Impact of Claims on Legal Malpractice


Representing attorney clients in legal malpractice matters we are frequently asked about the
effect of claims on ability to get legal malpractice insurance and premiums for such insurance. Of
course, all situations are unique. History of claims, practice areas, size of firm, and other factors can
greatly affect insurance companies’ assessment of risk associated with legal malpractice policies.
Total Amount Spent Defending and Resolving Claims is an Important Factor
It is hardly surprising insurance companies take prior claims into account in evaluating the
risks associated with insuring law firms. The costs associated with claims include both defense and
settlement amounts. From a risk evaluation standpoint, the carriers frequently consider significant
expenditures on defense as adding to the risk associated with the firm.
According to a claims attorney for one legal malpractice carrier, if more than $20,000.00 is
spent resolving or defending a claim against a firm, the firm is placed in a higher risk category. The
carrier applies a surcharge to reflect the higher risk exposure associated with a firm for a period of
five years following the claim. This occurs regardless of who pays (carrier or firm). Thus, a firm
cannot avoid being placed in the higher risk category simply by paying out of its own pocket
amounts needed to fall below the threshold level. See S.Smith, Claims Impact on Risk Premium,
ALPS Risk Management Report, May 28, 2004.
Reporting Potential Claims is Advisable
In light of the impact of claims on premiums and access to insurance, firms sometimes
struggle with the question of whether to report a situation to their carriers. Claims Attorney Smith
advises in general that “reporting one situation that could give rise to a claim will not adversely
affect the firm’s premium.” Thus, simply alerting the carrier to the potential that a claim could be
filed does not necessarily have an adverse affect on the premium. At the same time, failure to timely
report a potential situation could result in the carrier declining coverage or have a negative impact on
the risk rating of the firm. See id. 2
Many policies have fairly strict timely notification language. While it is not an enjoyable
exercise, alerting the legal malpractice carrier to a potential claim or situation is important for self
protection purposes.
Conclusion
Consequences of a claim to a law firm’s ability to get insurance and the price it pays for
insurance vary widely. Nonetheless, certain general observations apply across the board. If a claim
is made and a significant amount of money paid either in defense of the claim or in resolution of the
claim, increased premiums are likely. At the same time, failing to notify carrier of a potential claim
can lead to the loss of coverage.

Blogs

Online journals concerning specific industries, hosted by one of our attorneys, with regular entries of commentary and descriptions of relevant events.


Our News

First Annual NKMS Puppy Party for All Dog Loving Employees & Friends Of The Firm
[7/29/2010]

Chambers USA 2010 Recognizes Four NKMS Attorneys As Among The Nation's Best
[6/15/2010]

NKMS attorneys edit and author A Practical Guide to Evidence in New Hampshire
[6/8/2010]


Subscribe to
NKMS updates

Keep informed about developments in the areas of the law that concern you. Subscribe to our series of e-alerts and newsletters here.