Joe Barnard, CPA

What Should I Know About My E&O Policy Limits?

Having an errors and omissions insurance policy from the very moment you begin practicing law is the best way to protect yourself against professional liability issues throughout your career. Not all policies are the same, however. Before you purchase a policy, ask the following questions.

What types of claims are covered?

Many E&O policies cover far more than just malpractice lawsuits. In addition to covering the costs of defense and settlement awards in actual lawsuits, many policies provide coverage for professional complaints and disciplinary hearings. However, others don’t. Since responding to a professional complaint can involve a lot of time, money, and effort, this coverage can be extremely valuable. 

Another kind of loss that is sometimes, but not always, covered by professional liability insurance is the expense and time related to a data breach (i.e., taking steps necessary to protect your client information, notify parties appropriately, and implement compliant remediation). While you’re reviewing the kinds of claims covered by your policy, find out if certain types of claims are specifically excluded from coverage.

Are you compensated for lost wages?

When you are responding to a complaint or lawsuit, you may lose income because of court appearances or due to the sheer amount of time it takes to stage a defense. Some policies cover this ancillary wage loss; others don’t.

Are the limits appropriate in light of the area of law I’m practicing?

Some areas of practice expose attorneys to much higher levels of malpractice liability than others. As a result, the amount of coverage you need will depend upon the areas of law you practice. Make sure your policy limits are correlated to the types of law you practice; keeping your agent or underwriter up to date on your current practice areas can help you ensure that your policy covers you sufficiently.

Are defense costs and other claim expenses included in the insurer’s liability limits, or can the entire limit be used to pay damages?

Ask your insurer whether the costs of defense are “inside” or “outside” the liability limit. A policy that stipulates they are inside the limit means that those costs deplete the total funds available for payment of a settlement or judgment against you. A policy that holds defense costs outside the limit means that the entire amount of liability coverage is available to pay a plaintiff, while an additional, separate coverage limit applies to the payment of defense costs.

Policies that pay defense costs outside the liability limit provide broader coverage than those that don’t, and this may be reflected in the premium charged. If you are considering a policy with “inside” defense costs, you may need a higher liability limit to achieve a similar level of protection as an “outside” policy.

How do limits apply?

In addition to finding out whether defense costs are inside or outside of your liability limits, make sure you know how much of the limit applies to each claim within a contract year and your total annual limits (for example, $100,000 per claim with an annual limit of $300,000). Be aware of any specific exceptions or other limitations, such as restrictions on multiple payouts related to similar claims within a certain reporting period.

How does the deductible apply?

Different policies have different methods of assessing the deductible. Some calculate your total amount owed on a per-claim basis, e.g., $5,000 per claim, no matter how many are filed in a year. Others have an annual maximum, e.g., $15,000 total per calendar year. Others may have a blended calculation, e.g., $5,000 per claim with a $15,000 yearly maximum.

If multiple claims arise from a single act or omission, do the deductible and coverage limit apply separately to each claim?

If you face claims from multiple plaintiffs for the same alleged error or omission, some policies treat this as one matter for purposes of calculating coverage limits and deductibles, while others do not. Depending on your area of practice, this can be a critical distinction.

ProDefender can help you shop for legal professional liability insurance and compare policies to find one that meets all your practice needs at competitive rates. Contact ProDefender to arrange a consultation today.


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