As law firms change, so do their insurance needs. While most law firms recognize that maintaining legal malpractice insurance is a necessary expense, too many firms neglect to review their insurance on a regular basis to ensure it fits their current needs and represents the best product available on the market.

The starting point for an insurance check-up is the policy application. Law firms are typically required to complete an application on an annual basis, which can either be an application for a renewal policy from the firm’s current insurer or for a new policy from a different insurer. That process typically starts months before the current policy expires.

It is important not to treat the insurance application as a pro forma document that can be completed without much thought. Applications seek a wide range of information regarding a firm and it can require significant time and effort to compile accurate responses. In particular, four of the most important topics addressed on applications are the firm’s size, practice areas, geographic reach, and claims experience. Insurers typically give those issues great weight in setting the premium or in even deciding whether to offer a policy in the first place. Thus, it is crucial that firms provide up-to-date information. In a worst-case scenario, an incorrect answer can put a firm’s coverage at risk even after an insurer agrees to issue a policy.

In recognition of its importance, many law firms have their general counsel or other managing attorney in charge of the insurance application. Indeed, by avoiding mistakes and ambiguities in the application, the firm may be able to reduce the premium and obtain the best coverage possible.

Defining the Number of Attorneys

Unsurprisingly, many insurers want to know how many attorneys the policy will cover in setting the premium. This often includes the number of full-time attorneys, with some insurers distinguishing among “of counsel,” contract attorneys, and retired (or reduced schedule) attorneys. Other insurers will price differently depending on how many partners or associates the firm employs.

If the application only asks for the number of attorneys, it may be worth asking whether more detailed information would be helpful. Indeed, the risks associated with a retired or part-time partner and an of counsel or a non-practicing contract attorney are typically different from the risks associated with a full-time practicing attorney. Insurers may recognize these distinctions and factor them into their calculations. It may also be to the law firm’s benefit to specify these different roles, as some insurers will price coverage for “of counsel” or other part-time attorneys differently. Being up front about these issues may help lower premiums and also ensure more comprehensive coverage.

Law firms can also use the application process as reason to conduct a detailed review as to how they classify attorneys of different levels. For example, law firms may consider officially giving new titles to semi-retired partners, which could then support the firm’s request for an adjusted premium based on the number of full-time attorneys. Adopting well-defined and accurate distinctions may be beneficial not only for the purposes of evaluating premiums, but also generally for purposes of risk management.

If a law firm treats all of its attorneys the same, without regard for each attorney’s different role or schedule, that may come with a price. Including a number of “attorneys” on the application without any distinction for the types of attorneys may artificially (and unnecessarily) inflate total attorney rating units, which can translate into a higher-than-necessary premium.

Practice Areas

Insurers generally evaluate the risk of insuring specific practice areas based on two criteria: frequency (how often claims are made) and severity (how bad the claims are). Some practice areas, such as residential real estate, plaintiffs’ personal injury, and family law, typically are known to have higher frequency of claims. Other practice areas, such as intellectual property, securities, and environmental law, generally have a higher severity of claims, even if the claims themselves are not as frequent.

A premium-sensitive law practice may look at these statistics and consider whether it is worth it to continue engaging in a non-core practice area that falls within a high risk category. For example, a five-person defense firm would ordinarily pay a lower premium because it has a lower number of attorneys in a lower risk practice area. However, taking on a single plaintiff’s personal injury case can change those metrics. By reporting to the insurer that even some percentage of the firm’s practice relates to plaintiff-side personal injury cases, the effect may be a higher insurance rate.

In addition, firms that dabble in a noncore practice area may also increase their risk for legal malpractice claims generally, which can also impact insurance pricing. The risk of practicing in a high-frequency or -severity field, plus the risk of practicing in an area in which the firm is not otherwise expert, could lead the insurer to view the prospect of insuring the firm as somewhat higher risk.

Firms with “one off” practice areas can give some thought to whether the potential gain from the representation in attorney’s fees outweighs the additional cost (in premium) and risk (for legal malpractice).

Reduction for ‘Good Behavior’

In addition to the above information, insurers may also adjust the cost of premiums based on their history with the law firm or the application of premium credits. For example, many insurers make adjustments in favor of renewal business, particularly for those firms with a relatively positive claim experience.

In addition, some insurers offer specific premium credits tied to the law firm’s efforts at risk management. For example, if a law firm can show dedicated use of risk management tools, such as docket control, conflict resolution procedures, or formalized billing practices, that may cause the insurer to discount the firm’s premiums.

The benefit of implementing new risk management procedures thus can be twofold: It may reduce the likelihood of receiving a claim and, additionally, may help the law firm advocate for a discount on premiums.

By considering these issues, law firms may be able to ensure that they are purchasing insurance that best meets their needs, at the right price.