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What lawyer liability insurers are seeing as a result of the bad economy.
The market for lawyer liability insurance is being roiled by:
Large law firm closures.
Massive lawyer lateral movement.
Increased firm mergers, acquisitions, and dissolutions.
The result is fewer lawyers to insure, fewer risks to cover, fewer premium dollars available for risk transfer, and some desperate insurance companies doing cash flow underwriting (much like a Ponzi scheme).
The current fierce competition in the lawyers liability market has led to a “soft market” with lowball premium quotes that in turn cause other insurers to reduce their quotes. It was observed that this situation could go on longer, but is not actuarially sustainable and will end badly for many insurers as it always does. One panelist described this recurring destructive cycle as a form of insanity: Doing the same thing over and over expecting a different outcome.
Currently, large firms are anticipating an increase in both the number of claims and their severity – but this is not happening yet. Small firms are experiencing an increase in smaller less severe claims – often in real estate and bankruptcy matters.
Insurers are anticipating an increase in coverage controversies concerning:
Lawyer and law firm mobility and change.
Gaps in coverage for those moving on – tail policies are expensive.
Prior acts coverage for lateral hires.
Failure to report malpractice incidents and claims.
Reservation of rights by insurers, claim denials by insurers, and insurer declaratory judgment actions.
The panelists advised lawyers in the audience that constantly changing insurers creates the risk of a gap in coverage with the potential result that both the former and current insurer may deny coverage. The best practice is to build a relationship with an insurer. Continuity in coverage with a single insurer builds up a “bank” of premium dollars with the insurer that creates good will and should insulate a firm from a large premium increase when the insurance market hardens, as it must.
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Disclaimer: The contents of this Web site are intended for general information purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. It is not the intent of this Web site to establish an attorney’s standard of due care for a particular situation. Rather, it is our intent to advise our policyholders to act in a manner which may be well above the standard of due care in order to avoid claims having merit, as well as those without merit. In the event any statement on the Web site differs from a statement in an issued policy the policy will control.