that should be the amount of your excess coverage. It’s a no-brainer to get the extra coverage.
How to Avoid 3 Fatal Mistakes with Your Errors & Omissions Policy
Your errors and omissions policy is a claims-made policy that protects you against claims that are reported when the policy is in force. Follow these 3 steps for maximizing your coverage:
#1: Maximize Your Prior Acts Coverage
A claims-made policy normally provides coverage for acts occurring before the claims-made policy period. “Prior acts” refers to coverage for acts, errors and omissions that occurred prior to the policy’s inception date.
Errors & Omissions policies normally have a retroactive date for acts and omissions that result in a claim. If your Errors & Omissions policy has a retroactive date of May 1, 2014, your policy will not cover you against claims arising from acts or omissions that occurred before May 1, 2014.
Prior acts coverage that is defined as “full prior acts” covers acts occurring at any time prior to the current policy period and means that there is no retroactive date. Pay a few extra bucks to get “full prior acts” coverage.
#2: Beware of Shrinking Coverage Limits
If your Errors and Omissions policy has Claims Expenses Inside the Limit (CEIL), all claim expenses are deducted first from the liability limit and the balance is available for paying a judgment or settlement. If you have a liability limit of $1 million, and your claim expenses total $400k, there will be $600k left to pay damages.
Claims Expenses Outside the Limit (CEOL) means claims expenses are outside the limits of liability and won’t lower the limits of liability. If you elect to have a Claims Expenses Outside the Limit (CEOL) endorsement on your policy, for a small additional fee, you are provided with a separate but equal limit of liability for claim expenses. On a $1 million liability limit, the full $1 million is available for payment of damages, and there is an additional $1 million available for claim expenses.
Claims Expenses Outside the Limit (CEOL) is more expensive than Claims Expenses Inside the Limit (CEIL) by about 10%-15%, but offers up to $1 million for defense costs and an extra $1 million for the payment of damages. In return for a slightly higher premium, you get an extra $1 million for defense costs. Shelling out a few extra bucks for the CEOL is worth it.
#3: Extend the Claim Reporting Period
The Extended Claim Reporting Period is an endorsement to your Errors & Omissions policy that addresses work performed during the policy period which gives rise to a claim after the policy has expired. This endorsement extends the period of time after the policy expiration in which a claim can be made, filed and still be covered. Typical options are one, three and five year reporting periods. Pay a few extra $ for this endorsement.
Become the Guru of Law Firm Insurance
NEVER ASSUME that your agent is looking out for your best interests—your insurance coverage might suck if you don’t ask the right questions and know your coverages.
Ask your insurance agent whether you are covered for Hired & Non-Owned Auto Coverage, Cyber Liability Insurance, Employee Theft/Crime Coverage, Employment Practices Liability Coverage, and Excess/Umbrella Coverage.
Extend the coverage of your Errors & Omissions policy by getting the endorsement for “full prior acts” with no retroactive date; pay the extra fee for Claim Expenses Outside the Limits (CEOL), and extend the claim reporting period to 3-5 years following the expiration of your policy.
By spending an hour reviewing your coverages, you can get back to doing what you do best—practicing law—and rest a little easier that you won’t get handed a lawsuit that could ruin everything you’ve worked for.
