PLUS workshop examines hard market
for legal liability, jump in law suits
By Phil Zinkewicz
Lawyers malpractice insurance rates are on the rise, primarily due to a prolonged soft market that had to flatten out sooner or later, and partly due to a legal system that is growing more complex every day.
Lawyers malpractice insurance rates are on the rise, primarily due to a prolonged soft market that had to flatten out sooner or later, and partly due to a legal system that is growing more complex every day. Lawyers are under greater scrutiny in today's volatile legal environment.
Lawyers liability insurance was discussed recently at a workshop in New York City. Sponsored by the Professional Liability Underwriting Society (PLUS), the workshop featured underwriting and insurance broking executives in the professional liability segment of the insurance business, both from the United States and London, as well as participants in the legal profession.
After welcoming remarks by Dennis Mullins, a senior partner in the professional liability practice group of the New York office of the law firm of Mendes & Mount, LLP, the workshop began with a panel discussion on "Underwriting and Broking Lawyers Professional Liability (LPL) in a Changing Marketplace." The panel included: Stuart Pattison, senior vice president of CNA Insurance in New York; Richard Peters, class underwriter, SVB Syndicates, Ltd., in London, England; and James A. Young, executive vice president, ProAccess, LLC, West Orange, New Jersey, a wholesale brokerage firm specializing in professional liability.
The first issue that Mullins asked the panel to address was pricing in the lawyers liability arena. "How hard is the market?" basically was what he wanted the panelists to talk about. All agreed that the market has hardened significantly in recent years and that the initial hardening came about because the market was ready for change after so many soft market years. They said that September 11 certainly exacerbated the situation, not just for lawyers legal liability, but for property and casualty coverages overall.
Nevertheless, there was some mild disagreement as to the extent of the current market hardening with respect to lawyers professional liability. Young, from the wholesale brokerage side, painted the bleakest picture, saying that a retrenchment on the part of reinsurers has had a negative effect on the smaller law firms and on program business. "Some fronting deals that had reinsurance behind them are totally gone," he said. "Small law firms are experiencing higher prices, higher deductibles and, in some case, an availability crisis," said Young.
Young noted that fully 80% of the American Bar Association membership consists of sole practitioners, and another 15% is small partnerships. "Nobody wants to write these guys in today's market," he said. "Underwriters are saying that they don't want their company's capital chasing after small firms."
Peters took the underwriter's view of the current pricing situation for lawyers professional malpractice. He said that, even though prices have gone up, it is not enough to compensate for the years of soft market conditions. "We're trying to get prices back to 1994 levels," he said. "There is new capacity coming into the business," he noted, "but even with that new capacity, prices will have to rise to higher levels and firm up the marketplace before that new capacity can cause a turnaround."
Pattison and Peters agreed that there is no particular practice area of the legal profession that is bringing about a disproportionate share of losses. "Losses are pretty much across the board," Pattison said, adding that some law firms could see liability premiums increase by as much as 100%.
Mullins asked the panel whether law firms that practiced sound risk management techniques might benefit from price discounts, and both Pattison and Peters took a hard line. "We would encourage it (risk management) but I'm not sure it would make a difference in pricing," said Pattison. Peters added: "We assume that the risks we take on practice sound risk management, or we wouldn't take them on. But it would make no difference in pricing," he said.
Finally, Young addressed the broker's role in the current hard market for lawyers professional liability. "Some insureds have never seen a market like this current one," he said. "Brokers should do a better job in educating insureds as to what are the new dynamics in the current marketplace."
Another portion of the workshop titled "Recent Developments in Legal Malpractice Claims" featured: Robert J. Feinberg, of the Middletown, New Jersey, law firm of Giordano, Halleran & Ciesla, P.C.; Robert Gerber, partner, Sheppard, Mullin, Richter & Hampton, LLP, San Diego, California; and Richard Granofsky, partner, Lester Schwab Katz & Dwyer, LLP, New York City.
Feinberg said that one area that is producing serious lawyers malpractice claims is the lawyers who are suing other lawyers. "Fifteen years ago, lawyers were insulated against malpractice claims being filed against them by their colleagues," Feinberg said. "It was taboo. Now, some lawyers are running out of areas in which to practice, so they are going after other attorneys."
Noting that it is usually the large law firms that are particularly vulnerable to such legal malpractice claims, Feinberg said that the large organizations have come to view the situation as just a normal part of doing business. He said also that "timing" is very often a consideration for a lawyer protecting against any type of malpractice claim. States have varied laws as to when a claim should be filed, and if the lawyer misses that deadline, he or she could be open to a malpractice claim by the client.
"Lawyers should communicate clearly with a potential client as to whether or not the case will be taken on," Feinberg said. "In some jurisdictions, just a telephone call from a potential client seeking representation can be construed as that lawyer having given legal advice."
Non-engagement letters to people who are being denied representation should be very clear about why the case is not being taken on, should contain a recommendation that the person should speak to another lawyer, and tell the party about the time frame that person has to seek further advice, Feinberg said. "Lawyers should know their jurisdictions," he said. "They should know which courts are more advantageous to their client's plight. Lawyers have to be careful about potential conflicts of interest. They should let the other attorneys on their staff know, perhaps via e-mail, that a case is being taken on and ask if they know of any reasons why it might be a conflict of interest."
Regarding the subject of conflict of interest, Granofsky said that one problem is when an attorney moves from one law firm to another, with cases still pending with the previous law firm. He said that the ABA has recently amended its rules regarding conflict of interest, rules that were established in 1983. The new amendments say that issues regarding compensation of the attorney must be in writing, that there is a "per se" prohibition against any kind of sexual activity between attorney and client (unless that situation existed prior to the professional relationship), and that if a client accepts the attorney in spite of a conflict of some sort, that acceptance must be in writing, according to Granofsky.
Gerber addressed the subject of multi-jurisdictional practice--i.e., lawyers providing legal services in a jurisdiction other than where they are licensed to practice. "There really is no answer to what happens when lawyers cross state lines," said Gerber. "Tensions arise when lawyers give advice that they are confident about, but in jurisdictions where they are not admitted. Some states allow crossing borders. Others do not. Lawyers should be up to date on such laws." *