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.

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What is the Hammer Clause in Your Lawyers’ Professional Liability Policy?

Most lawyers don’t even know the hammer clause is tucked away deep, somewhere within the wording of their policy. It’s usually under the defense and settlement clause or provision in the policy. Most professional liability policies contain a “hard hammer” consent to settle clause. This clause forces the insured to comply with the insurance carrier’s desire to settle a claim.

With a hard hammer clause, if you decide to go against the carrier’s settlement recommendation you (the insured) would be on the hook for any additional out-of-pocket costs or litigation expenses beyond what the carrier recommended in its original settlement offer. For example, if the carrier wanted to settle the claim for $100,000 and the insured decides to take the case to trial and loses a jury verdict of $200,000, the insured would be solely responsible for the additional $100,000 of the trial verdict. In essence, the insurer is putting the “hammer” to the insured if you do not agree to their settlement recommendation.

In order combat this situation,  you might consider finding a professional liability policy with a “soft” or “softer” hammer clause. Consent to settle options with a soft hammer clause could include 50/50, 70/30 or 80/20. A soft hammer clause will ensure the carrier, not the insured, is responsible for some or most of the litigation costs, even after the insured refuses the settlement recommendation. This gives the insured more control over the direction and handling of their claim. Using the example above with a 50/50 soft hammer, the insured would be on the hook for $50,000 of the additional $100,000 (instead of the full $100,000) from the trial verdict and the carrier would pay the remaining half.

Because this type of harsh language exists in professional liability policies, we encourage you to visit with us about your malpractice insurance.

Professional Liability Insurance Dallas

What Are Defense Costs Outside the Limits in a Professional Liability Insurance Policy?

Sometimes referred to as Claims Expenses Outside the Limits (CEOL)

When purchasing professional liability insurance, be aware that most policies come with eroding limits. Both the defense costs to defend the claim, as well as any monetary damages paid to a party on the claim, erode the limits of liability.  Some polices do offer defense costs outside the limits, but ordinarily this must be an endorsement on the policy and usually requires an additional premium to add this feature to the policy.
“Claim Expenses Outside the Limits” (CEOL) means defense costs aren’t deducted from the limit of liability, so the entire per claim limit is available for indemnity costs, and there is no limit on defense costs. This offers far broader coverage for the insured.
Why doesn’t every firm buy a CEOL policy? Because often, it can’t: malpractice insurers are reluctant to offer a policy without eroding limits since it has no limit on defense costs, which potentially exposes insurers to millions of dollars in such costs.
Defense costs are typically made up of the following and can quickly exhaust your policy limits, leaving you to pay out of pocket for claims and settlement:
  • Lawyers fees
  • Court costs
  • Costs of filing court documents
  • Costs of expert witnesses
  • Costs associated with an investigation

We’re here to assist you with any questions you have regarding a professional liability insurance policy.

What Other Coverage Should a Law Firm Consider and Purchase Outside of Legal Malpractice Insurance?

Owning or running a law firm is no easy task. There are virtually dozens of difficult decisions to be made on a daily basis. Overseeing your attorneys, staff, and making sure your clients are happy are just some of the daily difficulties that goes along with running a successful law firm. Often those in charge of a law firm do not consider or do not have the time to consider all the risks and exposures associated with operating a business. That’s where having a specialty insurance broker dedicated to law firms can pay dividends.

Many managing partners, firm administrators or office managers think legal malpractice insurance is the only exposure they will need to cover. Unfortunately, the exposures to your law firm do not stop with covering only professional services. While having a professional liability insurance policy is absolutely necessary to protecting your law firm, this is often the most obvious risk. There are several other types of insurance coverage that should be discussed and purchased when owning a law firm. Let’s take a look at some of the other types of insurance and why you should purchase these coverages:

General Liability Insurance

General liability for a law firm is important because it covers most general lawsuits. This includes premises liability if anyone is injured while on your business property, and completed operations for any special services you provide, aside from your main legal assistance. Premises liability is most important, as a client could slip on your property, get injured from a falling file cabinet or trip over a stack of books left in a client consultation room.

Business Property Insurance

Business property insurance provides coverage for your law firm property or office. If an unexpected event like a natural disaster, fire or flood occurs, it could destroy your property and anything inside, including files, books and electronic equipment. Business property insurance helps you replace what was ruined and make necessary repairs. Flood is now excluded from most business owners’ policies, so flood insurance should absolutely be considered as an additional coverage to purchase. Businesses can buy flood insurance through the National Flood Insurance Program, as well as other private insurance carriers.

Cyber Liability Insurance

Cyber liability insurance offers protections from first-party and third-party intrusions or data security breaches into your technology systems. Not all data breaches are caused purposefully by hackers or malevolent individuals; some are caused by individual carelessness, such as leaving an unsecured laptop somewhere and exposing the data to an unsecured environment. Law firms provide a “back door” for a treasure trove of cherished electronic material for cyber criminals eager to gain an edge in the stock market or capture a particularly sensitive batch of data to sell or ransom, including:

  • Secret and sensitive information about corporate client’s finances;
  • Documents relating to confidential corporate deals;
  • Valuable information relating to patented, original and invaluable intellectual property and trade secrets;
  • Key evidence pertaining to bet-the-company litigation; and
  • Gigabytes (perhaps even terabytes) of emails involving the most intimate, delicate and private details of their client’s personal and professional lives.

Cyber-attacks can be extraordinarily complicated and, once identified, demand a host of costly responses. These include digital forensic preservation and investigation, notification of a broad range of third parties and other constituencies, fulfillment of a confusing constellation of state and federal compliance obligations, potential litigation, engagement with law enforcement, the provision of credit monitoring, crisis management, a communications plan – and the list goes on. During the aftermath of a data breach, a law firm’s notification responsibilities alone involve a lengthy list of relevant constituencies, including clients, vendors, joint ventures, employees, affiliates, insurance carriers and a range of other interested parties.

Employment Practices Liability Insurance

Employment practices liability Insurance policies cover wrongful termination, sexual harassment and discrimination claims that allege differential treatment based on a plaintiff’s membership in a protected class. Discrimination claims can arise under Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, state human rights laws, the Older Workers Benefit Protection Act, the Uniformed Services Employment and Reemployment Rights Act, the Americans with Disabilities Act and the Family Medical Leave Act. Common law tort claims, such as negligent hiring, defamation, and invasion of privacy are usually covered as well.

Commercial Auto Insurance

You probably use your own vehicle often for business purposes, such as driving to the courthouse, law library, meet a client or interview a witness. If you get into an accident on the way to or from any of these destinations, having business auto insurance provides coverage for any property damage or bodily injury caused by the accident. You can also choose to include theft and vandalism coverage in the policy.

Workers’ Compensation

Workers’ compensation is required in most states, and provides protection for your lawyers, legal assistants and other employees. If you have an employee that sustains a work-related injury, such as falling on the stairs in the courthouse, that injury is covered by workers’ comp since it is related to their occupation. Workers’ compensation covers all medical costs and treatment options.

Crime Insurance

One of the biggest risks when it comes to crimes is from dishonest employees, but you also risk office equipment and supplies being stolen, as well as your property being vandalized. Be sure to always run background checks on employees, and get a crime insurance policy just in case they commit a crime against your law business.

Hirsch Insurance Brokerage is a specialty, independent insurance brokerage. We are a leading provider of legal malpractice, cyber liability and commercial insurance for the legal community. We often blog, speak and educate on lawyers’ professional liability insurance and other insurance topics related to lawyers and law firms. We are happy to answer and encourage you to ask questions.

Also, take a moment to learn more about us here:  https://hirschinsuranceagency.com

What is the Innocent Insured Clause?

In most of my writings, you will see me emphasize the importance of accurate, timely and careful reporting of potential claims. Most professional liability insurance policies contractually obligate or place a duty upon the insured to report incidents or potential claims somewhere along the process. Whether it be completing a new business application or during the renewal process, the insured is obligated to reveal any potential circumstances, which could result in a claim.

The innocent insured clause, which is different in every malpractice insurance policy (consult your policy directly) can protect one unknowing party from another’s concealment of a potential claim on an application. This clause can often be found in the intentional acts exclusion in the LPL policy. For example, a two partner firm submits a malpractice application, but one of the partners fails to disclose to his other partner and to their insurer the existence of a legal malpractice claim. Both partners check the no option when prompted on the application about whether they are aware of any claims. When a claim arises the insurer seeks rescind the policy based on the concealment of the potential claim on the application. However, the innocent partner who is unaware of the claim at the time cites the innocent insured clause in the policy. Some jurisdictions protect the innocent partner and force the insurer to provide coverage based on this clause.

Another common scenario where this clause can come up is when a firm merges with another firm. You may not know everything there is to know about all of the other firm’s members who will be joining your firm, making the vetting process more difficult. Also, the prior knowledge exclusion in the malpractice policy may deprive the innocent insured of coverage and a defense all together. Every court is going to apply different principles and standards where the law is concerned in that jurisdiction. Based on my research, the case law and court decisions are split on the innocent insured clause depending on the state and jurisdiction.

These examples demonstrate why reading and understanding your malpractice policy is so important. No two policies are created the same. You should consult with all attorneys within the firm prior to completing the application. In larger firms, sometimes having the lawyers fill out a census is a good option to have all pertinent information in writing from the attorneys. I can’t stress enough the importance of having a specialty insurance broker or professional liability consultant, who can educate and answer questions on lawyers’ professional liability insurance.

I’m the founder of Hirsch Insurance Brokerage, an independent niche insurance brokerage. We are a leading provider of legal malpractice, cyber liability and commercial insurance for the legal community. I often blog, speak and educate on lawyers’ professional liability insurance. I have a background in insurance law and professional liability claims.  I’m happy to answer questions; please contact us with any questions you may have.

Also, take a moment to learn more about us here:  https://hirschinsuranceagency.com

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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.

Please take a moment to learn more about us here:  https://hirschinsuranceagency.com

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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

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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.

Please take a moment and visit us here: https://hirschinsuranceagency.com/

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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.

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Understanding Your Policy: Claims-Made Reporting Procedures

Attorneys often ask us, “Now what?” after applying for malpractice insurance. We’re uncovering the mystery; here’s what you need to know about what happens after you apply and in the event you need to utilize your coverage.

Once you’ve completed the malpractice application process and bound coverage, you will receive a copy of your professional liability insurance policy. While it’s important to keep a copy of your policy filed away in a safe place, before you do so you should immediately begin to familiarize yourself with the claims-made reporting procedures within your policy.

Virtually every lawyers’ professional liability policy being sold today is written on a claims-made-and-reported basis. A claims-made-and-reported policy has a two-part trigger for coverage: first, that a claim is made against the insured during the policy period, and second, that the insured reports the claim to the insurer within the policy period. These policies have a set of distinct procedures the insured must follow in order to report an incident, circumstance or claim. It can be titled differently in every policy, but here are some suggestions to look out for:

  • “Notice of Claims”
  • “Notice of Claims and Potential Claims,”
  • or, “Insured’s Duties in the Event of a Claim.”

Reporting a claim or potential claim is one of the most important obligations, if not the most important obligation in a claims-made policy.   These policy reporting procedures must be strictly adhered to; otherwise, the insured risks the possibility of a denial of coverage or rescission of the policy altogether based on non-compliance. Familiarizing yourself with these procedures at the very start will give you the basic knowledge to take a proactive approach and avoid the pitfalls that can arise should you receive a potential incident or claim from a former client.

Today, most lawyers’ professional liability policies have a twenty-four-hour-a-day pre-claims assistance hotline to call if you are debating or have doubt about whether you should be reporting a set of facts or circumstances.

The best way to protect yourself is to plan ahead. By taking the time to familiarize yourself with these claims-made-and-reported provisions within your policy, many attorneys can strategically avoid the most common coverage issues that arrive with the filing of a legal malpractice action.  Report a claim to your insurer as soon as you are aware of it. Submitting notice to your insurer in writing is advisable whether or not your policy requires written notice.

We’re here to assist you with any questions you have regarding your policy. Give us a ring if you ever have a question or doubt about your coverage!