Most attorneys will face at least one professional liability claim over the course of their career. When it arrives, it often lands without warning and with very little context for what to expect next. The goal here is to lay out what the process actually looks like and what firms should be doing at each stage.
The First Thing to Know: Report Early
Legal malpractice policies are written on a claims-made basis. That means the policy responds to claims made during the active policy period. But there is an equally important concept called a circumstance, and it is where firms often make their first mistake.
A circumstance is a situation that has not yet become a formal claim but could. A client who is upset about a missed deadline. A transaction that closed badly. A judgment that went the wrong way and the client is making noise. If you are aware of a situation that could reasonably give rise to a claim, most policies allow you to report it as a circumstance. When you do, that circumstance is locked to your current policy period. Even if the actual claim comes in a year or two later, after your policy has renewed or after you have changed carriers, it traces back to the policy that was in force when you reported it.
Failing to report a circumstance is one of the more costly mistakes firms make. The situation gets worse, a claim comes in, and the attorney assumes their current carrier will handle it. Sometimes that is true. Sometimes the new carrier denies coverage because the firm was aware of the issue before the policy period began. When in doubt, report it.
Scenario 1: The Non-Issue Claim
A client files a grievance or sends a demand letter claiming the firm made an error. The attorney reviews the file and the facts are clearly on their side. The client is frustrated about an outcome that had nothing to do with any mistake by the firm.
In this scenario, the carrier assigns defense counsel, the matter gets investigated, and a response is prepared. Most of these resolve without payment. The carrier closes the file with no indemnity paid, and the claim is recorded in the firm's loss runs as a claim that closed with zero payment.
The important thing to understand is that even a claim that goes nowhere still shows up on loss runs. Loss runs are the formal claims history document that carriers request when underwriting a renewal or a new application. A zero-payment claim is far less damaging than one with a settlement, but it is still there. Transparency about it is always better than hoping the carrier does not ask.
Scenario 2: The Manageable Claim
A client alleges a filing was missed or a deadline was not met. The facts are not entirely clear in the firm's favor. There was a breakdown somewhere, and the client has suffered a real consequence.
Here the carrier gets involved more deeply. Defense counsel is assigned. Depositions may be taken. The carrier will evaluate the exposure and begin discussing settlement options. Most policies include what is called a consent-to-settle provision, which governs whether the firm has any say in settlement decisions. Policies with a "soft hammer" give the attorney meaningful input. Policies with a "hard hammer" can shift financial responsibility to the attorney if they refuse a reasonable settlement offer and the case goes on to a worse result.
Settlements in these cases range from modest to significant depending on the facts. The policy responds up to its limits, minus the deductible. If the settlement is within limits, the carrier pays it and the firm pays its deductible. The matter closes.
Long-term, a paid claim will affect the firm's renewal. The size of the increase depends on the amount paid, how many prior claims exist, and what the carrier's current appetite is. It does not automatically mean the firm gets non-renewed, but it does change the underwriting conversation.
Scenario 3: The Serious Claim
A significant error results in a large loss to the client. The claim involves substantial damages. The firm's limits are potentially at risk of being exhausted.
This scenario is why limits selection matters. A firm carrying $500,000 per claim limits facing a $1.2 million demand is in a different position than one carrying $1 million. Defense costs also erode limits in most legal malpractice policies, which means every dollar spent defending the case reduces what is available to pay a settlement or judgment. Firms with high-stakes practices need to think carefully about limit adequacy.
When limits are at risk, the carrier's defense strategy and the firm's interests can start to diverge. Having experienced independent counsel involved, separate from what the carrier provides, is worth considering in serious matters. The carrier's defense counsel represents the policy, not the firm.
Serious claims will affect renewals significantly. Non-renewal is a real possibility depending on the carrier. The firm may need to move to the surplus lines market where underwriting is more flexible. Premiums will go up. The history follows the firm for years through loss runs.
Should You Shop While You Have a Claim Open?
This is a question that comes up often. The short answer is yes, you can shop, but with an important caveat.
Every application asks about open claims and circumstances. Any carrier you approach will see the open claim through loss runs. Misrepresenting it, or failing to disclose it, creates far bigger problems than the claim itself. Carriers underwrite with that information factored in. Some will decline. Others will offer coverage with a specific exclusion for the known circumstance. Some will quote normally if the exposure looks manageable.
Switching carriers while a claim is open is perfectly fine in most situations. The open claim stays with the prior carrier and is unaffected by the switch. The new policy picks up coverage for new acts going forward, and your prior acts are protected as long as your retroactive date is preserved correctly. The main thing to document is the continuity of coverage so there is no question about what policy period applies to what work.
If a firm is facing non-renewal because of a claim, working with a broker who knows the surplus lines market is essential. There are carriers who will write that business. The pricing and terms will reflect the risk, but coverage is almost always available for a firm that discloses everything accurately.
What Loss Runs Are and Why They Matter
Loss runs are a five-year claims history report issued by your current carrier. They show every claim and circumstance on your policy, the date reported, the status, defense costs paid, and indemnity paid or reserved. Every carrier you approach for a new quote will ask for them.
Loss runs are not the enemy. A firm with a long clean history and one paid claim is still a good risk for most carriers. What raises underwriting concern is a pattern: multiple claims, open reserves that suggest ongoing exposure, or a history of circumstances that keep turning into claims.
Knowing what is on your loss runs before you shop is useful. Your current broker can obtain them for you. If there is anything on there that needs context, a good broker will frame it accurately in the submission rather than letting the carrier draw their own conclusions.
A professional liability claim does not have to define your firm's insurance future. Firms that report early, work closely with their carrier, and partner with a broker who knows how to present the full picture almost always find a path to solid coverage — regardless of what the loss runs say.