Certain underwriting conditions can impact your insurability for legal malpractice insurance as well as the money in your wallet. Listed below are a few of the top ones:
Claim Frequency and Severity
Surprisingly, frequency is a bigger concern to most insurers than having had a single paid claim. When both conditions are present, the outlook for finding reasonably priced insurance at adequate limits can be dire.
There is a reprieve however to a shoddy claims record: most LPL applications only require disclosure of claims occurring during the last five years based on when the claim was made…..as opposed to when it was closed. Stay claim free for five years and you can receive a new lease on life! Be proactive and periodically ask your insurer for a “loss run” report providing a current five-year history, especially if older claims from the past are haunting your claim record.
To help you avoid claims on your legal malpractice insurance please check out this great article by Dan Pinnington, a claims prevention expert at the Canadian insurer Lawyers Professional Indemnity Company.
Area of Practice
If you practice in the areas of Patent/Trademark, SEC/ State Securities/Bonds, Class Action, or Medical Malpractice, you are high risk. If you are a smaller law firm (1-5 attorneys) engaged in these practice areas, finding malpractice insurance at the needed limit of liability is downright impossible. These activities are best left for the large law firms that can afford premium levels at higher limits.
For the typical law firm, daily life is much more simple and even routine, or is it? The typical law practice is known to have its own problems with claims from Real Estate and Plaintiff practice that are also considered higher risk and will be surcharged.
The American Bar Association publishes a study called “Profile of Legal Malpractice Claims” where thousands of claims are reported to a centralized data bank by a group of contributing Commercial and NABRICO (Bar-Related) insurers in the United States and contrasts the results to that of a group of nine lawyer-owned Canadian insurers. This data comparison is of interest because Lawyer Professional Liability Insurance is mandatory in Canada, removing the concern of skewed data due to a significant population of uninsured lawyers as we have here in the United States.
Here are the findings regarding the area of law with the greatest claim frequency from the 2011 study from Canada and the US for the same period 2008 - 2011.
United States - % of Claims by Area of Law (52,982 claims in total)
Canada - % of Claims by Area of Law (16,171 claims in total)
The authors of ABA Study’s Anecdotal Observations said in 2011: “Given the turmoil in the Real Estate and Financial markets, it is not surprising that Real Estate and Collection and Bankruptcy have been the source of larger percentages of claims activity in the last several years”.
Size of law firm
About 70% of the 53,000 claims analyzed in the 2011 ABA study Profile of Legal Malpractice Claims: 2008 – 2011 were against firms with fewer than 5 lawyers- consistent with the statistic that the majority of lawyers in the US practice in small firms. So, is the study saying that small law firms lack quality in the delivery of legal services more so than the mid to large size firms? No. Turns out that the study significantly lacked claim experience from the mid to large sized segment because the insurers writing those firms did not participate in the study. Still, certain insurers will only write small law firms (less than 20) requiring limits of no more than $1,000,000 or $2,000,000, and others prefer firms of 10 attorneys or more.
At least one major insurer writing LPL these days applies a surcharge in its rating algorithm for perceived “dabbling” defined as in providing multiple types of legal services with no apparent concentration or specialization in any by the law firm. It’s only common sense (and ethical) that a lawyer wouldn’t undertake work that he/she was unqualified to handle, but apparently, it happens enough that insurers are concerned.
Don’t pay more because of perceived “dabbling”. Keep track of the nature of legal services performed via actual billings and don’t arbitrarily report revenue in an area of law that “you may accept, someday” because you think it won’t be covered otherwise. If that is a fear, speak with an experienced broker and study the definition of Professional Services in the policy that you are considering.
The ABA Claim study warns that Client Relations and Intentional Wrongs errors have increased, accounting for a 25% of all claims, so it seems reasonable that Bar complaints resulting in discipline are also up in some states. If you have been the subject of a Bar reprimand or censure, you know you are paying for it in terms of a higher deductible and premium. What goes up doesn’t always come down either in terms of annual premium in such cases. You may have to change insurers to catch a break. Some insurers limit disclosure on disciplinary actions to five years like claims, others don’t, but can be more understanding as the reprimand ages...especially if you are claim free.
Risk Management Practices
The legal profession has learned how to manage time deadlines- thankfully. So while a typical legal malpractice insurer continues to require two redundant systems for time or deadline control, specific law office software is frequently becoming a requirement resulting in a higher premium if not present. So if you have been putting off that software salesperson, give them a call. You are apt to save money on your Insurance.
Insurers are focused on reducing Client Relation Errors. Underwriting questions on applications delve into Law Firms’ interactions with their clients. A few best practices include engagement letter usage (including new matters for existing clients), communicating with clients effectively, managing their expectations, utilizing upfront fee retainers, not suing for fees and, of course diligent documentation.
There isn’t a study that reports on the number of claims that have been avoided because of these things, but intuitively, you will have happier clients overall and a better outcome when an eventual claim occurs.
The good news is: most perceptions of high-risk exposures are insurable. It just means you are going to have to work harder to find insurance, and yes, likely pay more premium and assume a higher deductible for several years.
Finding yourself a high-risk for legal malpractice insurance?
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