Law firms consist of licensed professionals who advise and represent their clients on legal matters. These firms may specialize in certain types of law (e.g., labor, employee benefits, executive compensation, environmental, transactions, tax, personal injury, property or family) or provide legal services spanning several practice areas. They can take on individuals and organizations as their clients and offer assistance in civil and criminal proceedings. Law firms hire various legal professionals (e.g., attorneys, paralegals, clerks and secretaries) to manage their operations, and they may perform their services from multiple locations, including their own office spaces, clients’ properties, correctional facilities and courthouses.
Common tasks among law firms include representing their clients in litigation, mediation or alternative conflict resolutions; communicating with different parties involved in their assigned cases; presenting facts, findings and other materials relevant to such cases; researching and analyzing specific legal issues; interpreting applicable regulations and rulings; preparing and finalizing legal documents (e.g., business agreements, property contracts, estate plans, lawsuits, and court motions and memos); and providing guidance to clients on legal matters.
Law firms must consider several risks, including property concerns, staff-related issues and liability exposures. As such, it’s crucial that they secure proper insurance to protect their operations against possible losses. Keep reading for an outline of common exposures within the legal industry and associated coverage considerations.
Common Exposures
Here’s a breakdown of key exposures law firms may face in their operations:
- Professional liability—Legal professionals have a responsibility to act in the best interest of their clients. If these professionals make mistakes that result in financial harm or otherwise poor services for their clients—whether that entails providing incorrect legal advice, engaging in faulty recordkeeping practices, or failing to discover and leverage readily available information regarding a case—they could be sued and held liable for the damage caused to other parties. The most common professional liability claims made against legal professionals are claims alleging negligence, errors and omissions.
- General liability—If any third parties (e.g., clients, witnesses, vendors, local authorities or opposing counsel) experience injuries or damage within law firms’ office spaces, these firms could be held liable for the related losses. For example, a guest may sue a law firm if they slip and fall when visiting the firm’s office space.
- Employment practices liability (EPL)—Law firms must provide their staff with a workplace free of discrimination and harassment. If these firms contribute to a hostile work environment by participating in or permitting discrimination and harassment, failing to investigate workplace complaints or taking adverse employment actions (e.g., discipline, lack of promotion or unlawful termination) against staff, they could face costly legal action and potential regulatory penalties from federal and state employment agencies.
- Cyber—Many law firms increasingly rely on digital systems and software to schedule appointments and maintain open communication with various parties involved in their assigned cases, create online portals for client invoices and payments, and store sensitive legal documents. Yet, amid growing cyberthreats, using such technology could make these firms more vulnerable to data breaches, ransomware incidents and other digital attacks. Following such events, law firms could encounter prolonged service disruptions and incur costs related to notifying impacted individuals, recovering lost or damaged data and technology, handling associated legal ramifications and reputational losses, and implementing additional cybersecurity measures to prevent future incidents.
- Property—Although law firms may perform their services across several locations, they tend to primarily operate out of owned or leased office spaces. These spaces are often equipped with office furniture, stationery, computers, photocopiers, fax machines, printers, phones, audio and video equipment, law books and journals, and sensitive legal documents. Unexpected events—including fires, inclement weather, theft and vandalism—may result in this property being damaged, stolen or destroyed, leaving law firms with significant recovery expenses. These firms may also experience business interruptions (e.g., canceled or delayed services and temporary closures) amid the recovery process, compounding related losses.
- Auto—Law firms usually don’t have a fleet of vehicles. However, some legal professionals may frequently utilize personal or rental vehicles for business purposes, namely when meeting clients off-site, traveling to and from courthouses, and attending industry classes and conventions. This poses serious hired and non-owned auto (HNOA) exposures. After all, it only takes a single accident on the road to cause major losses. Following collisions or other auto accidents involving their staff, law firms could incur substantial expenses and liabilities from vehicle repairs and bodily injuries.
- Inland marine—When legal professionals travel between locations to perform their services, they may carry valuable business property with them, mainly important legal documents, audio and video equipment, and related materials. By doing so, these professionals could make such property vulnerable to inland marine risks. Specifically, this property could get stolen or damaged by unanticipated events while in transit, potentially posing considerable recovery costs.
- Occupational safety—Common occupational ailments in the legal sector include musculoskeletal disorders due to repetitive tasks, slips and falls stemming from hazardous walking surfaces, digital eye strain caused by frequent use of computers and other screen technology, and bodily trauma resulting from vehicle-related accidents. Legal professionals may also be more prone to stress-related health issues due to their heavy workloads. If their staff get injured or become ill on the job, law firms could incur sizeable workers’ compensation expenses and face possible OSHA penalties.
- Crime—Because law firms often have access to large amounts of money and keep valuable documents and equipment on-site, they may face elevated crime exposures, particularly theft and vandalism. These crimes could stem from both external and internal threats. For instance, perpetrators could be passersby engaging in a crime of opportunity, or they could be staff seeking to abuse firm resources for their own personal gain. In any case, these incidents could leave law firms to recoup lost funds, missing materials or damaged equipment.
Insurance Considerations for Law Firms
To help address their exposures and potential losses, law firms should consider the following types of coverage:
- Professional liability coverage—If a client alleges that a law firm’s staff provided negligent services or made other professional mistakes, this coverage—also called errors and omissions insurance—can help pay the resulting expenses.
- General liability insurance—This coverage can assist if a law firm is held legally or financially liable for injuries, harm or damage to another party or their property.
- EPL coverage—In the event that a law firm faces legal action alleging workplace discrimination or harassment, wrongful termination or discipline, failure to employ or promote, or other unlawful employment practices, EPL coverage can help reimburse the associated legal defense costs.
- Cyber liability insurance—This coverage can help compensate certain first- and third-party expenses that may result from a law firm experiencing a data breach, ransomware attack or other cyber incident.
- Commercial property coverage—This coverage can help pay the resulting repair or replacement costs if a law firm’s property—such as office space, furniture, equipment and documents—gets damaged, stolen or destroyed due to a covered event.
- Business interruption insurance—If a law firm is forced to temporarily close its doors due to direct physical damage caused by a covered event, this coverage can help compensate the firm’s typical operating costs (e.g., business income, commercial mortgage and tax payments, lease and loan expenses, and staff payroll) during the closure.
- HNOA coverage—This coverage can assist with expenses stemming from a law firm’s staff getting involved in accidents on the road while operating rental or personal vehicles for business purposes.
- Workers’ compensation insurance—If a law firm’s staff get injured or become ill on the job, this coverage can help pay those professionals’ medical treatment and rehabilitation costs, as well as their lost wages.
- Commercial crime coverage—Also known as fidelity insurance, this coverage can help reimburse a law firm for losses caused by theft, staff dishonesty and other commercial crimes.
- Inland marine insurance—If a law firm’s business property, specifically legal documents and audio and video equipment, is damaged due to a covered event while being transported or temporarily stored off-site, this coverage can help pay the associated recovery costs.
- Umbrella and excess liability coverage—If a law firm’s claim costs exceed the limits for its primary liability policies, this coverage can increase those limits. Furthermore, umbrella policies can broaden existing policy coverage.
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