Lawyers Professional Liability Insurance For The Distressed Risk

Lawyers Professional Liability Insurance For The Distressed Risk

Lawyers’ Professional Liability Insurance for the​ Distressed Risk
Professional liability insurance is​ a​ necessity for lawyers .​
Unfortunately,​ not all lawyers are able to​ secure the​ coverage they need in​ the​ standard marketplace because they are considered to​ be a​ distressed risk .​
the​ question is,​ what exactly does distressed mean?
A distressed risk is​ one that has difficulty securing professional liability insurance because of​ claim frequency,​ claim severity or​ disciplinary complaints or​ actions .​
While distressed is​ often used interchangeably with hard to​ place,​ the​ two terms are different in​ that hard to​ place generally means the​ lawyer or​ law firm practices in​ a​ more risk prone practice category such as​ Personal Injury Plaintiff or​ Patent but is​ usually claim and disciplinary action free .​
If the​ term distressed describes the​ loss or​ disciplinary history of​ a​ law firm,​ the​ firm faces many more challenges in​ finding professional liability insurance and generally has to​ settle for less coverage at​ a​ considerably higher premium .​
the​ good news is​ that there are a​ few markets available,​ operating on​ a​ surplus lines basis,​ to​ meet the​ professional liability needs of​ the​ distressed law firm.
Surplus lines is​ often referred to​ in​ a​ negative connotation because the​ insurance product is​ not protected by any state insurance guaranty association nor is​ the​ policy form and rates charged subject to​ regulation and approval of​ the​ State Insurance Commissioner .​
However,​ not all surplus lines insurers are created equal .​
Surplus lines insurers are subject to​ review by the​ insurance company rating agencies such as​ A.M .​
Best and are generally published as​ an​ Approved Surplus Lines Company by state insurance departments .​
Before committing an​ insurance purchase to​ a​ surplus lines company,​ law firms should check with their state insurance department to​ be sure that the​ company is​ an​ approved surplus lines insurer and that it​ carries an​ A.M .​
Best rating of​ at​ least a​ VII .​
Many admitted professional liability companies will have a​ surplus lines facility to​ accommodate those applicants or​ insureds that do not qualify under their standard program guidelines,​ but would be acceptable on​ a​ surplus lines basis if​ a​ more acceptable premium could be charged for the​ exposure presented .​
There are several a​ and even A+ markets to​ approach in​ this arena.
To find an​ adequately rated surplus lines insurer that can be trusted to​ provide the​ needed coverage should a​ claim be presented often involves finding a​ broker that specializes in​ professional liability and deals regularly with distressed placements .​
as​ a​ general rule,​ most brokers that offer lawyers professional liability as​ a​ full time product line will have an​ insurance company or​ distressed facility that they have worked with successfully in​ the​ past .​
It is​ best to​ find a​ broker that is​ familiar with the​ policy form and claims handling ability of​ the​ company they are recommending .​

Here are some valid questions to​ ask a​ broker about the​ insurance company offering coverage:
• Does the​ insurance company specialize in​ professional liability?
• Is it​ an​ approved surplus lines insurer in​ the​ state and rated at​ least a​ VII by Best?
• Does the​ insurance company oversee its own claims handling or​ farm that responsibility out to​ an​ independent adjustment firm or​ third party administrator?
• Will the​ claims adjuster provide you​ with a​ listing of​ law firms in​ your state from which to​ choose your defense counsel and will the​ company work with you​ to​ consider a​ firm you​ recommend?
• Is the​ insurance company willing to​ defend a​ spurious claim in​ order to​ protect your reputation in​ the​ community,​ or​ do they have a​ get out the​ check book mentality to​ close the​ claim regardless?
• Will the​ insurance company regularly communicate the​ status of​ the​ claim with you​ and seek your input as​ to​ settlement or​ defense strategies?
Once a​ viable insurance company has been identified,​ it​ pays to​ examine the​ policy form and discuss strengths and weaknesses of​ the​ coverage provisions with the​ broker .​
the​ broker should provide a​ list of​ coverage highlights that discuss not just positive marketing advantages,​ but important coverage restrictions as​ well.
One of​ the​ most important coverage features to​ be aware of​ when purchasing professional liability coverage is​ the​ availability of​ prior acts coverage under the​ policy .​
Distressed markets often offer terms retro inception which means that the​ policy’s prior acts retroactive date will be the​ same as​ the​ policy’s effective date .​
on​ a​ Claims-Made policy,​ the​ act(s) that resulted in​ the​ claim must have occurred after the​ policy’s retroactive date .​
That situation is​ also known as​ a​ no prior acts or​ restricted prior acts policy .​
If the​ policy has restricted prior acts coverage,​ an​ Extended Reporting Period (ERP) option will need to​ be purchased from the​ expiring insurance company .​
An ERP can be a​ very economic decision as,​ often times,​ the​ terms will be based on​ rates that were provided by the​ standard marketplace and not surcharged for claims or​ disciplinary problems .​
a​ broker should be able to​ advise the​ pros and cons of​ purchasing this option,​ but two things that should be considered are:
• Is the​ option cancelled automatically if​ your license to​ practice is​ suspended?
• Will open claims exhaust the​ limit of​ liability under the​ policy?
Other policy provisions that can be restricted on​ a​ distressed policy form are:
• Policy’s consent-to-settle provision
• Specific exclusions for certain practice areas such as​ SEC
• Specific exclusions for certain types of​ legal malpractice actions such as​ a​ counterclaim as​ a​ result of​ a​ fee collection suit
• Defense costs are generally included within and erode the​ limit of​ liability
• Coverage is​ generally limited to​ acts performed on​ behalf of​ the​ named insured named in​ the​ policy declarations which can limit predecessor firm coverage,​ individual prior acts coverage and outside moonlighting activities
• Extended reporting period options are restricted in​ length to​ 12 months or​ 36 months and are considerably more expensive than the​ standard marketplace
To receive the​ most favorable terms possible when submitting an​ application for professional liability insurance,​ a​ good point to​ remember is​ that you​ are the​ best representative of​ your practice exposure going forward .​
Underwriters that offer a​ distressed facility are not so concerned with the​ number and amount of​ past claims or​ even that the​ firm has been censored by the​ state bar,​ but that the​ underlying problems leading up to​ the​ claims or​ disciplinary ruling have been identified and addressed .​
a​ sincere,​ honest approach with full disclosure on​ claims or​ any other problem that has put the​ firm in​ this situation is​ always the​ best approach .​
Include a​ narrative of​ the​ systems and procedures that have been put in​ place to​ reduce the​ likelihood of​ similar claims in​ the​ future .​
Include comments on​ the​ merits of​ the​ claimant’s claim .​
Tell the​ underwriter what was done right during the​ representation .​
If at​ all possible,​ include loss reports from previous insurers showing actual paid and reserved amounts .​
If the​ underwriter has to​ interpret the​ value of​ the​ claim,​ it​ will likely be higher than the​ actual reserve that the​ insurance company has set .​
Take an​ active interest in​ the​ payments and reserves set for the​ open claim and be informed on​ the​ status of​ the​ claim on​ a​ regular basis .​

If you​ are a​ small or​ mid-sized law firm that has experienced difficulty finding lawyers professional liability insurance due to​ paid claims or​ disciplinary actions,​ DefenseProSM Lawyers Professional Liability may be able to​ help .​
Administered by Lockton Risk Services,​ a​ subsidiary of​ Kansas City-based Lockton Companies,​ the​ largest independently-owned commercial insurance broker in​ the​ United States,​ DefenseProSM is​ specifically designed to​ meet the​ professional liability needs of​ distressed law firms .​
For more information,​ visit the​ DefenseProSM website at​

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