Episode 4: Opening a Law Firm? Think About Protecting Your Future.

Mark talks with seasoned ALPS Business Development Representative, Julie Patterson, about new lawyers hanging their own shingle and the associated challenges. This includes looking at legal malpractice insurance as an investment in protecting all of the work you do from the day you open your doors. Julie and Mark discuss the dangers in going bare and how step rating works.

ALPS In Brief, The ALPS Risk Management Podcast, is hosted by ALPS Risk Manager, Mark Bassingthwaighte.

 

Transcript:

MARK:

Welcome to another episode of ALPS In Brief, the ALPS Risk Management Podcast. We’re recording here at ALPS’s home office in the historic Florence Building in downtown Missoula, Montana. I’m Mark Bassingthwaighte, the ALPS Risk Manager, and I have the pleasure of sitting down today with a long-time colleague, Julie Patterson, who has been with ALPS for over 20 years now. Julie, before we get started, can you just give us a brief introduction, background to yourself for our listeners?

JULIE:

Absolutely, Mark, I’d be happy to. I’ve been here at ALPS for 20 years, really have enjoyed my time here. It’s a great company to work for. I’m originally from California, but moved to Montana to have a different lifestyle in 1990, and have stayed and never left, and am not going to leave, so …

MARK:

Yeah, that happens to a lot of us, huh?

JULIE:

It does, yes.

MARK:

Well, thank you for sitting down with me today. What I wanted to really talk about is looking at the new lawyer situation, and going back many years ago … I’ll use me as, perhaps, the example we might talk about a little bit, but … I was one of those guys that when I came out of law school, I hung up a shingle, and boy, can that get a little frightening and crazy. You know, you sit down, you try to get some kind of business plan in place, you look at trying to get some advertising, get your computers, get the office set up, all these kinds of things, and the last thing that you’re thinking about, in so many ways, is this whole issue of malpractice. I’ve just … I don’t have many clients yet, you know, and I’m thinking here …

But I know that I was not alone or unique in this. When I started thinking about that whole issue, you sit here and say, “You know, I just don’t have the income stream yet to be able to afford this, because, you know, I know what medical malpractice premiums look like. Docs are paying, at times, $20,000, $30,000, $50,000, $100,000 a year in premium, and [inaudible 00:02:26], I can’t afford that.” Is that how the insurance marketplace in terms of the legal malpractice arena is priced, or … Can you just explain to a new attorney, what am I looking at here?

JULIE:

I would be happy to, Mark. It’s completely separate than medical malpractice, so take that out of the equation, and think about protecting your future. Starting out, you’re opening your first practice here, you may not have a ton of money up front, but still, the premium is going to be roughly probably starting out between $1,000 and maybe $1,500.

MARK:

Okay. That’s very different than what docs are paying, that’s for sure.

JULIE:

Yes, it’s very different.

MARK:

Right.

JULIE:

It also depends on what limits you want to hold. It can go a little lower, it can go a little higher. But know that that carrier’s going to have some premium finance terms to help you out so that you’re not paying everything all up front if you don’t have the cash up front. And really, when you open your doors, you want to protect yourself and your clients, and do it right as you start out into your private practice, because if you wait six months or a year down the line, and now decide to go, and you’ve got some money in your pocket, now you want to purchase the malpractice, no carrier in the marketplace is going to cover your prior work history to the day you open the doors to the day you decide to get that policy.

MARK:

Oh, wait, okay, so now that’s important. I want to make sure that we’re all understanding this. So if I sit down, and I open up my office, hang that shingle, and I’m doing a lot of marketing, networking, doing the things we all try to do to get the name out there, and I start to have a little bit of work, not much yet, but I build up, you’re saying that … So if I wait six months to buy my first policy, all of the work that I’ve done up until the day I buy that policy, I’m, in essence, bare on, that the policy doesn’t cover that?

JULIE:

You are, exactly. You’re bare on that time frame.

MARK:

Okay, that’s good to know, right.

JULIE:

Because a lot of new attorneys don’t realize that when they open their doors, and it’s a really key, important fact to before you open your doors, before you take that first client, is to get that coverage in place.

MARK:

Okay. When I think about … So I’m hearing that the premium is relatively affordable. Is that a normal kind of premium? Because it seems to me, I guess what I’m trying to get at is, you know, I don’t … I haven’t been in this long, so my exposure, if I’m thinking about the insurance carrier, it’s got to be pretty low. What does that play … What does that mean to you guys? Am I on to something here, that … What happens to my premium in the early years?

JULIE:

Good question. You are on to something. So, starting out, when you come into a carrier and they give you a new quote for a new policy, you have no work history behind that quote, that policy. And so you’re going to get a credit for having no work history. They know that when they’re quoting you, and they’re putting that factor into the premium before they release it to you. So as your exposure increases over the years, as your practice builds and you get more clientele, your premium is going to mature, or some people call it in the industry “step rating,” where you can expect gradual increases over a six-year timeframe. So basically, by year six, your premium would have almost doubled, provided the carrier has no rate increases, as well as you haven’t reported a claim and a settlement has been reached in that six-year timeframe. So there are varying factors, but maturing rating is common in all professional liability policies, including those for lawyers. Yes.

MARK:

Okay, so, all things being equal, the good news is … I mean, I understand that my risk matures, but it levels out.

JULIE:

It does.

MARK:

So I don’t keep seeing these increases my entire life, because heaven … Okay, I got you. So roughly six years in, I’m considered fully mature, okay. The final point that I’d like to just explore here a little bit is this, you know, what is it … Why do I want to have an insurance policy, in terms of what protection am I buying? Because I can see people sit here and say, “You know, again, I’m just starting out. I’ve got my computer system, and I got a good deal online,” or whatever it might be, “and it’s furnished lightly. There’s just, it’s not a lot of assets, you know? I don’t have tons of money I’m trying to protect and these kinds of things.” So I could also see just waiting a bit until I’m more established before I start to think about insuring. But how do you respond to that kind of perspective? Do you see where I’m going with that?

JULIE:

I see where you’re going with that, and I hear that quite a bit, but you also have to put yourself in where your future is going for your practice, and as you’re starting out, it is a litigious environment that we live in now, and if you take on a client, and for some reason, a year out, you still don’t have coverage, they’re not happy with what they did, you have no coverage. You have nothing to help back you up in case you maybe did something wrong, or maybe you didn’t do anything wrong, but still, that’s what you’re paying for. You’re paying for that peace of mind to cover your practice as it grows, and if a misstep happens along the way, that’s where the policy comes into play for you.

MARK:

Mm-hmm (affirmative). So it’s, in other words, I’m buying a little comfort. I can sleep at night, you know?

JULIE:

You can sleep at night.

MARK:

Yeah, yeah. And I’d also think, I suspect, I mean, colleague to colleague here, too, I think the other side that gets overlooked at times is we’re also just trying to protect the client.

JULIE:

Exactly.

MARK:

I mean, it’s … I want to work … If I think about who I’m hiring, I would want to work with a lawyer that’s insured as opposed to one that isn’t, because again, sometimes just mistakes happen, you know?

JULIE:

They do. They do.

MARK:

So I think it’s important for all of us to just kind of remember, not only are we buying peace of mind for ourselves, but we’re doing … There’s no disciplinary rule that says we need to do this, but it is the right thing to do-

JULIE:

It is the right thing to do, absolutely.

MARK:

… you know, to make sure that these clients are taken care of, should some misstep happen. Well, I appreciate … Do you have any final thoughts, or anything else you’d like to add on this?

JULIE:

No, I think that about covered everything. Thanks.

MARK:

All right. Well, thank you very much, Julie. It’s been a pleasure, as always, and I’ll see you around the halls.

JULIE:

All right, thanks, Mark.

MARK:

Well, thank you very much for listening, folks. That concludes this current episode. If you have any questions about the issues we’ve discussed today, please don’t hesitate to contact me at mbass@alpsnet.com. We’d love your feedback on the podcast, to include hearing about any other topics or issues you’d like to hear us cover. Thanks again. Have a good one.