Controlling expenses is an important consideration in the management of any law firm, so it isn't unusual that a firm shopping for liability coverage would take premium rates into consideration. However, even though rates are important, they shouldn't be the overriding factor in your decision to purchase a particular policy. There are a number of other aspects you should consider to ensure you receive the best coverage for your premium dollar.
The first of these considerations is whether your policy has eroding coverage. In some liability policies, the coverage limits include defense costs. When you file a claim, the amount of coverage for settling the claim or paying a judgment against you decreases as you incur defense costs. This type of policy is referred to as having defense costs "inside" the policy. There are policies in which the defense costs are "outside" the policy, which means they are not subtracted from the amount of coverage. In some cases, policies with outside defense costs have a cap after which the defense costs are subtracted from coverage limits.
The second consideration is whether the policy deductible includes defense costs. If the deductible is only applied to liability, the insured firm doesn't have to pay it until there is a settlement/judgment. However, if the deductible includes defense costs, the insured pays as soon as defense expenses begin to mount until the deductible is paid in full.
Another condition that you will want to note is whether your carrier can settle a claim without your consent. Some policies have what is known as a "hammer" clause that prevents the insurance company from settling without the consent of the insured. There is an extenuating circumstance to this clause in that, if the insured refuses to consent, the carrier is only liable for the amount for which it would have settled.
You also need to determine if your policy gives you the right to select your own defense counsel. More than likely, if you are a small firm your carrier will retain the right to choose your defense counsel. This doesn't mean that you won't have any input at all. Most insurance companies have a panel of defense attorneys and generally allow the insured to select from this panel. Larger firms can typically select their own counsel but the carrier must approve.
All current Lawyer's Professional Liability policies are issued as "claims-made" policies, which means that a claim must be made and reported to the carrier within the life of the policy. To prevent coverage gaps if your firm is changing policies, you should select a new policy that has a "prior acts coverage" clause. This will extend your coverage so that any claims that existed before the new policy started will be covered. If you don't have prior acts coverage, your former claims-made policy will not cover claims that developed after it expired and your firm will be without coverage for those claims.
A number of changes in both federal and state court procedures have made sanctioning more commonplace. The cost to defend your firm against a sanction or to pay the monetary penalty associated with it can be extremely expensive. That's why you will want to ensure your liability policy provides coverage for these occurrences.
The final consideration is whether the policy requires a new deductible if there are multiple claims made in the same policy year. Some policies only require the deductible to be applied to the first claim made in a given policy year. Other policies treat the deductible on an aggregate basis. The policy will stipulate a specific deductible dollar amount per claim, with a cap on the total deductible dollar amount in the aggregate that the insured will have to pay before coverage begins. If neither of these scenarios is spelled out in your policy, your coverage most likely requires applies deductible for each claim.