Why do Insurance Agents that Specialize in Professional Liability Pay More for their Own E&O Coverage?

This is an excellent and insightful question that gets to the heart of how professional liability insurance, or Errors & Omissions (E&O) insurance, works. While it may seem counterintuitive, insurance agents who specialize in professional liability accounts often pay more for their own E&O insurance for several key reasons.

The "Expert" Standard of Care

When an insurance agent specializes in a niche field like professional liability, they are held to a higher legal standard of care. A client expects more from an agent who markets themselves as an expert in E&O policies than from a generalist agent who sells various types of coverage. In the event of an error, this elevated standard makes it easier for a client to prove negligence. The argument is that a specialist agent, unlike a generalist, should have a deeper understanding of the specific risks and policy nuances of professional liability. This increased exposure to a successful lawsuit, and the potential for a higher damages award, makes the specialist a greater risk for their own E&O insurer. The insurer, in turn, compensates for this risk by charging a higher premium.

High-Stakes and Sophisticated Clientele

Insurance agents who focus on professional liability accounts are dealing with a client base that is inherently more sophisticated and understands the value of their coverage. Their clients are often other professionals - lawyers, doctors, accountants, and even other insurance agents - who are accustomed to legal contracts and litigation. These clients are more likely to scrutinize their policy and are less likely to accept an agent's mistake without seeking legal recourse. If a claim arises and the client discovers a gap in their coverage due to their agent's alleged error, they are more prepared and equipped to file a professional negligence lawsuit. This heightened likelihood of litigation and the potential for substantial damages make the agent a more significant risk to their own E&O carrier.

The "Insuring the Insurer" Problem

This is a unique and critical factor. An agent who sells E&O insurance is essentially providing a financial safety net for another professional's mistakes. If the agent makes a mistake in placing that coverage, and their client suffers an uncovered loss, the agent can be held directly liable for that loss. This creates a direct causal link between the agent's error and a high-value financial claim.

For example, imagine a lawyer is sued for $2 million for a malpractice claim. Their E&O policy, sold to them by a specialist agent, has a technical exclusion that the agent failed to explain, leaving the lawyer with a $1 million gap in coverage. The lawyer could then sue the agent for professional negligence to recover that $1 million loss. The agent's own E&O carrier is now on the hook for a claim directly tied to the client's original, and often very large, professional liability claim. This cascading liability is a primary driver of higher premiums.

Specialization and Policy Complexity

Professional liability policies are highly complex and differ significantly across professions. Unlike standardized personal lines policies, E&O forms are often customized, with specific endorsements, exclusions, and definitions tailored to the unique risks of a profession (e.g., a policy for a surgeon is vastly different from one for a software developer). Agents specializing in this area must possess a deep and nuanced understanding of these complex contracts. Any oversight - such as misinterpreting a policy exclusion, failing to secure a crucial endorsement, or not properly disclosing a prior claim - is more likely to be considered a serious error with catastrophic financial consequences for the client. The inherent complexity increases the potential for a high-value claim against the agent.

Higher Coverage Needs and Expectations

Finally, agents who specialize in E&O policies must carry higher limits on their own E&O insurance. Their clients, being professionals themselves, often expect their agent to have a robust E&O policy to protect against potential errors. A client purchasing a $5 million professional liability policy for their firm would be unlikely to feel comfortable with an agent who only carries a $1 million E&O policy. The cost of an E&O policy is directly tied to the coverage limits. Therefore, to serve their market effectively, these agents must purchase more expensive policies. This is a business necessity that directly translates into higher premiums. In essence, the cost of their own insurance is a reflection of the significant financial risks they are managing for their clients.

Malpractice Trap - Attorneys Should be Cautious in Using AI for their Court Filings

The promise of Artificial Intelligence in law is indeed exciting, from streamlining research to drafting documents. Yet, for attorneys preparing and filing briefs with a court, this powerful technology presents a significant ethical and practical minefield that demands extreme caution.

Recent incidents across the legal landscape serve as stark reminders: AI is a tool, not a human lawyer, and blind reliance can lead to professional embarrassment, sanctions, potential malpractice claims, and even case dismissal.

The most glaring danger of using generative AI in legal brief writing is its propensity for "hallucinations." AI models, especially large language models, are designed to generate plausible text, not necessarily factual accuracy. This can tragically lead to the creation of non-existent case law, fabricated quotes, and misleading legal conclusions.

Real Life Examples

We've seen this play out in alarming fashion. In May 2023, two New York attorneys faced sanctions for submitting a brief riddled with non-existent cases generated by ChatGPT. Their defense of not knowing AI could fabricate information fell flat, highlighting the non-negotiable duty to verify.

Just two months later, in July 2023, attorneys in the MyPillow case were fined $3,000 each after their AI-generated filing contained over two dozen errors, including fabricated cases, with the judge criticizing their lack of candor.

More recently, in May 2025, a California judge sanctioned two law firms for submitting a brief with "bogus AI-generated research," noting fake citations and "phony" quotes.

These incidents unequivocally underscore that lawyers' ethical obligations of candor toward the tribunal and a duty of competence are never absolved by AI. If AI contributes to a filing, attorneys must personally verify all citations, quotations, and factual or legal assertions against original sources. This means actually pulling up the cases and statutes, not simply trusting the AI's output.

AI can assist with research and drafting, certainly, but it cannot replace the nuanced understanding, strategic thinking, and ethical judgment that a lawyer brings to a case. The final legal arguments and conclusions must always be the product of the attorney's independent judgment. Moreover, lawyers must understand the specific AI tool they are using, including its capabilities and, critically, its limitations, such as whether it's trained on a reliable legal dataset or a general-purpose dataset prone to inaccuracies.

Confidentiality Concerns in Using AI

Beyond accuracy, confidentiality poses another significant risk. Inputting client confidential information into certain AI systems, especially those that "self-learn" or aren't explicitly designed for secure legal use, can create significant confidentiality risks.

Lawyers have an unwavering duty to safeguard client information. Before using any AI tool, attorneys must thoroughly vet AI providers to understand their policies on data retention and sharing, and how they utilize inputted information. For self-learning AI tools, obtaining informed client consent before inputting confidential information may even be necessary, and anonymizing data whenever possible is a wise practice.

Mandatory Disclosure of Use of AI in Court Filings

Courts are also rapidly evolving their stance on AI in legal filings, with many jurisdictions now demanding explicit disclosure if AI was used in researching or drafting a document. This may require identifying the specific AI program, specifying which sections were AI-generated, and certifying that a human diligently reviewed the AI's output for accuracy and relevance.

The Delaware Court of Chancery, for example, has already cautioned litigants that unverified AI use could lead to sanctions, emphasizing that every filing must be "truthful, accurate, and cites to legitimate authorities." Lawyers must stay abreast of their specific court's rules and any standing orders regarding AI usage, as ignorance is not a defense.

While the risks are very real, AI, when used responsibly, can be a valuable asset. The key is to start with legal-specific AI tools, which are generally trained on verified legal databases. Crucially, treat AI output as a first draft at best, requiring thorough human review and editing. Always verify every citation, quotation, and factual assertion against original sources. Understand your AI tool's nuances, prioritize confidentiality by ensuring robust data security, and stay relentlessly informed about ethical guidelines, court rules, and best practices. Law firms, too, should develop clear, firm-wide policies for AI use to ensure consistent and ethical application across the practice.

The integration of AI into legal practice is inevitable. However, for lawyers, the ethical obligations of competence, candor, and client confidentiality remain paramount. By exercising extreme caution, embracing thorough human oversight, and staying informed about evolving best practices, attorneys can harness the power of AI while upholding the highest standards of the legal profession and ensuring the integrity of their court filings. The future of law is intertwined with technology, but the wisdom and judgment of human lawyers will always be indispensable.

How Much Limit Should a Law Firm Buy?

When determining the appropriate amount of professional liability insurance coverage, law firms should consider several key factors to ensure adequate protection against potential claims. Here's a general overview of factors to consider:

Firm Size and Structure

The number of attorneys and support staff can influence the likelihood and potential cost of claims. Larger firms with more personnel may face increased exposure and thus may require higher coverage limits. A reasonable question would be to ask what size of claim would significantly impair the law firm’s ability to function.

Areas of Practice

Certain legal specialties carry higher risk profiles. For instance, practices involving securities, mergers and acquisitions, or intellectual property may be more prone to complex and costly claims. Firms should assess the inherent risks associated with their specific practice areas, in particular taking into consideration the severity of potential claims.

Geographic Location

The jurisdiction in which a firm operates can impact both the likelihood of claims and the cost of defense. Some regions may have higher litigation rates or more plaintiff-friendly environments, necessitating higher coverage limits.

Client Base and Revenue

Serving high-net-worth clients or handling large financial transactions can increase potential liability. Firms should evaluate the financial stakes involved in their typical client engagements when determining coverage needs, as well as considering the largest deal size being handled in the office.

Assets of Law Firm Partners

Lawyers that have accumulated large personal assets over the years should consider higher limits because if the firm’s limit are exhausted by the payment of a large claim or a series of smaller claims during a particular policy year, then the lawyers personal assets may be at risk. Typically, lawyers with personal assets of $5 million should consider having the firm carry an equivalent amount in limits.

Defense Costs

It's crucial to understand whether defense costs are included within the policy limits or covered in addition to them. Policies where defense costs erode the coverage limit may necessitate consideration of higher limits to ensure sufficient protection.

Contractual Requirements

Some clients or engagements may stipulate minimum insurance requirements. Firms should review contractual obligations to ensure compliance with specified coverage limits.

Regulatory and Industry Standards

Certain jurisdictions or legal associations may mandate minimum professional liability coverage. Firms should verify and adhere to any such requirements applicable to their operations. For example, in Illinois, law firms organized as a limited liability entity must maintain "minimum insurance" for professional liability, which is defined by Supreme Court Rule 722. The minimum amounts are $100,000 per claim and $250,000 annual aggregate, multiplied by the number of lawyers in the firm, up to a maximum of $5,000,000 per claim and $10,000,000 annual aggregate.

It is advisable for law firms to consult with experienced insurance brokers or risk management professionals who can provide tailored advice based on the firm's specific risk profile and operational characteristics. Regularly reviewing and adjusting coverage limits in response to changes in the firm's size, practice areas, or claim history is also a prudent strategy. Often a primary insurance carrier will not provide higher limits even if the insured is willing to pay additional premium. In such case, the law firm should seek to obtain an excess professional liability policy on a “full follow form” basis to ensure it has the limits necessary.

If you need assistance in connecting with a qualified insurance advisor or have further questions about professional liability coverage, feel free to ask.

How Tariffs Could Affect the Professional Liability Insurance Market

Robert Hartwig, Clinical Associate Professor of Finance & Insurance, and former President of the Insurance Information Institute, recently posted on Linkedin his strongly negative views on President Trump's tariffs.  In his post, he stated that import taxes (i.e., tariffs) will “unquestionably raise claim severities across all auto and property lines”. He also noted that insurers must "be vigilant in monitoring underlying claim severity trends and incorporate them into ratemaking as quickly as possible, to avoid falling behind, as happened with inflation after the pandemic."   

While it seems clear that auto and homeowners insurance will likely increase as a result of the implementation of tariffs due to their expected inflationary impact on auto parts and construction materials, it is less clear at this point as to how tariffs will impact the professional liability insurance market. In our discussions with various insurance executives, Architects and Engineers was the only major line of professional liability business that was identified to have an impact, again mostly due to the increased costs of construction might have on future A&E claims costs.

That being said, to the extent that tariffs increase inflation generally, those increased costs over time will tend to ripple through the economy in the form of increased salaries due to costs of living adjustments. To the extent that law firms defending insureds in professional liability claims increase their hourly rates in response, there would likely be increased upward pressure on rates that would likely be seen in a few years after the implementation of the tariffs. 

In his LinkedIn post, Hartwig also stated that financially, with the S&P 500 teetering on the edge of an official bear market (20% decline), P&C insurers could face an unrealized loss on their equity holdings approaching $200 billion. Moreover, recession fears and the expectation that the Fed will soon need to cut rates which would push interest rates down, would also cut into insurer investment income. 

In a medium to long tail lines of business such as professional liability, to the extent that insurers are earning less investment income on their portfolios, it could also force them to raise rates to make up the difference.  However, the magnitude of such effects are still subject to much speculation at this point, as the final form of the tariffs seem to have a long way to go before they are etched in stone.

Older Plaintiff Attorneys Getting Claims Due to Lack of Technology

We have had some large claims in our Non-Standard LPL program involving Plaintiff firms missing the Statute of Limitations deadline for their plaintiff cases.  Since there was a series of claims involving similar fact patterns, we did a deep dive into our book of business to discern if there was any pattern.

A common thread that we found among many of these claims were mistakes committed by older attorneys that were still relying on older calendaring methods.  Many of these firms have been around for such a long time, it seems that they have not seen the need to update their systems in order to take advantage of newer software such as Clio that helps law firms keep track of important deadlines, including Statute of Limitations deadlines.

In fact, we found that many of these law firms still do not even have websites.  Most Plaintiff firms are constantly looking for new cases (as anyone can see with all of the Plaintiff firm billboards seen all over the country), yet these older attorneys seem to continue to attract new clients using old methods.

Plaintiff attorneys should use software to help keep track of important deadlines, including statute of limitations deadlines for their personal injury cases, for several compelling reasons. First and foremost, software provides a high level of accuracy and reliability, significantly reducing the risk of human error in tracking crucial dates. This is particularly important in complex cases with multiple deadlines. Additionally, automating deadline tracking frees up valuable time for attorneys, allowing them to focus more on substantive legal work rather than administrative tasks, thereby enhancing overall productivity and efficiency.

Modern legal software often integrates with other tools and systems used in legal practice, such as case management software, document management systems, and calendaring tools, providing a more organized and streamlined approach to managing cases. Adopting such technology allows older attorneys to stay current with industry standards and best practices. Many of these software solutions are designed to be user-friendly, with intuitive interfaces and support services, making the transition to using technology smoother for attorneys who may not be as familiar with modern software.

Moreover, the increasing need for remote work capabilities makes software solutions that provide remote access invaluable. Attorneys can access important information and deadlines from anywhere, ensuring they stay on top of their cases even when away from the office. Incorporating software into legal practice for tracking deadlines offers numerous benefits that enhance the overall management of personal injury cases and support the successful resolution of client matters.

Yet it may be a simple fact that these law firms are in the surplus lines market because they have not adopted the latest risk management techniques.  Nonetheless, our Non-Standard LPL underwriters will be examining this aspect of Plaintiff firms more carefully going forward.