What insurance do law firms need to cover client property in their possession?

Law firms routinely hold client property including original documents such as wills, deeds, and contracts, physical evidence, closing funds, settlement proceeds, and occasionally personal property related to litigation. Standard business property policies typically cover only the firm's own property, leaving client property in the firm's possession uninsured unless specific coverage is arranged.

A bailee coverage endorsement or a separate inland marine policy can protect against loss of or damage to client property while in your firm's care, custody, and control. This covers scenarios such as a fire destroying original estate planning documents, a flood damaging client files, theft of client property from your office, or loss during transit between offices or to storage facilities. The cost of bailee coverage is relatively modest, typically a few hundred dollars annually for reasonable limits.

For firms that hold significant client funds, the exposure extends beyond physical property. Fidelity bonds and crime insurance protect against employee theft of client funds from trust accounts. While malpractice insurance covers negligent errors in handling trust funds, it does not cover intentional theft by firm personnel. A fidelity bond fills this gap and is especially important for firms handling real estate closings, estate settlements, or large litigation recoveries.

Review your firm's document retention policy in conjunction with your property coverage. If you store original client documents long-term, whether in your office or in off-site storage, your property coverage should extend to those locations. Digital records stored on local servers should be covered under your business property policy, while cloud-stored data is typically addressed through your cyber liability policy. Consider the replacement cost of critical client property and set coverage limits accordingly.