Facing The Risk

Facing The Risk

Author: Mike Shea, President, Shea Barclay Group

As the economy becomes more and more tumultuous, law firms continue to face higher risks and tougher business decisions. Account receivables are on the rise, collection timelines are lengthening beyond 90 days, clients are stretched thinner and thinner, while at the same time firms are doing everything they can to keep business coming in the door and keep everyone on the payroll. These are some of the most difficult times law firms have faced in history. These are the times when risk management becomes even more important because behind every good client is somebody looking to capitalize and receive financial gain by any means possible.

Here are some simple tips to consider when evaluating your firm’s risk management practice and procedures. Following these procedures does not prevent malpractice claims, but certainly can be used as a guide to educate you on why malpractice insurance carriers ask certain questions. These tools may also help you to indentify practices and procedures to help minimize the threat of a legal malpractice action. These practices become even more important during these difficult times we are currently facing. Now, more than ever, is the time to pay attention to all aspects of your law firm to make sure corners are not being cut and carefully putting quality in front of quantity. Starting with the basics, make sure to have a quality intake form that covers everything ranging from billing and fee arrangements to critical statutes or other time sensitive deadlines. You will want this form to clearly spell out the scope of service(s) and most importantly address any conflicts of interest and attorney/client privilege issues. Knowing how to check for and indentify conflicts or potential conflicts is essential in avoiding a legal malpractice matter. A good client intake form is an excellent first step!

Something that is most important during these tough economic times and relating to my previous comments is accepting clients and/or cases. Here are a few things to consider before engaging with any new client or taking on a new case. First and foremost, beware of clients who are changing attorneys or have unreasonable expectations. Trust your instincts, if you impression of the client or the case is unfavorable then more than likely you are correct. ALWAYS decline any representation in writing. Be sure to avoid giving any recommendations or opinions on the case and include any statute of limitation dates if applicable. We have seen it time and time again when a client brings a suit against a firm because they believed they were representing them. The last thing you want is to be set up by a potential client relating to a case you never accepted in the first place.

How is your docket and case management system? There are many technologically advanced programs available these days that range in all sorts of capability and affordability. I can assure you that this is vital for maintaining control of your practice. Timely and accurate communication with your client is a key component to case management as well. Here are a few procedures to consider implementing if you have not already done so and if you have now is a good time to review everything. Make sure to have a computerized docket system with a minimum of one paper backup system. It is also recommended to have offsite storage of backup information. Another good practice is to have calendars cross-checked by more than one individual. We all know that sometimes another set of eyes will pick up on something others may not. It is also critical to have a quality training program for your staff on the proper use and management of all office procedures. Studies have shown that the highest percentage of malpractice suits originate from some sort of administrative error. This is something that can be easily prevented with the proper systems and procedures in place.

Lastly, I want to touch on a very common practice especially during tougher economic times such as the ones we have been faced with recently. I am referring to suing your clients for unpaid legal fees. This can be very detrimental for a number of reasons, but most importantly because it sets the table for a cross-complaint for legal malpractice. Just below administrative errors, statistics have shown that the second most common malpractice suit is the direct result of a counter complaint resulting from an attorney suing a client for unpaid legal fees. This gives you an idea of why all insurance carriers look at this as a key underwriting question. If this is common practice in your firm it can surely have a negative impact on your premium as well as affect your insurability. Trust me, I understand that sometimes it cannot be avoided, but here are a few things to consider before going down that road. Take into consideration the cost of litigation and the time involved. Make sure to consider the possibility of a malpractice countersuit. Also, consider the factors in collecting the judgment. As a preventative measure some firms utilize a procedure of collecting higher retainers, or a series of follow up letters with periodic billing. Some will use a collection agency to pursue the matter before filing suit. A final step, assuming you meet all ethical obligations, is simply withdrawing from representation.

There is no doubt as a part of human nature that we are all prone to mistakes from time to time during our professional careers. Some of these can be prevented and some simply cannot. I hope you will consider this information as a valuable tool to improving your practice and maybe helping prevent a simple mistake. You may just alleviate the burden of a malpractice suit walking in the door. I am hopeful this will also provide some insight into the questioning on malpractice insurance applications. There is no doubt that times have been tough for law firms over the past few years, but that does not change the risks associated with your practice. It actually magnifies these risks. Although now may be a time when you need to scale back certain things, make sure you keep all these things in mind as you do so because risk management is more important to your practice than it has ever been.

Author: Mike Shea, Thaxton Barclay Group, 100 N Tampa St. Suite 3530, Tampa, FL 33602. Thaxton Barclay Group specializes in the evaluation, assessment and placement of professional liability insurance and risk management for law firms.

Understanding Claims-made Insurance Policies

Understanding Claims-made Insurance Policies

Author: Jack Compton, Advisor, Shea Barclay Group

The vast majority of professional liability insurance policies are written in what is known as a “claims-made” form. Claims-made policies are drastically different than an “occurrence” based policy that most insurance buyers are familiar with, such as automobile or homeowners insurance. With an occurrence policy, there simply must be coverage in place when an accident occurs. Think of calling your car insurance company when you purchase a new car and are at the dealership, giving them the VIN number, and then you sadly get rear-ended a mile down the road. You would have coverage, because coverage was put in place before the accident “occurred”. With a claims-made policy, the very nature of professional services means that one may not be aware an error or omission has transpired for a long period of time. Thus, the key coverage trigger is when there is knowledge of a potential claim and when notification is provided to the carrier.

A claims-made policy provides coverage to the named insured for work performed back to a specified date, known as the retroactive date. This date is typically when the entity was formed and/or coverage was first purchased, but often times differ for various reasons. Although coverage is provided for work back to the retroactive date, a crucial date in whether coverage will be afforded is when the insured had knowledge of the error or omission. If the insured went through a renewal period and did not disclose a matter that they had knowledge could give rise to a claim, coverage will likely be denied.

The primary need for these policies to be written as claims-made is that often times a claim is not discovered until well after the work in question was performed, sometimes years or even decades. This is commonly referred to as the “tail” by insurance underwriters, meaning the previously performed work that they would be insuring. A real-life example of a legal malpractice case with a long tail would be an attorney that creates a will for a 50 year old individual. The client then passes away some 30 years later, and a crucial mistake is discovered in the drafting of the will, causing monetary damages to the individual’s estate. Tracking down the policy that was in force when the work was performed would be unrealistic, not to mention that the insurance company that wrote the policy may not even still be in business! If the law firm that performed the work maintained prior acts coverage and still had a policy in place, coverage would be afforded under their current policy.

While most understand the difference between occurrence and claims-made, there are further intricacies within a claims-made policy and their reporting requirements. All policies have slightly different reporting requirements, so it is important to read it carefully and consult with your broker. One of the easiest ways for an insurance company to wiggle out of paying a claim is for a late reporting notice.

A “claims-made policy” will typically include language to the effect of, “as soon as practicable” when referencing when a claim should be reported. That is obviously vague wording that the insured can use to their advantage if a claim were ever denied for late reporting. A “claims-made and reported policy”, which is far more common in professional liability, will typically include language to the effect of, “this policy applies only to those claims that are both first made against the insured and reported in writing to the Company during the policy period.” Again, this gets back to the crucial renewal process and the need to disclose all potential matters before a new policy takes effect.

Continuity of coverage is a provision found in some policies, which may benefit the insured in this instance. It provides incentive to not switch carriers, and essentially says the company will cover claims back to when the policyholder was first insured by said company, even if a matter was not disclosed during a subsequent renewal process. Companies are becoming far more reluctant to offer this coverage for obvious reasons.

Another nice provision found in some policies is limiting knowledge of a claim to the executive committee of a firm, rather than every lawyer. This is particularly attractive for larger firms. Take a 120 lawyer firm – it is certainly to their advantage to have knowledge of a claim limited to a five person executive committee as opposed to all lawyers in the firm. Some companies will agree to provide bordereau reporting provisions – meaning an insured can provide a summary of all potential matters in agreed upon time increments (usually every three or six months). It prevents firms in a practice area with a high frequency of claims from having to report matters on a constant basis.

It is important to remember that an insurance policy is a contract between the company and the policyholder. Every word in the policy has been carefully scripted and drafted for a specific purpose. Insurance companies have a difficult enough time turning a profit; they certainly are not going to cover claims that by definition are excluded under the language in the policy. As is good advice in nearly anything – read the fine print! When in doubt, consult with your broker. It is always better to be safe than sorry.

2015 State of the Market-Lawyers' Professional Liability

2015 State of the Market-Lawyers' Professional Liability

Author: Mike Shea, President, Shea Barclay Group

As temperatures begin to rise in Florida and (hopefully) the snow begins to melt up north, I find myself perplexed by the condition of the global market for lawyer's professional liability (LPL) insurance. While we seem to have a continued influx of capacity, we also are starting to experience a bit of a shift that has not seemed to happen in years. Industry leaders have certainly talked about the "hard market" coming, but there have only been isolated pockets across specific practice areas that have experienced such hardening. While the historical practice areas such as plaintiff class action, mass tort and medical malpractice, remain challenging, the overall market participation for such risks seems to have opened up a bit thanks to some key carriers taking a fresh, new approach to the underwriting of this practice area(s). While the rates remain on the higher end, there seems to be a bit of an increase on the number of carriers willing to consider this area of practice. Intellectual Property, Securities Law and Mortgage Default (Foreclosure) practices remain some of the most difficult and highest priced segments in the industry. These practices are also unique in this market, as the number of participants have increased, however, the rates of not been driven down like they have historically in other markets segments where new capacity is introduced.

The most recent big news, which could create a ripple affect across the entire LPL market was the February 2015 AM Best downgrade of Attorneys Liability Assurance Society (ALAS). ALAS, a specialty risk retention group, writing predominantly Professional Liability for Big Law has experienced high underwriting losses, as well as, further adverse developments in claims reserves. While ALAS remains very well capitalized and maintains an integral foothold in the market, we do expect many commercial insurance companies and brokers to try and capitalize on this negative assessment. I think it is quite interesting and worth noting that many key commercial insurance companies have actually experienced rating increases over the past 10+ years, while ALAS has now faced a rating decline from A+ to A to A-.

Along these same lines, One Beacon announced January 1st 2015, that there were transferring their renewal rights to Argo Pro and now longer going to participate in the LPL space. This news came as a bit of surprise as One Beacon come in to the market very strongly in 2006, so I do not think anyone expected their tenure to be less than 10 years, however, it appears that the Argo Pro transition has gone very well and should not have much impact on the over market as a whole. All it does is create less opportunity and capacity within the admitted (standard) market, which we believe will ultimately "harden" up the market for the benign type risks especially with most other carriers pulling back in some form or fashion.

What has evolved from this is more opportunity in the excess and surplus market, which continues to expand from a capacity standpoint. It seems like a new player enters that market for law firm about every 3-4 months. This is only going to make it more challenging for the firms stepping outside of their specialty as the economy and amount of legal work slowly grows back from the 2008 economic downturn. However, the news of late from various legal publications, already reports that litigation is slowing down so there could start to be some attrition in that sector, which could create more challenges for the profession, especially given the lack of hiring on the law school graduate market the past 5 years.

Overall, the state of the market remains very positive in my opinion. I think everyone expected it to be much more challenging in 2015, however, I think the trend is only up and overall it will be a wide scale as to where premium increases fall this year. I think we are years away, if ever, where we truly experience a hard market like 2001 or the 1980's. There is just too much capacity and competition for business both on the underwriting and broker side of things. BUT, as we know that could all change very quickly if the unexpected becomes the reality.