Don't Leave Yourself Exposed - The New Year is the Perfect Time to Evaluate Your Professional Liability Coverage Limits

January is a time for making new resolutions, setting goals and evaluating what works and what can be improved. Generally, a majority of these discussions focus on exercise, diet, and healthy living. But what about you and your law firm’s financial health?

It is critical for your firm to maintain appropriate professional liability coverage, especially the right amount of coverage to avoid any potential risk of exposure to your personal assets and your partners’ personal assets in the event of an adverse claim. Just one adverse claim can place your personal assets — assets you have worked your entire life to build — in jeopardy of loss. The best way to mitigate this risk is to purchase appropriate limits of professional liability insurance coverage for your law practice.

Do you know how to properly evaluate how much professional liability insurance coverage your firm needs? Do you carry minimum limits? Do you practice in Montana? If you answered yes to these last two questions, you should read the recent Montana Supreme Court decision in High Country Paving, Inc. v. United Fire & Casualty, Co.  as it affects anyone practicing in Montana. Other states may follow.

In United Fire & Casualty, the Montana Supreme Court decided the following certified question:

Where liability is reasonabl[y] clear, is it a breach of an insurer’s duty to its insured to pay policy limits to a third party in a motor vehicle accident without a release of its insured where claimed special damages are below the policy limits but total damages (including general damages) exceed policy limits?

The Montana Supreme Court answered the certified question with a “qualified no.”  In answering the certified question, the Court qualified its answer upon several factors. First, liability for the underlying accident must be reasonably clear. Second, total damages caused by the accident must be reasonably proven to exceed policy limits. When these factors are met, it is not a breach of an insurer’s duty to its insured to pay policy limits to an injured third party without first obtaining a release for its insured. In recognizing an insurer’s obligations to an injured third party under § 33-18-201(6), MCA, the Court stated that:

When it is reasonably clear that the amount required for a final settlement of all claims — including general damages reasonably shown to have been caused by the insured’s conduct — exceeds policy limits, an insurer has a duty to pay policy limits to an injured third party, without conditioning such a payment on obtaining a release for its insured.

What practical impact does the United Fire & Casualty decision have on how much insurance coverage you and your law firm should consider when purchasing professional liability insurance?

The reality is that a firm that purchases low limits or inadequate limits of professional liability insurance coverage are placing their own assets and their partners’ assets at significant risk of loss in the event of a large adverse claim.

For example, you purchase a lawyers professional liability insurance policy having a $100,000 each claim/$300,000 aggregate limit of liability. A new staff member calendars the statute of limitations incorrectly. This calendaring error is not discovered until the opposition files a Motion to Dismiss based on the Statute of Limitations.

In the underlying case, liability is reasonably clear, and the damages will clearly exceed the applicable $100,000 policy limit. The reasonably clear damages appear to be between $500,000-$750,000. The damaged client is unwilling to resolve the legal malpractice claim within the policy limit because the indisputable damages far exceed the $100,000 policy limit.

In this example, based upon United Fire & Casualty, the insurance company may pay the $100,000 policy limit to the injured client without obtaining a release of the insured law firm. The insured lawyer will then have the lawyer’s personal assets and the firm’s assets exposed for potential recovery to satisfy the remaining damages in excess of the $100,000 policy limit.

Additionally, as to the insurer’s continuing duty to defend the insured lawyer and law firm, the Court held in United Fire & Casualty that:

[A]n insurer may have a continuing duty to defend its insured in such a situation, but that duty arises from the language of the insurance contract, not the UTPA.

Thus, if the express wording of the law firm’s professional liability insurance policy states in clear terms that the insurer shall not be obligated to continue to defend after the limit of liability has been exhausted by payment of damages, then the insurer has no further duty to defend its insured after the insurer pays the policy limit to the injured client.

Here is the good news! This never needs to happen. By purchasing adequate limits of liability and proper coverage for your firm, you can mitigate your firm’s risk of exposure to this situation.

ALPS provides three separate policies with a multitude of options to allow all attorneys and firms to purchase adequate limits of liability and coverages they need at a price that works for them. More detailed information can be found at www.alpsinsurance.com.

Please call and one of our insurance specialists will be happy to discuss your firm’s specific needs and how ALPS can help you mitigate your risk.

ALPS BASIC POLICY – Our most basic or bare essential professional liability coverage at the appropriate limits for your firm and the ability to customize/add additional coverage at the right price. Disciplinary Complaint Assistance of $5,000 per policy period.

ALPS PREFERRED POLICY – Professional liability coverage that ALPS is known for. Includes assistance with defending against bar complaints/disciplinary agency or official investigations – $25,000/per attorney-max of $75,000 per policy period; outside defense allowance which provides one-half per claim liability limit or $500,000 (whichever is less) to allow you and your firm the ability to defend claims before the indemnity limit begins reducing.

ALPS PREMIERE POLICY – Professional liability coverage that is second to none in the industry including but not limited to the following:

Loss of Earnings Assistance: $1,000 per day up to $50,000 per policy period;

Disciplinary Proceedings: $50,000 per attorney/ $150,000 max per policy period;

Subpoena Assistance: $50,000 per policy period;

Public Relations Event: $40,000 reimbursement for Public Relations Expenses

Outside Defense Allowance: $1,000,000 or one-half the per claim limit of liability (whichever is less) to allow you and your firm the ability to defend claims before the indemnity limit begins reducing.

** Additional benefits and coverages provided in the ALPS Premium Policy include but are not limited to: Coverage for expert witness services, bond premiums, family members and relatives, provided specific conditions in the policy are met. See the ALPS Premier Policy for specific details on coverage questions.

Link to Policy Comparison Chart

Your firm should consider increasing your policy limits if your firm has experienced any of the following:

• Added New Attorneys
• Changed or Added Practice Areas
• Changed or Added Jurisdictions Where Your Firm Provides Professional Services
• Increased Firm Profile or Average Wealth of Firm Clients Increased
• Has Not Reviewed Policy Limits of Liability for Many Years

As your firm grows and changes, so does the firm’s risk of exposure should an adverse event occur.  Don’t leave your firm exposed.  Speak with an ALPS insurance specialist about increasing your firm’s professional liability limits today.

Happy 2020!!!! Wishing everyone a Claims Free 2020 from ALPS Family to Yours!