If a firm’s legal malpractice insurance is non-renewed because it has incurred claims, it will be difficult for the firm to obtain quotes for replacement coverage, and any quotes that it does obtain, will likely be for a much higher premium than it paid for its expiring policy. This article explains how law firms can avoid these adverse consequences.

1. Case of fact

A prominent New York City law firm was recently non-renewed by its long-time malpractice insurer. The firm has 26-lawyers, and serves business and personal clients in the US and abroad.   

The firm had a good claims record for most of its existence, but had incurred four malpractice claims and two potential malpractice claims in the last five years.

Its expiring policy had limits of $10,000,000 per claim/$10,000,000 for all claims incurred during the policy year, and a $25,000 per claim deductible, for an annual premium of $114,492. 

The firm had asked its long-time broker to obtain quotes for replacement coverage, but the best quote offered was$148,000 for the same policy limits, and an increase in the deductible to $35,000 per claim.

With no better quotes forthcoming, and the expiration date of its policy fast approaching, the firm contacted Lawyers Insurance Group (LIG), a legal malpractice insurance broker that represents over 350 firms, including more than a dozen whose coverage has been non-renewed.    

The firm’s managing partner was referred to Lawyers Insurance Group, by an attorney at his prior firm, for which LIG is the broker. After a conference call between the firm’s management committee and Lawyers Insurance Group’s Managing Broker, Curtis Cooper, the firm asked LIG to solicit quotes for its replacement coverage. 

Lawyers Insurance Group is located in Washington, DC, and has a branch office in Manassas, VA.

2. Tools, programs and human capital

Lawyers Insurance Group will obtain the best terms available in the market for the firm, by:

• Helping the firm prepare a high-quality submission for the insurers to review: application, claim reports, loss run, and non-renewal notice.

• Aggressively shopping the firm’s application in the marketplace, by leveraging its strong relationship with each of the major legal malpractice insurers, and access to a network of wholesale brokers, who in turn have access to specialty insurers in the US and London, which cover law firms whose coverage has been non-renewed.

• Facilitating competitive bidding among the insurers who offer the best quotes, by advising each one where it stands relative to its main competitors, and offering it a chance to improve its initial quote.

Curtis Cooper, Lawyers Insurance Group’s Managing Broker, will oversee this process.

Here are the steps involved in preparing the firm’s submission to the insurers:

I. Curtis asked the firm to identify the cause(s) of each malpractice claim that it had incurred in the last five years, and what measures it has taken to prevent that type of claim from recurring.

He gave these examples, from other non-renewed firms for which LIG is the broker: a personal injury law firm that was sued for malpractice several times, because it let the statute of limitations expire without filing suit, improved its calendaring/docketing systems; a firm that had a history of conflict-of-interest claims, improved its conflict-checking systems and client/matter acceptance procedures; a firm that regularly sued clients for unpaid fees, and incurred several counterclaims for malpractice, improved its billing and collection practices.

Prospective insurers will scrutinize a non-renewed firm’s application, and ask “what’s changed?” The firm must have a good answer, or it won’t be able to obtain replacement malpractice coverage at any price.

In this case, two of the four malpractice claims and one of the two incidents, were matters in which the firm represented a business in collecting a debt from a consumer. The second claim had been filed 14 months ago, and shortly thereafter, the firm stopped handling consumer collection matters.

The other two malpractice claims were incurred by the same attorney, who for that and other performance issues, was let go by the firm.

B. Curtis worked with the firm to prepare a thorough a claim report for each malpractice claim that it had incurred. The firm had prepared a written summary for two of the claims at the time each was incurred, and had filled a short claim report for each of the other two, but neither the summaries nor the short claim reports provided all of the information about each claim that insurers would require, and none of them mentioned the corrective action the firm had taken to prevent the same type of claim from recurring. 

C. Curtis worked with the firm to prepare a comprehensive application, which included the firm’s practice areas and percentages, based on the prior 12 months’ billings, its risk management tools – calendaring/docketing system, conflicts-checking tools, etc. - a complete roster of the firm’s attorneys, etc. 

The firm had previously completed a renewal application, as it did in prior years, but this was insufficient, because a renewal application is much shorter than a ‘new business’ application, and thus doesn’t provide all of the data the insurers need to make an underwriting decision.

D. Curtis assisted the firm in requesting a loss run from its current insurer. This is a summary of the firm’s claims history, printed on the insurer’s letterhead: it lists all of the claims that the firm reported to the insurer, the total dollars the insurer paid for both indemnity and defense, to resolve each closed claim, and the amounts it has both paid to date and set aside in reserve for each open claim. The loss run also lists all potential claims that the firm has reported, and any reserve that the insurer has posted for them.

The firm’s loss run showed a total of $314,000 paid to resolve three of the four malpractice claims, all of which were closed, $22,000 in defense costs paid to date on the fourth malpractice claim, which was still open, and an indemnity reserve of $40,000 on that claim.

E. The final step was to gather the application, claim reports, loss run, and non-renewal notice that the firm’s insurer sent it, as required by New York State regulations, which together comprise the submission that will be sent to the insurers, and add a cover letter. 

The purpose of the letter is to emphasize that the firm has proactively addressed the issues which caused it to incur four malpractice claims in the last five years, and has thus sharply reduced the risk that it’ll incur further claims.

Source: Freepik

3.  Development of services  

Lawyers Insurance Group then determines which insurers to solicit a quote from, and sends the firm’s submission to each of them.

After considering each insurer’s underwriting guidelines, and past willingness or lack thereof, to quote firms whose coverage has been non-renewed, LIG approached 12 standard market (national) legal malpractice insurers, and through one of its wholesale broker partners, five specialty market legal malpractice insurers. 

The next step is to answer the insurers’ questions, and provide any additional information that they require, to determine whether or not to offer a quote.

In this case, the insurers asked about the firm’s international law practice, trademark and copyright practice, and the outside activities of two of the firm’s partners, each of whom sits on the board of directors of a for-profit entity. 

After responding to the insurer’s inquiries, and allowing them sufficient time to review the firm’s application, Lawyers Insurance Group solicited feedback from each insurer, regarding whether or not it would offer a quote.

Four of the major insurers and one of the specialty insurers declined to offer a quote, which left 12 insurers to offer a quote.

By this time, the firm’s policy was going to expire in three days, so the next step was to review each quote as soon as it was received, eliminate those insurers whose quote wasn’t competitive with the quote for $148,000 obtained by the firm’s current broker, and present the remaining quotes to the firm. 

Four insurers quoted more than $148,000, and two others quoted just below it, around $145,000. 

Eliminating these six insurers, which included the four remaining specialty insurers, left six insurers in contention, all of which were ‘A’-rated, national, insurers. Their quotes ranged from $122,400 to $135,600.

Lawyers Insurance Group then presented these six quotes on a spreadsheet to the firm’s management committee. A conference call was then held to discuss each one. Curtis Cooper participated on behalf of LIG.

The quote for $122,400 was the best price, but came with a deductible of $35,000, $10,000 more than the firm’s current deductible. This quote was eliminated, because several other quotes were just slightly higher and offered a $25,000 deductible. 

Of the five remaining quotes, the quote of $135,600 was eliminated, as was a quote of $132,900. This was based on Curtis’ recommendation, as these two insurers offered narrower coverage than the other insurers, i.e., a lower sub-limit for defense of disciplinary proceedings, a broader exclusion for a malpractice claim arising out of a criminal or intentional act, etc.

Three quotes then remained: $124,250, $125,930, and $128,445. There was no material difference in policy language among the three insurers, so the final step was to obtain the lowest premium possible for the quoted terms of $10,000,000/$10,000,000 limits and a $25,000 per claim deductible.

Curtis approached each of the three insurers, advised them of the other two insurers’ quote, and solicited a final quote.

4. Conclusion

The insurer that quoted $124,250, declined to reduce its quote, and the insurer that quoted $128,445, reduced its quote to $124,250, to match the first insurer. The insurer that quoted $126,390, reduced its quote to $122,860, and won the account. 

The firm was thrilled with the outcome, as it maintained its current coverage for a premium increase of just 7.3%, vs. the 35% - 50% increase that most firms incur, after their coverage is non-renewed due to claims history.

Lawyers Insurance Group has obtained a similar outcome for other firms whose coverage has been non-renewed, because they had an adverse claims history. This validates its strategy of assisting a firm in preparing a high-quality submission for the insurers, and then engaging in aggressive comparison shopping, to obtain the best terms available in the market.

Visit Lawyers Insurance Group website.