Curtis Cooper 2015-04-30 05:24:17
Receiving a notice from your malpractice insurer that your firm’s coverage has been non-renewed is unwelcome, but not uncommon. This article will explain why that happens and what you should do next. Why a Legal Malpractice Insurer Non- Renews a Firm’s Coverage #1 – The firm has incurred one or more malpractice claims. If the firm’s insurer paid out more to defend and/or settle those claims than it collected in premium, then it will likely non-renew the firm’s coverage in order to cut its losses. Alternatively, if the insurer collected more in premium than it paid out in claims, but not enough to earn an adequate profit, then it will likely non-renew the firm’s coverage in order to seek more profitable accounts. #2 – The insurer has incurred larger than expected losses in the firm’s primary practice area, i.e., personal injury law, or among firms of its size, i.e., solo practices. So, to reduce its losses, it non-renews firms in that practice area or of that size, even if they’ve never incurred a malpractice claim. #3 – The firm has entered a practice area that’s outside of the insurer’s target practice areas or its attorney roster has grown beyond the insurer’s target size. #4 – The insurer is exiting the legal malpractice insurance market. The Implications of a Non-Renewal If your firm is insured by a standard market malpractice insurer, as most firms are, and its coverage has been non-renewed because it has incurred one or more malpractice claims, then the other standard market insurers will likely consider your firm to be a bad risk, i.e., likely to incur additional claims, and decline to offer it coverage. Conversely, if a standard market insurer non-renewed your firm’s coverage solely because it has incurred losses in your firm’s main practice area or among firms of its size, then your firm should be able to obtain coverage from a standard market insurer that profitably underwrites firms in that practice area or of that size, although the premium will likely be 10-25 percent higher. If your firm can’t get coverage in the standard market, then it must shop in the surplus lines market, aka the “hard-to-place-risks” market. This market is less competitive than the standard market, and unlike standard market insurers, surplus lines insurers aren’t constrained by regulators in how much they can raise a firm’s premium. As a result, premiums typically double in this market, i.e., if your firm was paying a standard market insurer $10,000 for malpractice coverage, it was non-renewed, and you had to buy coverage from a surplus lines insurer, you’d likely pay about $20,000 for a policy with the same limits, deductible and prior acts coverage. What You Should Do Next #1 – Understand why your firm’s coverage was non-renewed. Your insurer will send you a non-renewal notice; if it says something nebulous, like “the firm no longer meets our underwriting criteria,” then call the insurer and have it explain the reason for the non-renewal. There’s a big difference between your firm’s malpractice coverage being non-renewed because of its claims history versus it being non-renewed because your insurer has stopped covering firms in your primary practice area. #2 – Request a loss run from your insurer. This is a summary of your firm’s claims history on your insurer’s letterhead: it lists all of the claims that your firm reported to that insurer, the total dollars the insurer has paid to resolve each closed claim, and the amounts it has both paid to date and posted in reserve for each open claim. The loss run also lists all incidents that your firm has reported, and any reserve that the insurer has posted for them. If you bought your policy directly from your insurer, request your firm’s loss run from its customer service department. If you bought your policy through an agent or broker, ask him or her to obtain a loss run for you. #3 – If your firm’s coverage was non-renewed because it has incurred malpractice claims, then identify the cause(s) of those claims, and implement measures to prevent them from recurring. For example, a personal injury law firm that has been sued for malpractice several times because it let the statute of limitations expire without filing suit should improve its calendaring/ docketing systems; a firm that has a history of conflict-of-interest claims should improve its conflict-checking systems and client/matter acceptance procedures; a firm that has sued clients for unpaid fees and incurred counterclaims for malpractice should improve its billing and collection practices, etc. Prospective insurers will scrutinize your firm’s application and ask “what’s changed?” You need to have a good answer or your firm won’t be able to obtain coverage. #4 – Work with an insurance broker who a. Has access to many standard market legal malpractice insurers, and if none of them offers your firm coverage, can navigate the surplus lines market on your firm’s behalf. b. Will help your firm determine which, if any risk management measures it should implement to reduce its risk of incurring future malpractice claims. c. Will help you complete the application so that you disclose all required information to malpractice insurers, while presenting your practice in the best possible light. This includes ensuring that the form you must complete for each malpractice claim explains the corrective measures that your firm has implemented, so that insurers will have enough confidence to offer it coverage. In “Don’t Panic if Your Legal Malpractice Insurer Doesn’t Renew,” attorneys J. Randolph Evans and Shari L. Klevens state, “A good broker is invaluable to a law practice or attorney – and to insurers. A good broker helps an attorney find the best program of insurance and can navigate the marketplace for the best coverages from the best insurers at the best prices.” Further, “brokers can recommend special insurers or programs for law practices with unique needs.” If you learn why your firm’s malpractice insurance was nonrenewed, obtain a loss run, implement any necessary corrective risk management measures, and work with a skilled broker, you’ll have covered all your bases, and your firm will be covered, too. Curtis Cooper is principal of Lawyers Insurance Group, a Washington, D.C. based insurance brokerage that specializes in procuring legal malpractice insurance. He works with law firms of all sizes. Contact him at (202) 802-6415 or email@example.com.
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