|Legal Malpractice Insurance|
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December 23, 2002
LEGAL MALPRACTICE INSURANCE
By: George Coppolo, Chief Attorney
Danielle O'Connell, Legislative Intern
You asked which states require attorneys to carry legal malpractice insurance. You asked whether it is required by statue or rule, and how it has been working.
According to Jane Nosbisch, Director the American Bar Association's the Standing Commission on Lawyers Professional Liability, Oregon is the only state that requires attorneys to carry malpractice insurance.
The Oregon requirement is based on a statute. Legislation in 1977 authorized the Board of Governors of the Oregon State Bar (a mandatory bar association) to create the Professional Liability Fund if they believed it to be desirable. The fund began operating on July 1, 1978. All attorneys who are in private practice must participate in the fund, which is operated as a nonprofit corporation.
The fund covers about 6,600 attorneys in private practice. It excludes lawyers who are not in private practice such as corporate counsel, government lawyers, and law professors. The fund covers $ 300,000 per claim and $ 300,000 aggregate per year, including defense costs. There is a $ 25,000 claims expense allowance. There is no deductible. The premium for coverage in 2002 is $ 2,200 for each attorney, and will be $ 2,300 in 2003.
The Fund's philosophy is that a program of this type must be mandatory for all lawyers in private practice in the state, as purely voluntary participation could result in adverse selection and a concentration of only the "bad" risks, leading to financial instability.
The coverage provided by the Fund is on a “claims made” rather than an “occurrence” basis. The Fund also provides automatic extended reporting or “tail” coverage at no cost to attorneys who cease the private practice of law in Oregon. This provides coverage for any claims that arose from incidents that occurred while the attorney was practicing law and participating in the fund.
Since 1991, the Fund has also offered optional excess coverage on an underwritten basis to Oregon law firms. Coverage is available up to aggregate limits of $ 5 million. Excess coverage is also available from commercial insurers. Roughly half of the lawyers in private practice carry some excess coverage.
According to the Oregon Bar Association' web site, the Fund is well supported by membership and has successfully handled its claims. Based on data from the last three years, roughly 63% of claim files were closed without payment of any settlement or judgment, while 37% involved some payment to a claimant. The average claim payment (including claims for which no payment was made) was approximately $ 9,500. Roughly 44% of claim files were closed without paying any defense costs, while 56% involved some defense costs. The average defense costs expended on a claim (including claims for which no defense costs were expended) is approximately $ 6,800.
The Fund sends an evaluation form to each attorney once a claim against him is resolved. According to the Fund, of the 426 evaluations the Fund received in 1998, 77% were very satisfied with the overall handling and disposition of their claims, 22% were satisfied, and 1% was not satisfied. Among the 374 responses received in 2000, 84% said they were “very satisfied” with the services provided by the Professional Liability Fund staff claims attorney who handled the matter, and 15% said they were “satisfied”. Only 1% of respondents were "not satisfied" (including those attorneys for whom coverage was denied).
In order to keep malpractice claims as low as possible, the Fund offers an extensive array of loss prevention programs including (1) legal education programs which alert lawyers to malpractice traps in various substantive areas of law, (2) a practice management assistance program which helps lawyers improve office systems and procedures, and (3) a personal assistance program which helps lawyers practice more effectively.
Attached is additional information about the Oregon program. Please let us know if you need additional information.