Covering your assets: Insurance cuts into profits, but is it worth it?

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Safety nets come with great expense.

Heath Straka knows that well. He and his partners spend hundreds of thousands of dollars every year on insurance for their seven-attorney firm.

It’s a huge expense.

But, he said, it’s all worth it.

“We can’t not have any of it,” said Straka, a partner at Gingras, Cates & Luebke in Madison.

Wisconsin attorneys are not required to carry insurance nor, in many cases, malpractice-liability coverage.

“You don’t need malpractice insurance to practice law in Wisconsin unless you practice in a private firm that has any sort of limited-liability structure,” said Tim Pierce, ethics counsel for the State Bar of Wisconsin. “Otherwise, it’s really up to you.”

State Supreme Court rules offer no other provisions for insurance.

For those who choose not to carry malpractice insurance, there is no requirement that they disclose that fact; Wisconsin, unlike some states, does not call on lawyers to have a record of their having professional-liability coverage registered with either the court system or the State Bar.

“To my knowledge, that’s never been proposed formally to the Wisconsin Supreme Court,” Pierce said. “Someday, somewhere, somebody might propose that. But not yet.”

All this might make Straka seem like the odd man out. But he’s not alone.

Despite the cost — and the arguably small likelihood of payouts — Todd Martin said it’s better to have coverage than to not. This preference, he said, does not simply stem from his primarily practicing insurance and employee-benefits law.

“It’s a risk-management process,” said Martin, a solo practitioner in Sun Prairie and chairman of the State Bar’s Insurance and Member Benefits Committee. “We advise clients on risk, but often attorneys aren’t evaluating their own risk in this area.”

For some, Martin suggested, the best way to decide if more insurance is needed is to imagine the consequences of a cataclysmic event.

“What would happen if there was a medical condition and you weren’t able to work?” he said. “What’s the impact of that?”

His epiphany came following a two-hour visit to the emergency room. The $19,000 bill could easily have ruined him, Martin acknowledged.

Medical insurance is one of the most expensive things solo lawyers and lawyers at small firms can find themselves paying for.

“If you’re a young person and you think, ‘Gosh, I can’t afford that. You can get the catastrophic plan that just covers the bigger things.” But, Martin said, “I think it’s essential. That has got to be part of your business.”

This is why the insurance portfolio for Straka’s firm includes not only malpractice and medical policies, but also business-owners protection for premises liability, natural disasters and leased vehicles; car insurance, which covers certain drivers, such as spouses, who might use company-connected cars but don’t fall under typical business-owners coverage; and workers’ compensation.

With so many policies, the need to keep up with costs can feel almost like a full-time job, especially for Straka, a plaintiff’s civil-litigation attorney who has become the go-to guy for insurance since joining Gingras, Cates & Luebke in 2000.

“Every year, just like any other insurance, you’re meeting with agents,” Straka said. “We use a couple agencies in the area to try to make sure we’re not over-paying. And we’ve had to switch a few times over the years.”

Still, it can be hard to swallow the cost.

“Professional-liability insurance alone, that’s just a shade under $44,000 a year, or, at least it was last year,” Straka said.

It’s one of the firm’s largest insurance expenses, second only to health insurance, which the firm covers for all full-time employees.

“That’s like 15 grand a month. It’s hard to do,” Straka conceded. “But we have to have health insurance. Even if we didn’t, I think in today’s world if you don’t offer a competitive benefits package you can’t get employees.”

Coverage for business-owner protection and workers’ compensation add roughly $5,000 to the firm’s insurance bill, bringing the annual total to nearly $230,000. And that amount does not include regular car insurance or coverage for employment practice, disability or life insurance, which Martin said attorneys should also strongly consider.

That’s for seven attorneys, of course. And their policy includes coverage for class-action and medical-malpractice cases, which can drive up the cost.

But it’s still a staggering amount, one that often leaves solo attorneys, who make up an estimated 85 percent of practitioners in Wisconsin, wondering if they can even afford a safety net, said Tom Watson, senior vice president of Wisconsin Lawyers Mutual Insurance Co.

“They’re trying to prioritize their expenses, and that’s not always easy to do. Insurance isn’t always at the top of the list,” Watson said. “But when you’re solo, these are things you have to think about.”

You even have to take them into consideration after retirement.

Malpractice policies are claims-based, which means attorneys are only covered if they have insurance when a claim is filed. Occurrence-based claims, in contrast, are covered if the policy was in place when an alleged instance of malpractice took place.

And there’s more. For instance: Extended legal-malpractice-liability insurance, also known as tail insurance, covers an attorney after he or she stops practicing.

Coverage terms vary, but since most claims occur within two to three years of a case — Watson recalled a claim made 28 years after the initial case, but insisted that’s “incredibly rare” — policies covering just the first few years of retirement are most common. That does not mean, though, that unlimited coverage is not available, Watson said.

For unlimited coverage, attorneys can expect to pay roughly double the cost of their last malpractice-liability policy, which tends to increase over time. So, while an attorney with fewer than five years experience can expect to pay about $400 or $500 a year for malpractice coverage, the cost is closer to $1,500 to $2,000 for an attorney as time goes on, Watson said.

Tail coverage would be twice that, and paid all at once, giving some attorneys another bit of sticker shock.

But, Watson said, “That’s a one-time payment. You pay it and you’re done and it covers you year after year.”