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How do I select the right limits of liability for my firm?

Inadequate Limits of Liability Cause Problems for Law Firms
The limit of liability is the maximum amount for which an insurer is liable, as set forth in the insurance policy and declarations page. The need for adequate limits of liability is best demonstrated by examining some of the ways that inadequate limits cause problems for law firms:

The need for higher limits remains even after the nature of services rendered by a law firm changes.
If there is a need for higher limits due to the nature of the law firm's practice and the firm discontinues that kind of work, the need for higher limits will not cease at that time. The need continues until the statute of limitations has fully expired for that type of work. For example, if a law firm ceases doing $1 million estate planning and corporate tax advice today, it still needs the higher limits since the beneficiaries of the estates or the corporation can bring a claim against the firm for a number of years, depending upon the jurisdiction involved, the type of claim that might be alleged and so forth.

A single case potential is only one factor considered when deciding the amount of limits to purchase.
Often, the law firm looks at limits in terms of any one maximum possible or probable claim. However, the limits on a claims-made and reported policy are for all claims made and reported on an entire policy year. There have been times when a law firm's limits were exhausted not by any one case, but by an accumulation of two or more cases whose value was within the per claim limit of liability.

The element of time may inflate the value of a case
Consider the docket one will be faced with in the event of a claim that becomes a lawsuit. Some metropolitan areas have a period of 4 to 6 years from the filing of a lawsuit to trial. In lawyers' professional liability claims, the value of the underlying case may determine damages. While relatively low limits may be enough now, can you be assured of this in the future?

The "X" factor cannot be predicted
While insurance companies can underwrite the firm and review the historical exposure of the firm's mix of practice, there is no guarantee that the firm's exposure will remain the same. Consider the insured law firm that runs a small real estate and personal injury practice and whose lawyers have local relatives. If any of the relatives require business or tax advice, or estate planning or other services with which the firm may be unfamiliar (such as a complex products' liability suit), they are still likely to seek first the services of the relative. This potential change in an insured law firm's practice cannot be predicted.

Other Reasons to Consider Higher Limits Now

The cost of higher limits is reasonable - The cost to increase the per claim or aggregate amount of liability is generally a small increment. The firm should take full advantage of today's competitive pricing.
It may not be possible later - It is best to increase limits regularly. It may not be possible to suddenly make a large increase in limits.

Statutes could increase the damages required - While a firm's exposure on a specific transaction could be within its limits of liability, there may be a potential statutory trebling of damages due to the Deceptive Trade Practices Act, consumer protection and securities laws, or the Fair Debt Collection Practices Act.

How Your Firm Can Select the Right Limits of Liability
Only you can decide the most appropriate limits of liability and deductibles for your law firm. We all get into habits, and buying insurance at the same limit of liability year after year is common. To avoid the potential risk associated with automatically renewing at the same limits of liability, ask yourself if your firm's current limit of liability is fully adequate for all your exposures and business needs. To help you with this assessment, take a few moments seconds now to check how well your firm is covered.

Your Current Limit of Liability: $ /

Now...Check Your Answers:

Could the personal assets of your firm's partners be jeopardized by insufficient limits of liability? YES NO (Remember, if there is a judgment against you in excess of your limit of liability, you will be responsible for the amount above that limit of liability.)
Does your firm's current limit of liability meet the total requirements of ALL your existing clients? YES NO (Many clients require their law firm to carry a specified minimum limit of liability.)
Are you limiting your firm's marketability to prospective clients by carrying insufficient limits? YES NO (Larger clients may ask a prospective law firm about its limits -- and go elsewhere if these are too low.)
Are you in compliance with your state's required minimum limit of liability for board-certified lawyers? YES NO
Is your current limit of liability sufficient for the number of attorneys in your firm? (Has there been an increase in your firm's number of lawyers and an increase in limits?) YES NO
Are prior acts of departed attorneys considered when choosing your limits? YES NO
Has your firm expanded its areas of practice into those known to be more risky? (Or added new areas which are more risky simply because they are new to your firm -- requiring a "safety net" of higher limits?) YES NO
Is your firm selecting one or more of the Customized Practice Coveragesm options such as Employment Practices to complement your Lawyers' Professional Liability coverage? (Then your aggregate limit of liability should be increased so as to not erode your professional liability limits.) YES NO

Answers: If you checked "YES" to #1, 3, 7 or 8, or "NO" to #2, 4, 5 or 6, then your firm may be taking an unnecessary risk. To avoid this, annually --

Review your insurance budget to ensure it accommodates the above issues; and
Consider the higher limits of liability presented by Westport. (Selecting one could be one of the best decisions you've made for your firm.)

Only you can decide the most appropriate limits of liability and deductibles for your law firm. Your agent can assist by raising questions and issues that will help you come to the best decision for your law practice. Westport offers limits to $20 million/$40million or more for qualifying firms.

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