A law firm may find that renewing its legal malpractice policy with the same insurer year after year is advantageous for a number of reasons. For example, the law firm and insurer may build a strong working relationship, and there is a lesser risk of "gaps" in coverage that can form when the law firm changes insurers.
However, at the same time, law firms that are too complacent with their current coverage and insurance policy may lose out on better, cheaper coverage that may be available as the insurance market changes. While each law firm has unique considerations in determining whether to change insurers, there are certain issues that will likely carry the most weight when assessing the pros and cons of switching. Below are four key factors.
The market for legal malpractice insurance is extremely competitive and can be volatile. In particular, when new insurers begin writing legal malpractice policies (or others phase out or consolidate), the change in competition may cause downward pressure on premiums. Thus, attorneys and law firms with a good claims history may have significant leverage when it comes to setting a premium. Insurers may be eager to underwrite a firm that has strong loss prevention techniques. (Some law firms even hire counsel to advise them on claim-prevention techniques that may be attractive to an insurer in setting premiums.)
Attorneys and law firms in this position thus can miss a great opportunity for cost savings if they blindly renew with their current insurer every year. Even if the firm is otherwise happy with its insurer, soliciting terms from other insurers can be valuable in negotiating the terms of the renewal policy.
Firms that may have a more spotted claims history are not necessarily limited to either extremely expensive insurance with the same insurer or, worse yet, going without insurance. Instead, certain insurance companies specialize in issuing policies to firms with a more extensive claims history while maintaining relatively reasonable premiums.
Of course, a firm should not choose its legal malpractice insurer based solely on price. Although insurance is a business commodity that can be valued, law firms should not focus on price to the exclusion of the actual terms of coverage and the firm's needs. Where the price varies dramatically between policies, firms should analyze the coverage provisions carefully to confirm that the coverage provided by the cheaper policy will provide the firm with the coverage it needs. However, where multiple insurers offer coverage on similar terms and have similar reputations, price certainly may be a more critical factor.
The policies available today vary dramatically from those offered by insurers even five or 10 years ago. Insurers are constantly reinventing coverage provisions to enhance coverage as a way to gain an edge over their competitors. Thus, by renewing on the same terms every year, law firms may be missing out on some provisions that are now commonly found in policies but may not yet be incorporated in the policy issued by the firm's current insurer. As with price, firms are well-served by investigating the coverage terms offered by other insurers and comparing them with the scope of coverage provided under their expiring policy.
For example, many legal malpractice policies now offer coverage for bar grievances, through which the attorney or law firm can receive a defense to a bar complaint even if the person filing the bar complaint has not yet made a demand or claim. Other policies provide preclaim intervention coverage, which may help firms mitigate potential losses or avoid claims altogether. Another new area of coverage is cyber security.
In addition, insurers may now be more agreeable to including a provision that allows insured attorneys or law firms to select their own defense counsel instead of being limited to a preapproved panel of attorneys. Indeed, policies may vary greatly, and thus law firms should evaluate whether their current coverage best meets their needs, or whether there are now better options elsewhere.
Insurance Companies Are Not All the Same
As with other businesses, the fortunes of an insurance company may change over time. Thus, a previously strong legal malpractice insurer in the marketplace may struggle, giving rise to concerns that the insurer may not have the resources to pay defense costs or indemnity as required under the policy it issued to a law firm.
Thus, before renewing their policy, many law firms will confirm the financial viability of their insurer with rating services such as Moody's or A.M. Best. While legal malpractice insurers tend to be highly rated, there are exceptions. Any downgrade in ratings could be a cause for concern and makes it worthwhile to see if there are stronger insurers providing equal or better coverage.
Another issue worth considering is the conduct of the insurer when a claim arises. Even if the policy provides broad coverage for a reasonable premium, the defense of a claim can be ineffective where the insurer is nonresponsive or generally difficult.
There is no reason to remain in a troubled relationship with a legal malpractice insurance company when there are other choices available. This factor can be just as important as the actual terms of the insurance policy.
In another effort to distinguish themselves in the marketplace, legal malpractice insurers are now going beyond the coverage terms to provide additional benefits for their insureds. For example, insurers may offer continuing legal education (CLE) courts that can help Georgia attorneys satisfy their annual requirements, or the insurer may perform audits of the insured law firm to help the firm identity risks in its practice.
These add-ons can be very helpful to law firms in limiting the risks of a potential claim and can even form the basis for premium credits in connection with future policies.
The decision of whether to change insurers is not one to be made lightly and, as noted above, there may be compelling reasons to stay with the same insurer for a long time. However, law firms should at the very least consider offers from competing insurers during renewal time to ensure their policy remains the firm's best option.