Case Studies

About the Author: Bruce Swicker has over 30 years of experience.

We are sometimes contacted by potential clients who questions whether their firm really needs professional liability insurance. While we certainly believe that the answer is "yes," we have a vested interest. So let’s review a few claims scenarios might help you decide if your firm needs insurance or not:

Procrastinating Ex-Partners

The partners in a successful two-attorney firm decided to go their separate ways. One partner joined an existing firm of about half a dozen lawyers; the other opened a solo practice. There was about six months to go on the now-dissolved firm's malpractice policy, and they decided to let it run until expiration, at which point the solo partner would take the policy over for himself. The attorneys did not notify either of their carriers.

A claim arose against the now-solo partner during this period. As the facts surrounding the claim were investigated, the allegations did not involve the attorney who was now a member of the six-attorney firm. However, since the claim was made against the policy belonging to his prior firm, the claims experience was imputed against him as a former policyholder. When the larger firm's insurance policy renewed, their carrier became aware of the new partner. The underwriter requested a claims history report from his prior carrier, which showed an open claim with a fairly significant reserve for defense and possible settlement. The larger firm's insurance carrier offered to renew the firm's policy, but with a substantial increase in premium.

At this point we were contacted to see if we could solve the problem. The firm's existing broker represented only that insurance carrier, so they had no alternatives. The firm’s only option was to accept the large increase in order to renew coverage.

We investigated all of the facts, and then presented the firm to several other insurers. While a few underwriters declined the risk, we did convince several underwriters to look beyond the missteps that were made. We pointed out that the actual risk profile of the larger firm was, in fact, quite favorable. The result was that an excellent carrier agreed issued the coverage with only a modest surcharge, and also promised to revisit the issue upon renewal, at which point the surcharge was removed.

An Overabundance of Caution

We recently were contacted by a successful PI Plaintiff firm, that advertised aggressively and accepted a high volume of relatively low-value cases. As is often the case, the advertising attracted many potential clients with questionable cases, or those who had prior counsel withdraw. Some of these cases were close to time barred.

The firm's philosophy was to accept the majority of these cases and to undertake an investigation. Unfortunately, some cases were accepted just as the statute ran, or with clear indications that the client had completely unrealistic expectations about what his or her claim was worth.

Despite the best efforts of the attorneys, a number of clients expressed their dissatisfaction with the outcomes. Believing it to be in their best interests, the firm reported each and every indication of client dissatisfaction to their insurance carrier as a potential claim.

For awhile, this did not seem to bother the carrier. The firm’s broker never provided any claim-reporting guidance, so the notices continued. Eventually, the firm assembled a collection of nearly two dozen incidents, all with zero reserves, meaning the carrier thought the matters were inconsequential. Then, a minor claim arose where the carrier set a reserve of $25,000. This triggered a claims review of the account and the policy was non-renewed due to claims frequency.

We were contacted at this point and succeeded in placing the firm’s coverage with a highly reputable non-standard carrier. The firm was forced, however, to purchase a "tail" from their old carrier, which was expensive.

We do more than sell insurance. We assist our clients by advising you on claims reporting, and also by assisting you in developing a procedure to review client intake procedures. With this firm, cases are now more closely evaluated and rejected if the clients appear problematic. Not only does this help avoid future trouble, but it also enables the firm to focus on its more profitable caseload, leading to higher earnings.

An Honest, But Expensive, Mistake

Our client was a midsized law firm with a corporate practice focusing on closely held, family-owned businesses. They were asked by one of their long-time clients to handle the purchase of an existing financial services business. There was nothing particularly unusual about this matter, and it was something that the firm was well qualified to handle.

The negotiations were drawn out and sometimes rancorous. Numerous drafts of the purchase agreement went back and forth between attorneys, with many principals involved on both sides. The deal even died several times, only to come back to life a few weeks later.

As is often the case in these situations,, the paperwork, e-mails, and faxes grew and grew. At some point during the negotiations, a subtle, but ultimately key, change was made to the wording of one of the employment contracts. No one was sure who made the change, or when it was done.

Eventually, the deal closed successfully. About six months later, the seller sought to invoke the mysteriously changed clause in his employment contract, claiming that he was entitled to an additional payment of nearly $1 million.

Our client appears to have missed this change, or at least its arguable significance. Certainly, the firm's client knew that this was an honest mistake, but the bottom line is the bottom line. It appeared that the matter was headed for trial unless some sort of settlement could be arranged. Naturally, our client was potentially liable for much of this.

Fortunately, their malpractice carrier responded by assigning the defense to a highly respected firm with a long track record of successfully handling legal malpractice claims. In fact, it is due in part to the defense lawyers' reputation that settlement talks appear to be making progress at this time.

What will happen to their insurance coverage? So far they have been renewed, albeit with a modest surcharge and higher deductible. The carrier understands that, as significant as this claim might be, in all likelihood it is a "once-in-a-career" matter, and does not truly reflect the risk profile of the firm.

If you are experienced problems with your renewal or with finding coverage that meet’s your firm’s unique needs, please contact us. Put ELA’s experience to work for your firm.