Should law firms carry umbrella/excess coverage?

Umbrella and excess liability policies provide additional layers of coverage above your primary insurance policies. For law firms, these policies can significantly increase the total limits available to respond to a major malpractice claim, a catastrophic general liability event, or a large employment practices or cyber liability loss.

An excess policy sits directly above a specific underlying policy and follows the same terms and conditions. For example, an excess professional liability policy above your primary malpractice policy increases your available malpractice limits without changing the coverage terms. If your primary policy provides $1 million per claim and $3 million aggregate, a $2 million excess policy would increase your total available limits to $3 million per claim and $5 million aggregate.

An umbrella policy is broader in scope. It typically sits above multiple underlying policies, including general liability, auto liability, and employer's liability, and may also provide some coverage for claims that fall outside the scope of the underlying policies, subject to a self-insured retention. Umbrella policies generally do not sit above professional liability policies, so excess malpractice coverage must be purchased separately.

The decision to purchase excess or umbrella coverage should be driven by your firm's risk profile. Firms that handle large transactions, represent institutional clients, or practice in high-stakes areas such as securities, real estate, or intellectual property face greater potential claim severity and benefit most from higher limits. Many institutional clients and corporate legal departments require outside counsel to carry minimum malpractice limits of $5 million or $10 million, which typically requires one or more excess layers above the primary policy.

The cost of excess and umbrella coverage is generally modest relative to the additional protection it provides. An excess professional liability layer might cost 30 to 60 percent of the primary policy premium for the same amount of additional limits. Umbrella policies for law firms typically range from $1,500 to $5,000 per year for $1 million to $5 million in additional limits, depending on the firm's size and risk profile.

When structuring excess and umbrella coverage, work with a broker who understands how these layers interact with your primary policies. Ensure there are no gaps between the primary and excess policies in terms of coverage triggers, defense cost treatment, or policy definitions.