A question that comes up regularly with our professional liability clients is how much a person can rack up in terms of “defense” costs should a claim ever be filed. To start explaining this, just ask any person involved in an insurance claim that required a defense attorney and ask how much the insurance company spent defending that case. In all likelihood, you won’t find anyone who knows the exact number because there are a few factors weighing in here.
If we assume the average malpractice claim runs around $30,000, including attorney’s fees, expert witness costs, and reimbursement fees (if eligible), that’s the simple math. The complications are what follows after a claim has been filed and the impact it has on your premiums, your ability to change and get better deals from other carriers, and the potentially damaging affect on your reputation.
Let’s take a look at these factors in greater detail.
1. Your Annual Premium Might Be Affected
Insurance companies intentionally do not make this a complicated equation — if you file a claim and use their services, they will weigh up the premium they have collected from you against what they have paid out, or are going to pay out, on your behalf. From there, insurance carriers have have simple limits and if you exceed them, better brace yourself for a rate increase once all this “defending” is done. The total cost of this can vary widely based on your profession, area of practice, and individual specialty, and will likely have an impact on your wallet for several years after the initial claim is filed.
2. The cost of defending you is important when approaching other carriers.
If the insurance company spent very little money defending you, the chances are the claim had no “teeth”. If they did spend a considerable amount, the claim was probably reasonable. Not making any indemnity payment, no matter what was spent defending you, always looks better, and makes you or your organization more marketable.
3. There is such a thing as bad publicity.
Depending on the severity of the case and the area in which you practice, there’s a chance that in the digital age you might end up receiving some press that might not be so great for business. Even worse, there’s really no telling how much of an effect this can have on your bottom line.
For more information about professional liability insurance from Acadia, contact us today!