Starting Your Own Firm: What to Know About E&O Insurance

Starting your own firm is a big step in your legal career. With all the start-up costs and decisions, there may be an impulse to defer purchases that you consider non-essential. Professional liability insurance shouldn't be one of those.

1. Whether or not your state requires it, you should have insurance on day one. 

Set yourself up for success by doing things right from the beginning. While it may be tempting to forego errors and omissions (E&O) insurance when money is tight, this can prove to be a devastating choice if a client sues you.

Even if you have few assets now, an error that you make today could give rise to a lawsuit later on, and a judgment against you can be collected from your future earnings. If you don’t have insurance at the time an error is made, a current policy will not cover you when a former client files suit. Professional liability insurance protects your current and future assets, giving your fledgling firm the best chance of success.

If you’re leaving another firm to start your own, make sure not to leave any gaps in your coverage. If your former firm’s insurer will not continue to provide coverage under that firm’s policy after you leave, be sure to either purchase tail coverage from that insurer or obtain prior acts coverage from your new insurer.

2. It’s important to make sure all areas of your practice are covered.

Different areas of law are associated with different levels of risk. As your firm grows and changes with the addition of new attorneys and additional practice areas, make sure your insurance policy is keeping up. Communicate to your insurer any changes in your firm so the insurer can provide you the most complete protection possible.

3. E&O insurance can help you head off lawsuits.

In addition to protecting assets, an E&O insurance policy can provide you with expert help when it can be most effective—before a complaint becomes a lawsuit. It’s wise to let your insurer know as soon as you have reason to believe a complaint or lawsuit might be filed against you. This both protects your coverage by satisfying the policy’s notice requirement and gives your insurer the opportunity to provide the legal help you need for the best chance of preventing a suit or prevailing in case a lawsuit is filed.

Even before an error is made, a professional liability policy can help you minimize the odds of being sued by providing education and practical resources, such as CLE materials, practice guides, and engagement letter templates. Some insurers also offer referral services that facilitate consultations with experts in other areas of law when you need them.

4. Malpractice insurance can help you defend against professional complaints.

Filing a professional complaint is a simple, no-cost way for unhappy clients to express their dissatisfaction with an attorney’s service. While they may not pose the same level of financial risk as lawsuits, they can be costly and time consuming to defend, and unfavorable rulings by disciplinary boards can have serious consequences for your career and future earnings.

A professional liability policy can provide help in responding to and, if necessary, defending professional complaints. The assistance of an experienced legal malpractice attorney can prove invaluable during this process, allowing you to continue to focus on your practice with the peace of mind that comes with knowing an expert is on your side.

5. There are important differences in how E&O policies work.

As an attorney, you are aware of the importance of fully understanding a document before you sign it. Your professional liability policy is no exception. Be sure you understand how your deductible and claim limits apply, as well as what types of suits are excluded from your policy. Before you sign, know the answers to questions such as 

• Are the costs to defend a claim included in my coverage limits?

• If I face more than one claim during the coverage period, does my deductible apply to each one?

• If more than one attorney in my firm is named in a single suit, does the coverage limit apply to each attorney or all of them collectively? Does the deductible apply separately to each?

• Does the policy cover lost earnings for time I or other attorneys in my firm spend defending claims?

Understanding the answers to these types of questions will help you select coverage limits and deductible levels that are appropriate for your firm's needs.

If you need E&O insurance for your legal practice, contact the experts at ProDefender. We have decades of experience producing and underwriting lawyers’ professional liability insurance. Reach out to us at (866) 434-8557 or info@prodefender.com.