Starting a law firm can be an expensive and risky proposition, but it doesn’t have to be if you understand your risks and take steps to mitigate them.
One of the most important things you can do to protect your business’s finances is to have adequate insurance coverage that protects you in the case of any unforeseen accidents or liabilities.
The best way to get around this is to find an insurance agent with a wealth of experience to help you decide how much coverage is best for your firm, which policies will best fit, and more. A well-experienced broker will list a wide range of insurance in a proposal.
Professional Liability
There are two types of professional liability coverage: Errors and Omissions Liability (E&O) and Professional Liability (also known as a General Liability policy). E&O insurance is designed to protect your legal practice from claims arising out of alleged errors and omissions related to work performed for clients, as well as claims for bodily injury or property damage.
Professional liability insurance covers damages that result from a professional service rendered by you. The policy generally includes such coverages as medical malpractice, products, and completed operations, libel and slander, personal injury protection, and more.
In addition, it covers your legal defense expenses and cost related to the trials, such as expert witnesses, e-discovery, etc., including settlements or damages awarded against your firm.
General Liability
This insurance provides coverage if you accidentally injure someone on your property. It’s a significant expense for small businesses, and it’s one of the most important types of insurance to carry.
These policies usually cost between $300 and $600 annually, depending on various factors, such as what state you live in and the number of employees you have. Liability insurance is essential because even though you probably don’t want people to get hurt on your watch, accidents do happen.
And when they do, liability claims could potentially bankrupt an organization without adequate coverage. You can cover up to $1 million per incident with general liability policies.
For example, suppose a significant slip-and-fall or work-related accident causes severe injuries at your law firm. In that case, general liability covers legal fees and settlements related to these incidents.
Cyber Security
Law firms are known to handle lots of sensitive information and constantly face external cyber threats and phishing scams. A report shows that over 20% of law firms in the United States experience data breaches or cyberattacks.
While you may not be able to prevent a data breach, you can be sure to have comprehensive cyber security insurance in place. This way, if your law firm company suffers a breach, you’ll have protection.
A standard cyber insurance policy covers both first-party and third-party liabilities relating to data breaches. For example, if your business contains sensitive customer or employee information, an attack could lead to identity theft and damaged credit scores.
The cost of restitution could quickly run into hundreds of thousands of dollars, and then there are legal fees on top of that. Plus, most policies require employees to report all suspected attacks immediately so that delays don’t exacerbate losses.
If there are delays in reporting or hackers break through defenses without being detected, it might even invalidate coverage entirely under certain policies.
Commercial Umbrella Insurance
What if your Business Owner insurance (BOP) is limited in covering your claim? In that case, you might need a Commerical Umbrella Insurance. This type of insurance is designed to protect you from significant lawsuits and allegations that exceed your BOP coverage limits.
This coverage acts as a secondary layer of protection for your assets, and it’s great for small law firms that may be at risk for extensive judgments. When buying commercial umbrella insurance, consider how much money you are comfortable losing if a large judgment were to occur.
There is no one-size-fits-all for commercial umbrella insurance, so it’s important to consider your financial situation. But regardless of which policy you choose, make sure it has enough coverage to protect against potential lawsuits and liability claims.
What Type of Insurance Do Lawyers Have?
It is a wonder that insurance companies have not tried to create specific policies for lawyers with all these factors. Lawyers need many different types of insurance, such as Professional Liability, employment practices liability, and Errors and Omissions Policies.
Aside from these, there are other insurances that every lawyer should have, such as general liability insurance, umbrella liability insurance, and product liability insurance.
These policies will protect your assets from any losses you may suffer from lawsuits brought against you by clients, partners, or employees. They also protect your business from damages resulting from injury caused by work computers or office equipment.
It’s also very important to check with your State Department of Consumer Affairs about licensing requirements for lawyers and the laws about malpractice insurance.
Why Do Law Firms Need Insurance?
Lawyers have malpractice insurance in case they get sued. A practicing is at the risk of making a mistake and being held responsible. While law firms provide many services to clients, some law firms specialize in different areas.
For example, a law firm may have an in-house expert who handles intellectual property cases exclusively. Intellectual Property Insurance protects these sorts of specialized practices from claims made by clients and other parties about their work.
Such policies also help protect against libel, slander, errors, and omissions claims that could arise from a lawsuit or legal actions against you because of mistakes.
Plus, there’s risk management coverage that can protect against employee theft or internal fraud that might affect your reputation.
What Type of Insurance Do Law Firms Need?
Because law firms deal with so many clients and projects, they usually need more than one insurance policy. Here are some of the major insurance:
- Business Owner’s Policy (BOP)/General Liability Insurance & Property.
- Directors & Officers (D&O) Insurance.
- Professional Liability Insurance.
- Cyber Liability Insurance.
Get In touch with an Insurance Agent
It’s essential to consider your unique practice when purchasing insurance to protect yourself from potentially devastating financial risk.
Many factors contribute to risk; from location and clientele to practices and reputation, and no two firms have identical needs. We recommend you ask an experienced broker or insurance agent about all of your options so you can make an informed decision that addresses your specific risks.
Charles Newman provides cost-benefits reviews and competitive proposals for businesses and loves to design creative alternatives with value-added services for all customers. Call 800-508-9235 for a free consultation.
