Law firms are also set up in tense times. Times of upheaval always offer innovative lawyers opportunities. The only important thing is thorough preparation, be it in the numerous founding seminars or with the help of a professional association. A central question for every lawyer: professional liability insurance. The scope of this insurance depends on how the accidental and personal injury lawyer wants to organize himself.
I. When do I have to take out insurance?
If you want to establish yourself as an individual lawyer in your own law firm, professional liability insurance is a requirement as compulsory insurance (Section 51). The compulsory sum insured for a single claim is 250,000 dollars and for all claims together 1,000,000 dollars per year, the so-called annual maximum benefit; technically, this is called a total of 250,000 dollars, quadrupled. Incidentally, people who want to use the title of “lawyer” are also subject to compulsory insurance, including the employed lawyer, even if one is not listed as a lawyer on the letterhead.
If you want to work together with others to the outside world, higher compulsory insurance applies. At the moment, a law firm or a law firm and a partnership with limited professional liability are themselves obliged to take out insurance. The compulsory sum insured for the companies is 2,500,000 dollars for a single claim and for all claims together at least 10,000,000 dollars, also per year. But the lawyers themselves remain subject to compulsory insurance here. It means that the company needs insurance, but also the individual lawyers working there, the so-called approval policies, also known as “baby policies”. The insurance of the company does not replace the insurance of the individual professionals.
On the other hand, the partnership or simple partnership is not yet subject to compulsory insurance. The law firm has currently insured itself with the individual compulsory insurance policies of the professionals.
II. Which sum insured is correct for me?
As shown, you need compulsory insurance with minimum sums insured and a minimum annual maximum benefit, regardless of whether you are an individual lawyer or in a company.
All of the above insurance sums are minimum mandatory insurance sums for an average risk. Here you can ask yourself which mandates you want to work on and thus what risk of damage there is if you make a mistake. A wrongly calculated gain adjustment in a divorce proceeding can quickly exceed the amount of 250,000 dollars. The pension calculations customary in traffic law may also have incorrectly been applied for or incorrectly asserted. Subsequently, it may exceed the minimum sum insured. You should therefore estimate the possible actual amount of damage in advance.
On the other hand, the insurance also offers protection against unfounded claims. This often underestimated component means that the insurer’s claims department has an obligation to help the lawyer in the event of a claim, even if nothing has actually happened. The insurer bears the costs for this, for example even if it is of the opinion that an external lawyer should take over the claim or that the process is also going on. In practice, it is often the case that the claims made are high. In the best case, these claims turn out to be unfounded or, in the judgment – if there is an error – are lower or only a part of the comparison is recognizable.
However, if the liability claim made exceeds the sum insured, the insurer only bears the costs according to the value class corresponding to the sum insured, i.e. not in full. The following therefore applies to the choice of the sum insured: You should not only assess the possible actual damage, but also which claims behave as principals. Here you can easily agree a higher sum insured with the insurer, who can also provide competent advice on this.
III. What does my professional liability insurance do?
The insurance protects the lawyer from pure financial loss. This does not include property damage and personal injury, which is usually covered by office liability insurance.
The insurance covers the legal profession. The legislator has not defined the term of legal activity and has left it open for jurisprudence. Section 51 simply presupposes the concept of legal activity as the content of compulsory insurance without going into more detail about what is meant by this. The insurance conditions of the insurers repeat the wording of § 51 as a minimum.
This clearly covers cases that require traditional legal advice, such as the work of a litigator. However, the insurance does not cover cases in which business advice takes place, for example investments. It is a matter of pure economic interest representation, without considering legal advice. Sometimes it is helpful to ask whether legal advice is mandatory, without taking services over by anyone without special training.
Paying special attention where lawyers are economically handling or developing the affairs of their clients may help. Who have previously provided legal advice. Legal training is no longer a requirement for economic processing, However, the processing directly relates the previously performed consulting service and the trust of the lawyer. For instance, if the lawyer acts on a fiduciary basis in order to process the previously legally drafted sales contract. It is also problematic if the entire activities of the professional merge into one another. For example, in the case of comprehensive due diligence checks. This is where the lawyer offers as a legal, tax, and economic overall solution.
In certain borderline cases that crop up again and again, however, the insurers already regularly offer insurance cover in their standard conditions. This includes office-like personal activities such as working as an insolvency administrator, as a member of a creditors’ committee or as an executor, administrator, administrator, guardian, supervisor, curator or arbitrator or mediator.
In all other inconclusive cases, it is advisable to contact the insurer. Then the insurer can clarify with the lawyer in advance what is and what is not and then look for possible solutions.
IV. What does the insurance cost me?
The amount of the premium for the insurance depends on the risk the insurer has to assume. A higher necessary sum insured also usually means a higher premium because the insurer simply has to pay more in the event of a claim. If several lawyers want to appear together, the insurer can take this into account when determining the premium. It can also be decisive whether the legal activity is a full-time or part-time or whether the license is able to use the title of lawyer.
However, it should not only be the premium level that is decisive when choosing an insurer. The insurance takes action in the event of a claim. This shows whether the insurer has sufficient knowledge and competence to support the lawyer in the event of a claim. A good claims department with experienced lawyers helps especially in liability cases and then offsets any premium saved. It is also sometimes necessary to develop a separate solution for a special mandate with the insurer. In addition to compulsory insurance, you may need insurance that covers a single mandate, as this by far exceeds the usual sum insured. Here, too, uncomplicated and effective insurance protection is better than excessive negotiations with the insurer,
V. Should I hire an insurance broker or broker for my insurance?
In principle, advice on topics that you specifically do not know is always helpful. The answer to the question depends on whether the activity poses a particular risk and whether you need special features, such as mandates with a foreign element or especially if you join forces with others to form a law firm. In addition, setting up a law firm also requires more far-reaching planning such as old-age provision, coverage in the event of illness or disability, etc. Here it is more effective to seek advice. In most cases, the advice will not incur any additional costs. The broker regularly receives the commission from the insurance premium. The brokers should choose the best and most suitable insurance without going after the commission.
When starting a law firm, it is important to deal with the topic of insurance. The regulation prescribe the benefits and the scope as compulsory insurance. However, you should still check whether the scope is sufficient. The amount of the premium depends on the additional risk, especially with a higher sum insured. Anyone planning further insurance – such as starting a business – should seek the help of an intermediary.