Each quarter, we feature "Ask the Underwriter" with Wilma S. Fields, CPCU, CIC, Vice President and Underwriter. Each quarter, Wilma answers a new question frequently asked by our insureds and potential insureds.
This quarter, she tackles, "How does a firm determine if they have adequate limits of liability?"
Underwriters are frequently asked the question concerning what limits a firm should carry. Aside from errors & omissions liability that an underwriter assumes, no one knows your law practice as well as the law firm itself.
There isn’t a certain method for determining adequate limits; however, there are several considerations to keep in mind:
Area of Practice
Different areas of law have different risk exposures which result in different financial impacts. Real estate attorneys may need higher limits than attorneys practicing in family law. Some criminal attorneys handle high-profile clients and need higher limits than the criminal attorneys handling indigent client cases. Plaintiff work can range from small property damage auto claims to medical malpractice claims which would require lower or higher limits.
Catastrophic Loss Potential
Review the largest cases and the areas of practice your firm handles to determine a worst-case scenario. Ask yourself “What would it cost to defend and/or pay, should a claim arise?”
A larger law firm may require higher limits than a solo practitioner. The limits of liability apply to the entire firm, not per attorney.
Exposure to Business and Personal Assets
If the cost of a claim exceeds policy limits, your business and personal assets are vulnerable, which leaves you with out-of-pocket costs.
Applicable Statute of Limitations
Review the different state and federal statutes of limitations in jurisdictions where you have practiced. Certain areas of practice (such as estate work) may be subject to a longer limitation period than other areas of law.