Remember to Consult Your Policy Pre-Claims Assistance

I’ve had numerous clients over the years email me and ask me for advice about a situation, incident or potential claim that has arisen with a lawyer in the firm and whether they should report that as a claim. Here’s my advice to the firm.

First, I’m always going to make sure you refer to your actual policy about what triggers your policy’s claims made coverage. It’s important that you have read the definitions and familiarized yourself with what’s in your policy. You can usually find the Pre-Claims Assistance under the insuring agreement, coverage or supplemental coverage portion of the policy.

The second bit of advice, and something that’s often over looked in professional liability policies, is that almost every reputable carrier selling LPL insurance now offers free risk management hotlines, where the insured law firm can call a 1-800 number and speak with an insurance defense lawyer about your firm’s situation or incident before the actual claims reporting process.

Generally, the insurance carrier hires an outside law firm or will have in-house staff counsel available. These on-call attorneys will consult with you about your matter and advise you whether you should report the potential incident, circumstance or claim. These defense lawyers are experienced in lawyer’s professional liability claims, and more importantly, are familiar with your firm’s LPL policy. Some of these risk management hotlines offer continuing legal education hours for your firm’s lawyers, as well.

There’s a huge incentive for an insurance carrier to provide this type of pre-claims assistance. The sooner the insurer learns of the client’s problem, the more likely the chance of a better resolution. Even where circumstances later become a claim, early involvement can help mitigate and prevent mistakes that might increase the cost of settling a claim and can create a chain of documentation that assists in the ultimate resolution.

To encourage the use of pre-claims assistance, most insurers do not include expenses related to pre-claims assistance within an insured’s loss history. This eliminates the risk of a premium surcharge for using the service.

Often the expenses the insurer incurs in providing legal or other assistance to resolve a problem get paid out of the policy limits and not subject to a deductible.  Please make sure you refer to your policies risk management hotline features to get a full understanding of the features available to your firm.

Ames & Gough Legal Malpractice Survey

Ames & Gough provided results of its eighth annual survey of legal malpractice survey. They polled nine of the leading professional liability insurance companies: AXIS, CAN, Huntersure, Ironshore, Markel, Travelers, Swiss Re, QBE, and XL/Catlin. Altogether, they insure approximately 80 percent of the 200 highest grossing law firms in the United States.

Conflicts of interest continues to lead the way as the most cited legal malpractice error, which is consistent with every year the survey had been conducted. This year, seven out of the nine insurers surveyed reported that actual and/or perceived conflicts are the first or second leading cause of legal malpractice claims. In 2017, eight of the nine surveyed insurers reported the same results. The frequency of alleged conflict of interest cases is unsurprising, as an attorney’s duty of loyalty (and breach of that duty) is taken seriously by clients and courts alike. Interestingly, nearly half of the insurers surveyed in 2017 cite lateral hires or “merged” attorneys not being properly trained or supervised as the root cause to conflict of interest claims. An attorney who has consistently worked within the same field – or for that matter, continues to work for their prior firm or client – needs to be adequately screened for potential conflicts of interest. However, the survey has shown that often times, the law firms are not adequately conducting conflict checks or resolving the potential for conflict.

While the frequency of legal malpractice claims have stabilized in comparison to last year, the severity of claims, determined by their monetary amounts, continues to increase. All nine insurers had malpractice claims with reserves over $500,000, with five insurers reporting 21 or more of such claims. Over half of those surveyed paid a claim of $50 million or more with one exceeding $100 million and another exceeding $150 million. The survey linked the rise in claim amounts to the overall continuing increase in attorneys’ fees and discovery costs. These figures evince a growing concern that law firms obtain the necessary insurance protections to fit their particular needs.

Of course, insurance liability varies throughout the practice areas, with some areas viewed as more of a liability than others. The four practice areas experiencing the highest number of legal malpractice claims, according to the survey, are business transactions, corporate and securities, real estate, and trusts and estates. The study found that the growing U.S. economy might be fueling an overall increase in workload for law firms handling business transactions, such as mergers and acquisitions and corporate securities. The survey found that malpractice claims in these areas are often due to scrivener (or typographical) errors in contracts, inadequate representation, breach of a fiduciary duty, or the existence of a conflict of interest.

Commercial real estate has experienced the same increase in malpractice claims due to the similar increase in the volume of such transactions. Claims typically involve errors in preparing deeds, mortgage or financing documents, and lease agreements, as well as the inadequate management or maintenance of escrow balances. Trusts and estates also account for a large volume of transactions within the United States and due to the inherently sensitive nature of the work, the cases are also susceptible to client dissatisfaction

Like many industries, one of the biggest insurance risks to law firms relates to cybersecurity breaches. However, this year only four out of the nine insurers polled experienced more claims related to cybersecurity than the previous years. This does not necessarily mean cybersecurity issues are decreasing. Rather, the survey notes that more law firms have been purchasing stand-alone cybersecurity liability insurance policies which are separate from professional liability coverage.

legal malpractice claims

Trends in Legal Malpractice Claims

Attorneys: the stats are in on legal malpractice claims, and they are not pretty. Did you know that the American Bar Association reports four out of five lawyers will get sued for malpractice at some point in their career?[1] Seventy percent of malpractice claims are filed against firms with one to five attorneys.[2] Are you prepared for this inevitable outcome? Do you have the proper legal malpractice insurance in place to protect your firm?

The most commonly cited legal malpractice claim is the failure to know or properly apply the law. This type of claim might look something like the failure to list all proper causes of action in a lawsuit. In addition, malpractice claims such missing the statute of limitations or missing a crucial filing date were among the most common. Claim areas such as lost files, documents or evidence and procrastination in performance continue to climb.

The American Bar Association (ABA) produced a report listing the top 5 legal malpractice claims, and they are as follows:

  • Failure to know/apply the law
  • Planning error
  • Inadequate discovery/investigation
  • Failure to file documents
  • Failure to calendar

According to a poll by Ames & Gough who surveyed nine of the leading lawyers’ professional liability insurance providers, the top four practice areas generating the largest number of malpractice claims are:[3]

  • Business transactions
  • Corporate and securities
  • Real estate
  • Trusts and estates

Another emerging and problematic area for law firms is cybersecurity. Risks dealing with modern day technology, such as email, web chats, instant messaging, texting and social media communication have opened up attorneys to all types of new claims. Maintaining client confidentiality has become increasingly difficult and complex. Attorneys should begin considering purchasing a cyber liability insurance policy the same way they consider legal malpractice insurance to protect themselves from these modern day cyber claims.

Hirsch Insurance Brokerage is an independent insurance brokerage dedicated to the insurance needs of the legal community. We are a leading provider of legal malpractice, cyber liability and commercial insurance for lawyers and law firms. If we can ever be of assistance or answer your questions please don’t hesitate to contact us.

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[1] ”Ways to avoid legal malpractice, as claims rise industry-wide,” Around the ABA, December, 2016

[2] Lore, Michelle. “Malpractice Made Easy,” Small Firm Soapbox, August 9, 2016.

[3] The insurers participating in the Ames & Gough survey were: AXIS, CNA, Huntersure, Ironshore, Markel, Travelers, Swiss Re, QBE, and XL/Catlin

Insurance policy

What Factors Make Your Legal Malpractice Premium Go Up?

You purchase a legal malpractice insurance policy to protect your law practice. You pay your initial yearly insurance premium, which is based on a variety of answers you provided in the malpractice application. The underwriter reviews the application, enters the information into a rating system and comes up with the premium. Factors which determine the premium include:

  • Limits
  • Deductible
  • Areas of practice
  • Number of attorneys
  • Experience
  • Territory (county)

Another factor involves how many years you’ve had the insurance consecutively (a ‘step rating factor,’ as the underwriters call it). Every carrier has its own list of factors and rating system. You can often find these rates filed with the Department of Insurance in your state, which is available as public information.

Lawyers’ Professional Liability (LPL) policies are written on a claims-made basis. As you go through the renewal process in the second year, you’ve added your first year of retroactive coverage. For example, let’s say you bought your initial LPL policy on July 1, 2000. That date was the start of your retroactive coverage. When you go to renew that policy for July 1st, 2001, you now have one year of retroactive coverage dating back to that July 1, 2000 date. Thus, between years one and two, you have taken the first step and the carrier is now covering your practice for one year of retroactive or prior acts coverage.

Most, if not all, LPL policies mature after five to seven years. That means you will see increases every year for at least the first five years of renewals as the step rating process goes forward and the carrier is covering you for a longer period. Once the policy is fully rated, somewhere between five to seven years, you then see a leveling off of the premium. However, factors such as claims, significant changes in areas of practice and even the carrier taking rate (raising base rates) can also factor into an increase in premium down the road or after those five to seven years.

Every carrier has a step rating process in determining their rates or premium. So, even if you decide to move to a different carrier within those first five years, the new carrier is going to apply their own step rating depending on where you are in the process. You can usually expect to see sometimes as much as a 40 percent increase in premium from year one to two, and by the time year five comes around you could see your premium double. You should consult with your LPL broker about this process so you have this knowledge from the beginning.

Hirsch Insurance Brokerage is an independent insurance brokerage dedicated to the professional liability and commercial insurance needs of lawyers. We’d love to hear your feedback. You can contact us with any questions or comments and we’re always happy to provide guidance where possible.

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Top 5 Ways to Avoid Legal Malpractice

It is an unfortunate reality for a great deal of lawyers that malpractice claims have simply become part of the “cost of doing business,” and regardless of the steps that some lawyers take, they may still end up as a defendant in a legal malpractice claim. But following the guidance below should reduce — and hopefully eliminate — the threat of malpractice claims for many lawyers.

1. Don’t “Dabble”
Many lawyers have gotten themselves into situations where they have stepped far outside their normal practice areas in order to accept a new matter or accommodate a client, and that can easily lead to malpractice claims. Don’t be afraid to specialize, and don’t be afraid to refer clients to other lawyers.

2. Avoid the Problem Client
“Problem clients” (i.e., clients who expect favors, complain excessively or unreasonably, have unreasonable expectations, or don’t pay) increase your risk of malpractice claims in two ways: 1) they frequently get themselves involved in difficult situations more likely to result in adverse consequences; and 2) they are more willing to blame you when something goes wrong. If you can avoid them at the outset or part ways with them once they become difficult, you will certainly reduce your exposure to malpractice claims.

3. Define the Scope of the Relationship
Perhaps the easiest way to establish certainty in the attorney-client relationship is to use an engagement letter. It should define who the attorney represents and the scope of the engagement. When appropriate, it is also a good idea to specify who the attorney does not represent, and what she will not be handling. Doing this will set client
expectations and protect the attorney.

4. Comply With Deadlines
Calendaring errors remain a leading cause of malpractice claims. Common mistakes include data entry errors, failing to use file review dates, absence of a back-up calendar, and procrastinating until the last minute to file documents. To avoid this trap, an office should have at its organizational core an office-wide calendar and practices in place regarding its use.

5. Avoid Conflicts of Interest
It is crucial that each firm establish stringent procedures for early identification and resolution of the broad variety of situations in which unexpected conflicts may arise. Lawyers should be particularly cautious when asked to represent two parties, become personally involved in a client’s business interests, serve as an officer of a client’s company, or deal with unrepresented parties.

Written by and republished with permission from Matthew S. Marrone.


How the Attorney Benefits from Using a Specialized Professional Liability Insurance Broker

When a prospective client has a divorce or custody issue they turn to a family law attorney for guidance. The family law attorney has expertise in the field and knows the law in this area. The same principal should apply when purchasing professional liability insurance. You should seek out a professional that understands the intricacies of a claims-made insurance policy.
No two professional liability polices are created equal. They have subtle nuances and fine print that can make the difference if you ever have an incident or claim. Endorsements and exclusions can apply differently to every policy. You want a broker who studies these polices, sells them on a regular basis and has a familiarity with their distinctions. Their value should extend well beyond the sale of the policy. They should help educate you and your staff and provide the very best skilled service possible.

Think beyond just purchasing the policy:

  • What happens if there is an actual claim?
  • Who will you turn to?
  • What will they know about the policies reporting procedures?
  • What about raising the policy limits or adding an attorney to the policy?
  • How about complex issues, such as, purchasing an extended reporting period (tail) policy in case the firm dissolves or splits?

Professional liability brokers can help answer these questions and many more. They can help answer and assist in filling out complex applications that can make the difference in the underwriter’s evaluation of the risk and the eventual determination of the premium.

The specialized broker has relationships with specialty insurance carriers who only underwrite lawyers’ professional liability policies and the broker can in-turn advocate on the firm’s behalf. Over time, they develop these relationships with specific underwriters and they can discuss your application and submission on a one-on-one basis. If your firm has a complex claims history, this advocacy can be a determining factor in whether an admitted or non-admitted carrier will accept your application. This ultimately can be the difference in thousands of dollars and what is actually covered in your firm’s policy.

Hirsch Insurance Brokerage has dedicated itself to professional liability insurance for lawyers. We’ve spent the last decade listening and getting to know our lawyers and law firms, while continuing to educate ourselves. We have built strong underwriting relationships and pride ourselves in providing a hands-on approach. We understand what’s at stake. Your professional reputation and business needs protection. Why not treat your firm to the guidance and counseling it needs when purchasing professional liability insurance? We believe in relationships, reliability and results.

Seven states now require lawyers to disclose directly to clients that they do not carry professional liability coverage.

In February 2014, the Supreme Court appointed an ad hoc committee to address the questions of whether attorneys should disclose to clients and report on the annual registration statement whether they carry professional liability insurance; whether such a client disclosure requirement would unfairly burden small firms and solo practitioners; whether such a disclosure requirement is even necessary if there is no mandate to maintain professional liability insurance; and whether mandatory insurance itself would unfairly burden small firms and solo practitioners.

After extensive review and discussions of material contained in its 170-page report, the committee concluded that professional liability insurance should not be mandatory for New Jersey attorneys because it would be unworkable in the marketplace and unfairly punitive to small firms, solo practitioners and attorneys engaged in the part-time practice of law. Except for Oregon, other jurisdictions studying the question have determined mandatory malpractice coverage is neither practical nor necessary for attorneys to serve their clients competently. This conclusion has been echoed by the American Bar Association after study of the subject.

The ad hoc committee also concluded that a mandatory insurance requirement might well place the decision as to who is able to practice law in the hands of private insurance carriers, few of which write policies in this state, and those who do have strict underwriting criteria and detailed application processes. Unlike Oregon, which has guaranteed coverage, New Jersey attorneys might be unable to obtain liability coverage for any number of reasons, many of which are unrelated to attorney claims history, competence and integrity, or practice in what are believed to be high-risk areas of the law.

In 2003 the ABA charged one of its standing committees to consider if attorneys should be required to disclose whether they carry professional liability insurance coverage and, if so, the form of that disclosure. The ABA committee recommended a model court rule requiring lawyers to inform the highest court in their jurisdiction, or a designated entity, whether they have coverage. The thought was that consumers of legal services would then have access to this information and decide whether to hire a lawyer who does not maintain coverage. The ABA, however, rejected the recommendation that lawyers be required to disclose directly to clients whether they are covered by liability insurance. A minority of the committee contended that such a proposed registration rule does not truly help the public make fully informed decisions because it depends on prospective clients seeking out the information.

The New Jersey State Bar Association has filed comments to the ad hoc committee report opposing both mandatory coverage and disclosure.

Seven states now require lawyers to disclose directly to clients that they do not carry professional liability coverage, although 17 states require that lawyers make known to authorities the existence of liability insurance on some form of an annual registration statement.

On the premise that liability insurance coverage is a material fact that a prospective client has the right to know at the time of representation, without searching registration filings, the ad hoc committee recommended that the court require attorneys to provide liability insurance information, including the limits of coverage, on annual registration forms and that the disclosure be communicated to clients because of the need for transparency in attorney-client dealings, even though a professional liability policy does not, of itself, speak to an attorney’s ability, experience or competence.

In reviewing the comprehensive, well-documented and fully developed arguments for and against a mandatory disclosure system set forth in the report, we believe that the committee in its client disclosure recommendation has reached the right result in solving this difficult problem of weighing client interest with the interest of attorneys in terms of fairness and practicality.

We would, however, offer one caveat to the committee’s recommendation. The issue of whether failure to abide by a registration or disclosure rule should create a standard for civil liability or the basis for a malpractice claim has been left by the committee for development “through common law in the ordinary course.” Because there is an absence of evidence linking competence and integrity of attorneys to professional liability insurance, the failure to appropriately make disclosure by registration or to directly advise the client might have a disproportionate adverse impact on jury decisions, rather than the jury concentrating on the only salient liability determinant: deviation from an accepted standard of legal practice. Therefore, we would recommend that a violation of the disclosure requirements be barred from use in civil trials where deviation from accepted legal standard is the key to the verdict.


Lawyers: Why Purchase Professional Liability Insurance?

The answer might seem obvious, but there are many reasons why a lawyer should purchase professional liability insurance. You spent so much time and money investing in the opportunity to become an attorney. You went to law school and then all the time you spent prepping for the Bar. You passed and became a practicing attorney. Why not protect that professional investment with peace of mind?  After all, that’s what professional liability insurance is: security and protection of your assets from the financial devastation of a claim, grievance or inquiry.

Malpractice insurance serves many purposes. Typically, malpractice policies are designed to provide coverage for claims that arise from “wrongful acts” committed in the rendering of legal services (sometimes called professional services) in your capacity as a lawyer. Generally, they provide both indemnification coverage and claims expense coverage, subject to specified deductibles and endorsements.

Let’s explore some of those reasons for coverage:

  • While you always do your best, maintain professionalism and do everything in your power to get the very best outcome for your client, you can never be certain of your client’s expectations or satisfaction level.  After all, human beings can be very difficult to please!
  • The reality is that NO attorney is perfect. Even if you practice excellent risk management techniques, you may make a minor mistake that results in a claim.
  • Receive objective advice should a malpractice claim arise;
  • Minimize the time and money you spend to defend yourself;
  • Have the satisfaction of knowing an expert attorney in handling professional liability claims is defending your claim;
  • Reduce the chance that a claim will result in a severe financial hardship;
  • Ensure a prompt and reasonable settlement or dismissal of a claim;
  • Save time and reduce the frustration of dealing with frivolous claims;
  • Provide protection for your professional reputation;
  • Ease the financial burden of possible settlements and judgments against you;
  • Protect your clients from significant financial losses;
  • Allow you to protect the interests of your clients as you deal with claims.

These are just some of the many reasons to purchase malpractice insurance. As you consider different providers and policies, make sure you understand the all the possible benefits of professional liability insurance, the various acts that lead clients to make claims and the restrictions and requirements that apply to your policy. Your professional reputation and financial security may depend on the legal protection of professional liability insurance.

At Hirsch Insurance, we are here to steer your through those troubled waters. Our expertise and dedication to lawyers’ professional liability insurance can help you find the coverage your firm needs to protect those assets.

Avoiding the Pitfalls of Filling Out a Lawyer’s Malpractice Insurance Application

Do’s, Dont’s and Nuances You May Not Be Aware of Whether you are a solo practitioner or managing partner at a law firm, you’ve made the wise decision to purchase lawyers’ professional liability (LPL) insurance, often referred to as malpractice insurance, to protect your firm from suits arising from your professional services as an attorney. […]