Considerations for when it's time to change malpractice insurers

California has a rule, adopted by the state Supreme Court, that requires attorneys who do not have malpractice insurance to notify their clients that they are not insured. California Rules of Professional Conduct, Rule 3-410. The disclosure must be made in writing at the time the client hires the attorney and must be made to existing clients. The attorney also must notify all clients if malpractice coverage is canceled, terminated or otherwise dropped and not replaced.

Having proper malpractice insurance is an effective risk management tool to ensure protection in case of a claim or lawsuit. For those attorneys and law firms that are insured, there are many good reasons to remain with existing legal malpractice insurance providers rather than shopping around for new carriers. Yet, in today's evolving legal malpractice insurance marketplace, there are some good reasons for attorneys and law firms to consider changing insurers.

Every law firm should make the decision regarding whether to change legal malpractice insurance companies based on its own facts and circumstances. There are some specific factors to consider in assessing that decision. Here are five common reasons that attorneys and law firms decide to change insurance companies - even when they are generally satisfied with their current legal malpractice insurance company.

Better Price

The legal malpractice insurance marketplace continues to be very competitive. This competition has produced some significant downward pressure - especially for attorneys and law firms that have no prior claims or have a good claims history.

Like drivers with no prior accidents, attorneys and law firms in this category have every reason to shop around to see what is available and at what cost. At a minimum, the marketplace can provide some valuation information in negotiating policy renewals.

The same is true for practice areas that have historically low frequency for legal malpractice claims. The same can also be true for firms that have had a significant claim or a less than stellar claims history. Even troubled practices can benefit from the current marketplace. Rather than going without insurance or buying prohibitively expensive insurance from traditional insurers, these firms can go to insurance companies that specialize in providing insurance to these types of practices at manageable rates.

The bottom line is attorneys and law firms can consider alternatives to automatically agreeing to a renewal at a higher price. It may be that an attorney or a law firm is already getting a good deal. However, if it turns out that the renewal price is out of line with the marketplace, a little negotiating or even a change of company might be in order.

Price should never be the sole criterion for deciding which legal malpractice insurance company to select. However, it is certainly a factor, and among largely equal options, it can be the deciding factor. The most important step is to compare apples to apples - a lower price for an inferior policy is not better than a higher premium for superior coverage.

Better Coverage

Even among traditional legal malpractice insurance companies, policies have changed dramatically over the last decade. Now there are many coverage enhancements and coverage expansions designed to give individual insurance companies a competitive edge in the marketplace. There is no reason for an attorney or law firm not to ask about such products and secure them if they are available.

For example, many legal malpractice policies now offer coverage for bar grievances, by which the attorney or law firm can get a defense to a bar complaint even if the person filing the bar complaint has not issued an official demand or claim. Many insurers also offer pre-claim intervention coverage. This allows law practices to get help to mitigate a potential loss even before a claim has been made.

Other policies allow insured attorneys or law firms to select their own defense counsel instead of being limited to a preapproved panel of attorneys. Some involve the elimination of certain exclusions and others provide innocent partner coverage. The bottom line is legal malpractice policies vary greatly, and law practices should consider the differences in deciding what coverage best meets their needs.

Better Insurance Company

Just as new insurance companies enter the market, there are insurance companies leaving the market. A legal malpractice policy is of little value if the company behind it has no money to pay for a defense or indemnity.

Fortunately, there are rating services like Moody's or AM Best that grade insurers based on a number of factors relevant to the insurers' financial viability and services. Before renewing a policy, or selecting a legal malpractice insurance company generally, law practices should check out the financial ratings.

Generally, most legal malpractice insurers are highly rated. However, there are exceptions, and every attorney and law firm should make sure their insurance company is not one of the companies in trouble.

Better Relationship

Some attorneys find their current insurance company is nonresponsive to their needs or is just difficult. These kinds of problems often manifest themselves after a claim has been made against a law firm, especially if the claim was successful. There are situations when the relationship becomes virtually intolerable - especially if an insurer acts in bad faith or otherwise treats the law firm poorly.

There is no reason to remain in a troubled relationship with a legal malpractice insurance company if the law practice has a choice. Consider any alternatives available in the marketplace.

Better Resources

In a competitive marketplace, legal malpractice insurance companies find ways to offer more value than just coverage and price. These "bells and whistles" actually can be very valuable to law practices.

For example, some legal malpractice insurance companies offer an array of additional services that range from continuing legal education courses for attorneys (with CLE credit) to audits for law firms. Others send regular loss prevention newsletters with useful tools for law firms to prevent legal malpractice and claims. Still others provide toll-free hotlines for law firms to reach representatives with questions about claims, coverage or service.

If a firm can identify a "wish list" of coverages or programs that go beyond the traditional, the firm may be able to find a package or insurer that fits their needs. Law firms should be comfortable asking questions of their insurers, too - some insurers may have programs or benefits available that the firm does not otherwise know about.

Whether a firm decides to change legal malpractice insurers is an important decision and should be made care-fully. The key is to just take a look.