The amount of professional liability insurance coverage you should have depends on many different variables. The number of cases you take on each year, as well as the size and monetary value of the cases you are working on, will factor into how much coverage your firm will need. Other factors, including your location, the number of employees you have, the areas of practice you work in, and the limits of liability and deductibles, will also need to be taken into account.
How much insurance coverage you need will also depend on what limits of liability are appropriate. Your limits of liability will be offered in two ways:
- Per claim (the maximum amount that will be paid on any given claim); and
- Aggregate (the maximum amount that the carrier will pay in the policy period)
It is important to keep in mind how quickly defense costs can erode your limits, possibly leaving you with little to no coverage for indemnification. Choosing the correct limits of liability is a very important decision. If a claim arises, even if it is baseless, increasing your limits after this occurs may not be an option.
The best way to look at it is like this: if you were to make an error and be sued by one of your clients, what would it cost you to defend (billable hours to a defense attorney) and indemnify (monetary judgment or settlement)?
