Professional liability insurance is an essential safeguard for lawyers, protecting you from legal malpractice claims and disciplinary actions. When selecting your insurance policy, understanding the role of deductibles is crucial.
Deductibles
A deductible is the amount of money that you will pay for a claim, and most legal malpractice insurance policies contain one. Limits of liability are added on top of the deductible. For example, a $1,000,000 limit with a $10,000 deductible means that the insured is responsible for the first $10,000, but after that, the $1,000,000 policy limit will be available for the claim.
Loss & Expense Deductibles
Deductibles may apply to defense costs and settlements—loss. The size of the deductible is based on several factors including the size of the firm, types of law practiced, claims history, and more. The higher the deductible is, the lower the premium will be. However, some companies may limit how large your deductible can be based upon your ability to pay the deductible.
Loss Only Deductibles
In some cases, insurers will offer a loss only deductible—also known as first dollar defense. This means there is no deductible for defense costs, but the deductible will apply to settlements. Some state insurance regulators, like New Jersey, require all legal malpractice insurance policies to be issued with a loss only deductible.
Each Claim and Aggregate Deductibles
Traditionally, deductibles apply to each claim. The insurer may sometimes offer an aggregate deductible, where the insured will not pay any more deductibles after a stated amount has been reached. For example, an insured has $25,000 per claim with $75,000 aggregate for all claims. In this case, the insured is responsible for up to $25,000 for the first three claims. Any claims that occur after the first three would not be subject to a deductible.
Supplementary Payments Deductibles
Legal malpractice insurance policies generally offer “supplementary payments” coverage. Some examples of these supplementary payments coverage include Loss of Earnings, Disciplinary Proceedings and Subpoena Assistance. Usually, these coverages are not subject to a deductible.
However, other supplementary payments, such as Crisis Event Expense and Regulatory Inquiries, are subject to the deductible. These supplementary payments coverage vary by insurance company, so be sure to read and understand the coverage that you are buying.
Understanding professional liability insurance deductibles is essential for lawyers since these deductibles determine the financial responsibility you bear before your insurance coverage kicks in. Selecting the right deductibles tailored to your practice’s unique needs is key to safeguarding your career.
Questions?
At the end of the day, Pearl Insurance is here for you. We work tirelessly to help you find a policy that fits your firm’s exact needs. Pearl takes our responsibility to protect your firm seriously and will always put people before profit.
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