A Premium Question: How is My Legal Malpractice Insurance Price Determined?
By Duane Crone | November 16, 2010
If you’ve ever compared the cost of legal malpractice insurance with another small firm owner or solo practitioner, you may have had an uncomfortable conversation. Chances are, your premium rates are different – in some cases, even radically so.
But before you start crying foul, let’s take a look at the elements that go into calculating your premium. Your legal malpractice insurance rates are calculated based on several factors:
- Number of practicing attorneys: Obviously, the more lawyers that need coverage, the more expensive it will be.
- Areas of practice: Most companies define between 40 and 50 separate areas of legal practice with individual rating factors. Areas identified as higher risk - including Intellectual Property Law, Entertainment Law, SEC work (taking companies public) and Plaintiff Personal Injury work - have higher rates than legal areas considered low risk - like criminal defense, mediation or arbitration, litigation defense and elder law. This leaves about 40 areas of practice floating somewhere around in the middle.
- Time spent on each area of practice: If you practice law in more than one area, you will be asked to identify the percentage of your time that is spent in each area. If there are multiple lawyers in your firm, your insurance company will want this information for each practicing attorney.
- Retroactive date: The more years of prior acts coverage you are carrying, the more expensive the policy will be. For a complete explanation of how your retroactive date impacts your policy price, see our claims made post.
- Location: Practicing in Manhattan is more expensive than practicing in Fargo. Generally speaking, major urban areas carry higher rating factors than less densely populated ones. Territory is an important ingredient in price composition.
- Coverage options: The deductible and limits of liability you choose for your policy will impact your rates, as you would expect. The deductible has a very small impact while the policy limit has a much larger one.
- Claims and disciplinary history: Just as in any other kind of insurance, your prior claims history will impact your legal liability insurance rates. Your carrier will also look at any disciplinary history.
What can you do to control costs? Your Mainstreet Legal Malpractice Insurance agent can help you explore coverage options to find the right levels of deductibles and liability limits for your firm. Another tip: if you’re not sure if you’re going to get work in a particular area of law that has a higher rate plan, don’t speculate. When your coverage is renewed, you’ll be asked to report on what you actually did and can make adjustments at that time. So be conservative, but practical.
If you think you might be paying too much for legal malpractice insurance coverage, call one of our Mainstreet representatives today for a free second opinion. We’ll help you cut through the confusion to find the best possible policy at the best possible price.
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Professional Liability Q&A Part Three: Covering Your Tail
By Duane Crone | September 14, 2010
If you’ve followed Parts One and Two of our Professional Liability Q&A, then you already have a pretty good understanding of how claims made insurance works and how it is priced. But if you are close to retirement or considering leaving your practice for any reason, you may be wondering what happens after your policy expires.
Before we answer that question, let’s review how claims made insurance works. Remember that a valid claim must:
1. Arise from an incident taking place on or after the date you took out your first insurance policy (your “retroactive date), and
2. Be filed during the time your policy was still in force.
So let’s say your policy expired three months ago, and next month a claim arises from an incident that took place six months ago. Under “occurrence based” insurance, like your home or auto policy, the claim would be honored because it took place during the time that the policy was in force. But with “claims made” insurance, claims made after the policy expires are not covered.
So does that mean you need to continue your malpractice insurance policy forever, in case someone sues you for prior legal services? No – you need an Extended Reporting Period endorsement, also known as Tail Coverage.
An Extended Reporting Period endorsement covers you after you stop practicing or move to another law firm. It does not cover any claims made for actions taken after your policy expires, so you do have to make sure you’re really done! But it does maintain your coverage for incidents taking place during the time your policy was in force but filed after the policy expired. It keeps your tail covered – even if claims arise long after you’ve left your practice.
You will have an option of how long in the future you would like to be able to report a claim. These options vary from company to company, but most companies offer a “forever” option as well shorter ones. “Forever” is the safest and most cost effective in the long run, but your Mainstreet agent can work with you to find the option that fits your needs. If you are retiring, leaving the field of law, or planning an extended absence from your practice for any reason, be sure to call us to make sure your tail is covered.
More questions? Ask us below!
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Professional Liability Q&A Part Two: The Question of Price
By Duane Crone | September 14, 2010
Of all the issues related to , none is quite so misunderstood as price. If you have had your malpractice insurance policy for two or more years, then you already know that your price goes up each year after year one. But are you getting extra value for the extra dollars you are spending?
Well, yes. The coverage you are purchasing in years two and beyond costs more because you are protected from more potential claims.
To understand why, remember how claims made insurance works: you are covered for claims arising after the day you took out your first policy – your “retroactive date” – and filed during the time your policy is in force. So if your retroactive date is last month, right now your insurance company is only covering you for potential claims arising from work done in the last 30 days. During the first year, the cost of coverage is low because the amount of time you have had to generate a claim is limited.
During year two, you are covered for claims arising not just from legal work you are doing in the current year but for the previous year as well. The longer you hold the policy, the more exposure the insurance company is holding on your behalf. This increased exposure is what the insurance company is calculating when it prices coverage for years two and beyond.
You can expect your premium to increase in standard “step factors” during the first six years you have malpractice insurance. And no, switching companies each year won’t keep you at year- one rates – your retroactive date, and the exposure the company is taking on, travels with you no matter how many times you switch.
The good news? At year six, you have reached the last of the five step factor increases, and your policy is considered “mature”.
The better news? You’ll always be covered all the way back to your retroactive date, even if you switch insurance companies, as long as you have no gaps in coverage. Regardless of whether you have been in practice for one year or thirty, Mainstreet can help you find the policy that is best for you.
More questions? Ask us below!
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Motivation 2.0: Finding Your Inner Drive
By Duane Crone | July 1, 2010
Does your law firm feed your need for intrinsic motivation? Or is it a soul-crushing, de-motivating dungeon of billable hours and 19th-Century time management techniques? Daniel Pink has a few words to say about the state of the legal profession in his newest book,
Lawyers, Pink contends, are among the unhappiest professionals on the planet. Why? Pink traces much of it to the way the most law firms track and bill for their services. “At the heart of private legal practice is perhaps the most autonomy-crushing mechanism imaginable: the billable hour. . . Focus inevitably veers from the output of their work (solving the clients problem) to the input (piling up as many billable hours as possible).”
Manufacturing-era methods for motivation, according to Pink, start from the premise that people are inherently lazy and will not work without carrots and sticks. Pink calls for a revolution in management techniques. The information economy demands what he calls “Motivation 2.0” – less focus on extrinsic motivators (e.g., performance bonuses, penalties for coming in late) and more focus on intrinsic motivation. In other words, Pink begins with the assumption that most of us get intrinsic pleasure from doing our jobs well, serving our clients,
and contributing productively to our communities. Drive challenges us to imagine a “results only work place”, where the time the work takes and the location where it is completed are meaningless, and outcomes are the only measure of productivity and success.
What does this look like in the legal profession? Clearly, Pink has a bias against the billable hour. He envisions an environment where lawyers are valued according to the outcomes of their work rather than the time spent on task. He also calls for building autonomy and decision-making authority at all levels within a firm.
Do Pink’s ideas strike a chord with you? If you’re a solo practitioner or working in a small law firm, chances are you already have more autonomy and authority than your colleagues in larger firms do. Have you thought about how your billing practices or time management techniques affect morale – your own included?
Pink challenges us to remember what our intrinsic motivations are, and why we chose our work in the first place.
Whether or not you agree with Pink’s ruminations on the legal field, Drive is a thought-provoking read, with many applications to business, education, and parenting. Is Pink just a starry-eyed idealist, or does his concept of “Motivation 2.0” have applications for your firm? Check it out, and less us know what you
think by joining the conversation below.
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Meet Bob Christie
By Duane Crone | May 27, 2010
At Mainstreet Legal Malpractice Insurance, we rely every day on lessons learned from our most valuable assets: our customers. Now, we would like to introduce you to each other. Every two weeks, we will highlight a customer with an interesting story to tell or philosophy to share. Welcome to Week One of Meet our Customers. Do you have a story to share? Tell us below in the comments!
Let’s All Row Together Now: Meet Bob Christie
Bob is on the right
At least four mornings a week, you’ll find Bob Christie out on Green Lake in Seattle, rowing with his teammates in the Green Lake Master Crew Program.
During the days, you’ll find Bob and his legal team pulling together in their small Seattle law office to help their clients resolve legal issues ranging from professional liability to abuse of civil rights allegations.
In both venues, Christie’s emphasis is on “team”.
After twenty-three years of working in a larger law firm, Christie’s decision to start his own firm in 2005 was largely motivated by a desire to mold a better working environment for himself and his employees. “More than anything, it was about creating a culture that was more inclusive, more collaborative . . . there is no emphasis on hierarchy here between lawyers and partners and legal assistants. When everyone is on the same team, you can eliminate the internal competition and keep your focus where it needs to be: on the customer.”
That customer focus has paid off. Since the 2005 beginning with Bob, two lawyers and two legal assistants, Christie Law Group has grown to include four lawyers and four legal assistants, each of whom is featured prominently – and equally – on their website at . CLG is known throughout the Pacific Northwest for their trial and appellate work, including work on medical and legal malpractice cases.
CLG has seen their legal malpractice work grow in recent years. Christie points to the perils of instantaneous communication via email, Twitter, and blogging as a potential pitfall for lawyers who may sometimes speak – or tweet – before they think. And he emphasizes the importance of building relationships and putting client needs first. “You’re rarely sued by who likes and cares about you,” he notes.
But Christie knows that even the most careful lawyer needs to stay protected with good malpractice insurance, and he has trusted Mainstreet Legal Malpractice Insurance since he founded CLG. Christie wanted a company with strong knowledge of the legal market, and enough experience to have weathered multiple legal and economic cycles. Most importantly, he wanted an insurance representative who would be part of his team. “I’ve known Duane Crone for 15 years, and he treats me with the level of respect that I expect from myself when dealing with my own customers. He always puts my interests first, and I know I can count on him to take care of me if the need arises.”
What are Christie’s future plans for the group? While growing the firm could expand the types of trial work they can take on, Christie is committed to keeping the team small enough to maintain the collaborative culture he has nurtured so carefully. Wherever they decide to take CLG, you can be sure that they’ll all be rowing together, in the same boat.
Do you have a story to tell? Let us hear it! Contact us if you would like to see your firm highlighted here. And don’t forget to share your comments below – we want to hear from you!
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Flat Fees vs. Hourly Billing: Which is Right for You?
By Duane Crone | April 30, 2010
Are flat-fee service agreements right for you? A growing number of our small firms and solo-practitioners are answering “yes”.
Flat-fee or fixed-rate billing arrangements have been with us for quite some time, of course. But economic pressures and increased competition are bringing flat-fee arrangements into the mainstream. Many small firms and solo practitioners tell us that offering fixed, predictable fees for common legal transactions has helped them stand out in a crowded legal marketplace. Arrangements offered by our small firm clients range from fixed fees for simple divorces and wills to flat monthly retainers for small business services.
Flat-fee legal services can provide obvious advantages for both individual and business clients, who appreciate knowing in advance how much to budget for legal help. For small firms, flat fee arrangements may help even out cash flow issues and eliminate the hassle of complicated hourly tracking and billing systems.
But watch out for common pitfalls: some lawyers who have underestimated the time needed for a case have found themselves effectively cutting their hourly rate to far below what they wanted to be working for. And when the pressure is on to complete jobs quickly for a flat fee, it may be tempting to cut corners. That can be dangerous – don’t forget that simple administrative errors are among the most common causes for legal malpractice suits. If you’re not absolutely sure of the time it may take to resolve an issue well, it’s best to stick to hourly rates, or have a good contingency clause that allows the contract to be renegotiated if unexpected issues arise.
Is your practice considering moving to flat fees? Or are you experimenting with alternative billing arrangements? We’d love to hear from you!
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Understanding “Claims Made” Insurance
By Duane Crone | March 16, 2010
With so many lawyers starting up new solo practices, the time has never been better to take a minute or two and review the critical principle of a lawyers professional liability insurance policy. All attorneys’ policies are provided on a “claims made” basis.
Here’s what you need to know. A claims made policy provides a place to report a claim during the policy term. It provides coverage for those claims made during the policy term and reported to the insurance company during the policy term. Additionally, coverage applies only for claims that are a direct result of a legal service you delivered (or should have delivered) on or before the retroactive date listed on the Declarations page or after a date provided by an endorsement to the policy that limits prior acts coverage.
If you are just starting a new policy, the retroactive date will coincide with the inception date of your new policy. If you keep the policy in place for just the first year and do not renew it or do not replace it with uninterrupted coverage from another insurer, then claims made against you after the policy expires would not be covered, even if the claims arise out of a legal service you delivered when the policy was in force.
A claims made policy works in a dramatically different way than the more familiar insurance products (like a private passenger automobile or homeowners policy) that are written on an “occurrence” basis. It may help you to think about the difference in this way… with a claims made policy, you are renting a place for the duration of the policy year to report a claim. When the policy is over, it is like bringing together a balloon and a pin. Coverage was there until the date of expiration then, “pop”, it’s gone. With an occurrence type policy you are buying a place to report a claim whenever in the future a claim may be brought against you for accidents or events that occurred during the policy year.
There are many consequences and features of a “claims made” legal malpractice insurance policy to consider and understand. This brief introduction to the concept of “claims made” insurance just scratches the surface of the subject. We encourage you to find a knowledgeable insurance agent to assist you in making the correct choice of policy features to better protect your practice.
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More at the Door
By Duane Crone | February 1, 2010
Law School Applications are up dramatically as law firm layoffs continue. Why? Common sense would seem to dictate a drop in applications in a down economy but common sense does not appear to be driving these statistics.
Cornell Law School reports an unprecedented 52% jump in applications for the next term with cut off for applications Feb 1st. I would like to suggest two likely reasons for this seeming disconnect. With employment opportunities scarce, some of the brightest of the unemployed are loathe to accept subsistence wages and elect to put this time to its optimum use in a professional school.
The second reason is harder to categorize except with the aphorism, “Hope springs eternal in the human breast”. As I talk with newly minted lawyers each day, I try and get an idea of their “vision” of their future careers. A good many of them are more practical than you might think. They know full well that a traditional law firm career path is far from certain. They do, however share a remarkable faith that a law school education will open opportunities somehow, somewhere. I say this is remarkable as the school debt most have accumulated is breathtaking, usually in 6 figures.
I may not share their unbridled optimism, but I have not changed my deep respect for their enthusiasm and willingness to work hard for their own future and for the future of the profession.
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The best advice is get the best advice
By Duane Crone | November 16, 2009
Legal work for large and medium size law firms continues to shrink and consequently firms continue to lay off associates. Many of these lawyers will choose to “hang out a shingle” and become solo practitioners. For some it’s a stop gap solution till the economy improves. Many others will remain solo or continue to practice in a very small firm for the duration of their legal careers. A sobering statistic is that the success rate for solo start up firms is no greater than for small business of any type…. Roughly ½ will fail in the first 5 years.
Success is rarely determined by proficiency in legal skills. That’s understandable as operation of a small business is not part of the law school curricula. State and local bar associations have recognized this for some time and have stepped in with some excellent CLE programs. If you find yourself in the situation of starting a solo practice, a day long seminar of this type is a wise investment. Try and find one that is strong on the “how to” of generating clients. As distasteful as this subject is to most lawyers, it’s the critical issue you will need to address. Most of the other small business headaches can be overcome if you have paying clients at your door.
One of the “business” issues solo practitioners are ill prepared to deal with is their own professional risk. What if I make a mistake? Lawyers leaving an established firm have not had to address the issue of professional insurance and are starting with no understanding of the basics such as: How to buy it; what it is and how it works. The best advice is get the best advice. There are many skilled, conscientious insurance professionals to help. However, there is only one company that exclusively handles the professional liability insurance needs of solo practitioners and small firms. That’s Mainstreet.
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Welcome to the Mainstreet Blog
By admin | April 13, 2009
This is an exciting time to be in the practice of law. Why? It’s changing, that’s why.
Since Mainstreet specializes in providing professional insurance protection for solo practitioners and small law firms, we find ourselves right in the middle of the chaos of an industry shift. Larger firms are struggling to deal with shrinking revenues and layoffs continue even into this 16th month of our official “recession”.
Law schools keep pumping out new lawyers who have a real need for meaningful employment to pay off law school debt. The result is a whole new cadre of lawyers starting up new solo and small law firms. The successful ones will utilize a variety of new techniques to stand out and separate themselves from others with designs on the same market niche. Marketing savvy, may replace lawyer skills as the key ingredient in setting up a new practice.
That’s where Mainsteet gets involved. More than ever before, competent professional advice about lawyer professional liability is needed to avoid the pitfalls and traps of private practice.
In the upcoming series of articles we will strive to address many of these threats while keeping an eye on developing trends. We will endeavor to provide practical advice for the small firm practitioner. One thing we have learned over the years is that there is not enough time to go around. So, will keep these blogs short and packed with useful tips. Parsimonious sufficiency will by our montra. Look forward to articles on these topics:
- The Claims made policy trap.
- How can I be sure I am buying the best insurance product from the best source?
- What policy limits might best fit my practice?
- When does a “situation” rise to the level that you need to report a claim to your insurer?
- What happens if you stop buying professional insurance?
- How to say no to a client.
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