One of the harder questions that lawyers face when purchasing or renewing a legal malpractice insurance policy is: what policy limits and policy deductibles should I choose, and are those limits sufficient?
No one wants to buy more coverage than they need or have a deductible that never gets satisfied. Unfortunately, there just isn’t a stock answer. Since every law firm is different, the policy limits and deductible chosen should be based on the individual characteristics of the firm. Never choose limits and deductibles based on what your friend or the law firm down the street has. Take some time to consider the matter. No one knows your practice any better than you do.
Consider the type of law or cases your firm handles. What is the value of the cases you handle? What is the largest case value that you handle? What is the smallest? Is there an “average” value? How many lawyers are in your firm? What is the economy like? Lawyers seem to get sued more often in a bad economy than in a good one. These are just some of the questions you should ask yourself before deciding on your limits and deductible.
Once you have gathered the relevant information and thought about it, you’ll be in a much better position to decide, and I think you’ll find the decision becomes a little easier. Not easy, but a little easier.
You as lawyers have several choices when it comes to legal malpractice insurance. My guess is all brokers selling this type of coverage will tell you that their policy or program is a good one. But what exactly makes up a good program?
Let me tell you what I think makes up a good program and distinguishes it from other insurance program or policies in the marketplace:
1. A malpractice helpline or hotline for insureds. This is important as it provides an outlet for the insureds to discuss the disciplinary or claim issue with one of their colleagues.
2. A library of risk management tools. For example, sample copies of engagement letters, disengagement letters, samples of conflicts of interest checks and examples of docket control systems. This can be web site based or hard copies
3. Risk Management classes and or videos that may or may not provide CLE credit
4. Comprehensive policy form that provides: full prior acts coverage, career coverage, broad definition of professional services, unlimited tail coverage endorsement and a free retirement tail when appropriate.
5. An involved and experienced broker. Does your broker look like me, act like me, talk like me? If not they should. A broker is your connection to the carrier. Likewise the broker is the carrier’s connection to you. Education, dedication and commitment is a must. LPL is not a one size fits all, not even a one carrier fits all kind of product.
When searching for or reviewing your legal malpractice insurance program, you may not be able to secure everything I just mentioned but a good program will have most of them.
Many carriers trying to be innovative or distinguish themselves in the Legal Malpractice marketplace try to add certain coverages to the policy hoping to get your business. While any additional coverage is a good thing, sometimes the advertising and marketing of the additional coverages can cause confusion about the type and extent of the additional coverages offered.
Some of the additional or ancillary coverages that carriers in the Legal Malpractice marketplace are marketing/providing are: Cyber Coverage, D&O Coverage, Fidelity Coverage and even some BOP coverage or business owners. Again, the additional coverages are not bad to have but they should not be thought of as complete coverage for that type of exposure. All of these ancillary coverages are just that – ancillary. Don’t be fooled in thinking that the ancillary coverage is all you need for those exposures. The ancillary coverage will provide minimal coverage in terms of depth and limits.
For a more comprehensive coverage with broad depth and adequate limits, you should consider a standalone or separate policy for each of the exposures that exist in your firm. Although buying separate policies for cyber, business owners, and crime coverage will add to your outlay of cash it should provide adequate protection for you and the firm in the event of a claim or loss. Notice I did not mention D&O coverage, if you sit on a non profit or for profit board you definitely need to check with that entity and confirm that they do have an inforce policy that protects you in your position as board member.
Don’t depend on your Legal Malpractice policy to act as a cover all policy. It’s not! It’s great to have supplemental and ancillary coverages in the legal malpractice policy but it is a mistake to believe these types of coverage will provide the coverage needed in a claim situation. Investigate standalone policies.
I was recently at a malpractice program given by a carrier we use and they were talking about where their claims are coming from. One of the top 3 causes they presented was conflict of interest. I can’t say that this shocked me but I was a little bit surprised this was in the top 3!
Back in the 90’s conflicts of interest was a huge risk management topic and was on everyone’s radar. For the past several years however the topic seemed to cool when discussing legal malpractice, so to hear it was in the top 3 did catch my attention. It should also catch your attention too!
Conflicts of interest are easy to get caught up in if you’re not careful. They come in many different disguises right? Representing both parties in the same case be it divorce or accident, representing a new client against a former client, having an ownership interest in your client, managing and or directing a clients business. The list can go on and on.
Be careful to not get caught up in the friends and family plan either. You may have had this happen to you when a family member might say “My wife and I want a quick divorce, here is what we agreed to. Can you draw up the paperwork and we’ll both sign and be done?” or a similar situation where you are asked to help save your friends money by representing both sides in any transaction. Friends and Family can and do sue.
So just a heads up to stay vigilant with COI checks so you don’t become part of the top 3.
I have an easy and surprisingly somewhat overlooked risk management tip for you. Read your policy. When was the last time you read yours?
I’m always a little bit surprised that when I speak to prospects and clients alike, how many of them tell me they never or very rarely ever read their policy. Look, I know that we are all busy because our reading stack is very high. And after going through the application and quoting, no one is thinking about finishing the process by reading the policy.
Reading your policy is essential to the process and should supplement any risk management technique you utilize in your offices. The policy tells you who’s insured, what’s insured, what you’re supposed to do when and if you do get sued, your coverage limits, your deductible, and how much it actually costs. These are just to name a few.
The policy is also going to tell you what’s not covered, referred to as exclusions in the policy. And perhaps this is even more important than knowing what is covered.
So, don’t ignore my comments and do nothing. Take a moment and read it. You don’t need to become an expert in legal malpractice insurance. Just an informed consumer. A little knowledge in this matter will go a long way in your risk management efforts to avoid legal malpractice.
“Amateurs hack systems, professionals hack people.” – Bruce Schneier
What is social engineering?
Social engineering occurs when somebody acts like something that they’re not to get information from you so they can better themselves. We’ve heard a lot of stories that involve law firms and wire transfer fraud.
Common Social Engineering Schemes Aimed At Attorneys
There was a firm in North Carolina and they received a phone call, supposedly, from the bank saying, “We noticed some interesting activity on your account. I just want to verify we’re talking to the right person, what’s your username and password?” That firm gave the person on the phone their bank username and password. The bank said, “We’re gonna send you a code. We just want to make sure that you are who you are – let us know what the code is and then we’re going to talk about the issues with your account.” So instead, unbeknownst to the law firm, the people on the phone actually signed into their bank, initiated a wire transfer, and sent them the code needed for the wire transfer. So the law firm received the code and provided it to the people on the phone, they put it in, and then they went on to just have a fake conversation about what was wrong with their account. At the end, they said it just turned out to be an internal error and everything was fine. And 30 minutes later, the firm finds out that there was a wire transfer that they didn’t know about that they didn’t authorize. And in fact, it ended up being the person on the phone that allowed it all to happen.
This is a very common thing that we’ve been hearing more and more lately and it is a very common social engineering scheme aimed at attorneys.
Another one is, they’ll call you and appear like they are from a nonprofit, and they’ll try to, again, get some sort of wire transfer normally.
And then the final one that’s really, really common is they’ll send emails to you as your client. So it’s actually quite easy to appear to send an email as somebody else. It’s called email spoofing. An eight year old could do it, it’s so easy. They’ll send emails to you as your client, and they’ll say, “Hey, are you at the office? Can we send a wire out today? I’m busy, just go ahead and do it and email me when it’s done.” Anytime you get anything like that from your clients, you will need to put something in place where there’s some sort of two factor authentication. Something as simple as if they email you, you have to talk to them on the phone before proceeding. Having processes in place to combat social engineering is, again, part of that knowledge that needs to happen.
Social engineering is definitely an issue, and attorneys are one of the main people that they’ll go after because you have access to such important information.
Is This Really Happening?
I can tell you that, obviously, there have been claims, and whether they’re funds, transfer funds, transfers, or just hacks into the system to try to get information such as social security numbers, ein numbers, birth date health records of clients, it’s happening all the time, and it happens everywhere. The smaller law firms that don’t have a ton of money to spend on high priced security systems out there, they’re considered low hanging fruit or as I said, the easy targets for cyber criminals so be careful.
In the past five years, banks have spent about $90 billion on guarding against social engineering. They’re making it a lot harder to get into their information.
Every year, most insured lawyers are asked by their carrier to complete a renewal application. Now, I can hear the collective moans coming from the offices before we even send out the renewal application. I’ll be the first to admit that the applications can be long and contain confusing questions. But keep in mind, this is the only time the carrier can get a complete picture of your firm, you need to take advantage of this.
You need to let the carrier know what your practice is, how your practice is doing, and what you are doing to reduce risk in your office. You do this by answering all of the questions on the application completely. Unanswered questions or incomplete details only cause more questions and increase the back and forth between client and carrier. Take the time to read each question. Don’t assume you know what the carrier is asking for.
There is one question on the application that I think causes concern, or at least causes me concern. And that is the area of practice grid. That’s the chart on the application that you are asked to put a percentage in, in the areas of where your firm is playing. Now, some carriers will ask for that percentage to be listed as a percentage of your time spent. Other carriers will ask for that percentage to be listed as a percentage of the revenue of the firm. Answering that question one way or the other will create a substantially different picture of your firm and definitely have an effect on the premium that you pay.
So please, again, make sure that you’re reading each question and answering those questions completely. You’ll be glad that you did.
Many of our risk management video tips are surrounding the need for early reporting of claims and potential claims. A very important risk management tip. In this same vein, I want to talk about the angry client.
Many insureds have had this situation where a client unexpectedly shows up at the office, or calls you on the phone to express their displeasure about something you did or something that has happened.
Perhaps their case is taking too long. They haven’t heard from you in a few weeks, their phone call wasn’t returned, or they’re just not feeling the love from your office. Don’t just shrug this off as that’s just Joe being Joe, or they just want to blow off steam, or you convince yourself that nothing you did was wrong or incorrect and it’ll blow over.
Unfortunately, many insureds take this approach and find themselves embroiled in a legal malpractice suit down the road. As with any claim or potential claim, report the issue, let the carrier know about it and let them decide if it meets the definition of a claim or potential claim. And if you don’t report it, at least call the malpractice hotline that may be available to you from your carrier. Most insurance carriers do provide a hotline for this type of situation and you would be well advised to use it. It is part of the benefits program of being an insured.
Don’t be the cautionary tale of an unhappy client.
Conflicts of interest have always been a concern to underwriters of legal malpractice insurance. Conflicts come in different shapes and sizes and can oftentimes be difficult to identify. Most attorneys won’t represent both parties in an auto accident or the husband and wife in a divorce matter, but sometimes are quick to jump into a business venture with a client. I don’t know why, but it seems to me that recently, attorneys are more willing to overlook or downplay the serious nature of getting into business with a client.
Whether you want to invest in the client’s business or take an active role in operating the clients business, both are fraught with legal malpractice dangers. Usually, in the end, it’s just not worth the risk or the friendship to be in business with a client. Now, I can’t tell you not to go into business with a client, but I can tell you that if you do decide to do it, make sure you are well aware of the dangers of doing so and review and dissect all of the pros and cons.
Review the insurance policy; how does this affect the insurance coverage? Talk to your insurance broker and other professionals such as your accountant and business consultant and call the legal malpractice hotline of your insurance company. You can discuss the situation with a legal malpractice attorney. This benefit is usually included in the policy for insureds of most insurance companies. Find out all the insurance information good and bad before jumping into business with a client.
Staying current with technology is included in comment eight of 1.1 competence rule. In other words, everyone, I think, is familiar with the 1.1 competence rule of professional conduct that says a lawyer shall provide competent representation to the client. Commenting to that rule 1.1 says to maintain the relevant knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including benefits and risks associated with relevant technology.
A lot of the issues that come up today that I see are either lawyers’ use of technology as far as utilizing Facebook, Twitter and things like that in their own practice, as well as advising a client as to their use of technology. And there is a pretty good ethics PBA opinion that describes the lawyer’s role with regard to technology and the lawyer’s role in the use of technology on behalf of the lawyer and also representing the client and advising the client on the use of technology.
Meet Scott Eberle
Scott Eberle is on several insurance carriers defense panels. He’s been doing this type of work for many years. In my opinion, he’s one of the best presenters of legal malpractice and how to prevent it. So I think you’re in for a treat in terms of taking back some good information that you can implement in your firms.
“My name is Scott Eberle, I am an attorney at Burns White in Pittsburgh where my practice focuses on representation of professionals, lawsuits and ethics matters. I’m focused on representation of lawyers in legal malpractice lawsuits, as well as ethics issues either in front of the office of disciplinary Council, or just general ethics consultation. I help attorneys navigate the issues that come up in their practice and I’m able to provide guidance on what you need to do to follow the rules of professional conduct to not get yourself in potential trouble with the disciplinary council.”
