Lawyers, Attorneys Professional Liability & Malpractice Insu

Posted by Lawyers, Attorneys Professional Liability & Malpractice Insurance on 5/02/06

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Regardless of the nature of your firm's practice, today's
lawyer and law firm is themselves ever more frequently the
target of allegations of legal malpractice. While such
claims used to be relatively rare (after all, most lawyers
are reluctant to sue other lawyers), they happen today
with increasing regularity. In fact, some law firms are
now specializing in representing plaintiffs in legal
malpractice cases.
It's not just your clients you have to worry about,
either: Federal and State regulatory agencies, corporate
shareholders, even third-parties can and do file lawsuits
accusing lawyers of all types of professional negligence.
There have even been recent cases in which law firms have
been targets of class actions, including RICO allegations!
Sometimes, of course, this is the result of an honest
mistake or misunderstanding. At times, it is a result of
unreasonable or unrealistic client expectations; sometimes
it is simply due to a misunderstanding or a failure to
communicate; and of course, in some cases, the claim is
false, frivolous . . . or outright fraudulent.
Whatever the circumstances that result in a claim of
legal malpractice, the reality is that such claims have
risen significantly over the past 10 to 15 years, in terms
of both sheer numbers, and the magnitude of the damages.
Regardless of the size of your firm, it is critical that
you protect yourself, your firm, and your personal and
business assets, with a properly underwritten policy of
lawyers' professional liability ("LPL") insurance. The
best way - indeed, I would suggest that it is the only
way - to be certain that you have the broadest possible
coverage, tailored specifically for the nature of your
practice, is to work with an experienced, independent
insurance broker who specializes in this area.
I am sure that you won't be surprised to hear me tell you
that I am just such an insurance broker.
My firm works with many different insurance carriers,
all "A" rated or better by the A.M. Best Co., and all of
whom are actively seeking to write lawyers' professional
liability. Of course, some of these carriers would like
you to believe that they are the "best." While it is true
that some are better than others, the fact is that there
simply is no one insurer that stands alone – the one
is "best" for your firm may not be the same one that
is "best" for the firm down the hall or across town.
Primary LPL limits are available from as little as
$100,000, to as much as $50 Million. Excess coverage can
also be obtained to limits of $100 Million, or more.
Deductibles or self-insured retentions range from as
little as $1,000 for a solo practitioner, to as much as
$100,000 for a good-size, financially sound firm. Some
very large firms carry retentions of as much as $1
Million, which allows them greater flexibility in dealing
with relatively small matters without involving their
insurer, while protecting the firm and its members from
catastrophic claims.
Generally, small to midsize firms will most often have a
deductible of between $2,500-$50,000, and policies vary in
terms of whether claims costs are charged against the
deductible. For instance, a common scenario might be for a
firm to take a $10,000 deductible, but have it apply only
to actual damages. Claims expenses would be covered on
a "first dollar" basis. Some firms prefer the simplicity
of one deductible amount, applicable to both claims and
damages.
Other scenarios might be a higher deductible for damages,
but a lower deductible for claims expenses. Or, maybe what
is referred to as a "50/50" retention, meaning that only
50% of the deductible amount will apply to claims
expenses.
Even more important is the question of whether claims
expenses are including within the limits of liability or
whether they are payable in addition to the limits of
liability. Even when claims expenses are payable outside
the limits of liability, some carriers the provide a
specific, separate limit for defense (usually equal to the
limit for damages), while some carriers are silent on the
issue, which – theoretically, at least – means that claims
expenses are unlimited. Obviously, before a carrier spends
$1 Million dollars to defend on a policy with limits of,
say, $250,000, someone is going to have some very serious
settlement negotiations.
Another important - and frequently misunderstood coverage
issue is that of how to handle "lateral hires." Many
insurance carriers will customarily cover the attorney
from the date of hire, on the assumption that the former
firm's policy will respond to claims arising from the time
that the attorney was employed by or a member of that
firm. Under certain circumstances, however, this can
create a potential gap in coverage. It is very important,
therefore, that a law firm speaks with a knowledgeable
insurance professional when hiring new associates or
partners.
All of these issues will have an impact upon cost of your
insurance, though you should keep in mind that there are
no "right" or "wrong" choices. It really depends upon what
sort of coverage your firm wants, needs, and is
comfortable with.
Probably the key advantage that my firm offers our
clients, is the fact that as independent insurance agents
and brokers, we are not committed to "selling" the
products or programs offered by only a single insurance
company.
In many states, counties and cities, bar
association "endorsed" insurance programs are aggressively
marketed. While there is nothing inherently bad about
these programs, many attorneys make the mistake of
assuming that their bar association's program is either
the "best" or the least expensive insurance available to
them. Not necessarily so!
Programs such as these are generally "slot underwritten",
which means that the underwriter's flexibility is limited,
since each policy must be viewed as part of the program as
a whole, rather than viewed - and priced - entirely on its
own merits. This can result in the cost of less desirable
insureds being effectively subsidized by others. While
this might reduce the cost of insurance for the less
desirable practice, it might then increase the cost for
everyone else. In other words, a classic example of
potential "adverse selection."
Remember, as well, that a program's endorsement is simply
a marketing tool - nothing more; nothing less - and is
often "bought & paid for." While there is nothing illegal
or unethical about this, remember that some bar
associations receive a fee for their "endorsement" in
amounts of $1,000,000 or more per year from the program's
underwriter. It certainly doesn't take a rocket scientist
to figure out where all this money is really coming from.
Can you say, "higher insurance premiums?" My suggestion
is that if you wish to make a contribution to your Bar
Association, by all means do so - but don't do it by
paying inflated insurance premiums!
If the focus of your practice tends to be in areas of
high-liability potential, such as IPO's, financial
institutions, securities, patent, intellectual property,
plaintiff's personal injury (by the way, did you know that
plaintiff's P.I. is the #1 practice area in terms of
malpractice claims?), etc., we know which underwriters and
which carriers to speak with. I won't waste your time – or
mine!
If your firm's practice is focused in areas known to be
relatively low in potential liability, such as criminal
defense, well there are other underwriters and other
insurers that prefer this type of risk, and are willing to
price their products accordingly.
Indeed, still other carriers are most comfortable
insuring firms with broad-based, general practices. Some
carriers love smaller firms, some don't. Some carriers are
extremely competitive with firms of 25 or more attorneys,
while some carriers get nervous beyond this point. Indeed
there are carriers who really don't "shine" unless they
are dealing with the larger firm of 50, 100, or even 500
or more attorneys.
Maybe your firm is going through a period of tremendous
growth; maybe you're opening branch offices in other
cities, other states – or other countries. Maybe you're
considering a merger, or maybe you've just dissolved a
partnership. Some underwriters get really, really nervous
about changes; others take things in stride.
Any significant change in your firm should also be a
signal that it's time to speak with your insurance
professional to be sure that your coverage keeps up with
your practice. It may not mean that changes are needed,
but it is better to ask and be sure, than to discover an
unintended gap in coverage after a claim is made.
Associates, of counsels, independent contractors, part-
time government contracts (such as a municipal
prosecutor), retired or semi-retired partners . . . all of
these issues can have an impact on how best to insure your
practice. Your firm's insurance broker should be fully
prepared to advise you.
Maybe you've experienced some significant claims
problems, or maybe a disciplinary problem - and your
premium has skyrocketed, or your carrier has dropped you
altogether. Relax - I know which underwriters are
particularly adept at dealing with "impaired risk"
situations.
The bottom line is that a "one-size-fits-all" approach to
lawyers' professional liability insurance is simply
unacceptable in today's dynamic and rapidly changing
environment. Purchasing coverage for your firm should not
be treated as an afterthought. Would you rather be doing
something else? I'm sure that you would. I respect my
clients' time, and I will never waste it.
I have split this category into three subsections,
depending upon the size of your firm. Click here for
solo's to 4 attorneys, 5 to 25 attorneys, or 25 or more
attorneys.
Give me a call at, 877-320-4061, to discuss your firm's
specific needs. All inquiries are held in the strictest
confidence, and if it turns out that your best move is to
keep the coverage you have, I will tell you so. You can
send me an e-mail at insurance@professional-liability.com.
I look forward to speaking with you soon.

Lawyers, Attorneys Professional Liability & Malpractice Insurance