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Bruce R. Swicker

The Growth Dynamic

By Bruce R. Swicker

As a law firm grows, whether internally, or through mergers with other firms, it becomes easy to overlook the firm’s increased administrative requirements. Sometimes the partners resist hiring an administrator or appointing a managing partner, often because it is felt that this will diminish the sense of collegiality and camaraderie that brought the firm together in the first place.

We have had the pleasure – sometimes, indeed, the challenge – of working with a number of firms in which no one has considered the risk management issues. We use the term "risk management" because much more is at stake than simply deciding how much insurance to buy. These issues include:

Professional liability (“malpractice”)
Premises liability, which grows as the offices grow
Off-premises liability, such as non-owned auto
Workers compensation
Employee benefits

As the firm grows, so do potential malpractice issues. Client conflicts present a special challenge, and are often a significant contributing factor when a proposed merger of firms fails to materialize.

Partners (sometimes referred to as “members” or “shareholders”, but we’ll simply use “partners” for now) must deal with the fact that each client of every partner is also a client of the firm, and thus a client of each and every partner. As a practical matter it is impossible for each partner to know every client. This means that the firm must institute a formal client review/intake procedure. In addition, the firm must hold regular partner meetings. Often this last step is problematic, since some attorneys feel that meetings and other firm management issues take them away from practicing law.

Many firms created by mergers have "inherited" their professional liability coverage from a former firm. The limits may be insufficient or the coverage may be inadequate for the new firm. We have seen firms in which each attorney is operating with his or her own individual policy from a prior solo practice. This lack of planning can lead to a disaster in the event of a claim.

As the firm's size increases, both in terms of number of attorneys and capital, it is important to review:

Limits of liability
Retentions and deductibles
Prior acts limitations for both the firm and the individual attorneys
Of counsel relationships
Contract attorneys
Offices leased from, leased to or shared with other firms

All of these issues must be considered from a risk management standpoint

As your firm grows, don’t allow your insurance coverage to become outdated. Let us help you to proactively evaluate and manage your risk.

Latest updates; random thoughts . . .

AUGUST, 2010

What’s up in New York State? Is there something in the water? Why are so many insurance companies so anxious to write New York lawyers professional liability (“LPL”) insurance? No kidding, just this year – so far – about a half dozen carriers have either entered the New York market, or have filings awaiting approval by the NYS Insurance Dept.

To my knowledge, only a single, small, non-admitted carrier has withdrawn a program from the state, though that same carrier is in the process of acquiring another, licensed and admitted carrier which have an active LPL program.

In fairness, I should also point out that a couple of major insurers have instituted significant rate increases, which can only indicate that they have not found New York to be terribly profitable. Of course, there is an old saying in the insurance industry, “There’s no such thing as a bad risk; only insufficient premium!” One of these national carriers has been underpriced for years, and while this makes it easy to grow top-line revenues, it inevitably leads to bottom-line losses.

So, back to my original question: What is it about New York State that makes it appear to be the Holy Grail for legal malpractice insurers? True, there are a lot of attorneys throughout the state, which means that there are plenty of opportunities to write business. However, I am not aware that the overall number of attorneys is growing, so each opportunity to write new business means that it is probably taking that business away from another insurer. Also, while New York’s litigation environment for legal malpractice defendants is far better than, say, New Jersey, it’s no cakewalk.

Of course, the law of supply-and-demand inevitably means that with all of the market capacity competing for business, obtaining adequate pricing becomes a key issue. Indeed, it is tempting for insureds to look only at pricing, but the reality for any knowledgeable insurance buyer is that market stability is important. It is not in anyone’s benefit over the long term to have carriers come into any market, underprice a risk that they may not entirely understand, and then run-for-the-doors when the losses roll in.

The key challenge for insurance brokers – particularly those who specialize in placing legal malpractice insurance, as we do at Earhart Leigh Associates – is to assist our clients in navigating the tricky waters of a crowded market. This means doubling our efforts to stay on top of market developments, monitoring rumors (some of which turn out to be true), evaluating policy forms, and maintaining on ongoing dialogue with underwriters. This is, after all, how we demonstrate to our clients the true, long-term value of working with a specialty insurance broker!

If you have thoughts or comments, please let me know, bswicker@earhartleigh.com.

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