If a law firm has claims, disciplinary activity, or insurance coverage non-renewed or rescinded, insurance carrier loss runs likely will be required to provide a quote and/or bind new coverage. Insurance carrier loss runs are a report(s) that shows claims reported to a malpractice insurer during the time the firm was insured by that insurer. The loss run report can be generated by the insurer claims department or underwriting department. The firm being quoted should obtain the loss runs directly from the insurer(s) or agent(s) that formerly wrote the malpractice insurance. Normally all malpractice insurers that wrote your coverage in the last 5 years will need to supply loss runs. The firm may also have to sign a release to obtain the loss runs. The loss runs typically show the claims (or if no claims have been made), date a claim is made, when the matter originated, amount reserved for claim (indemnity & expenses), amount paid for claim (indemnity & expenses), and whether it is open or closed. There is no standard format for loss runs or the data provided.
For many years general commercial risk underwriters have required loss runs on every account but malpractice underwriters generally have been more selective. However, malpractice underwriters are requesting insurance carrier loss runs with more frequency than in the past. If the firm has had a claim within the past 5 years count on obtaining loss runs to get new business quotes. And do not be surprised if you are asked for loss runs at renewal for any open claim(s) that were made against the previous insurer when the policy was first written by the incumbent insurer.
The uses for loss runs are:
1. Verify that the information on the application for claims reported and the amounts match what was disclosed. Often the firm may or may not know the total amount that a claim was settled for or the claims expenses. If the inventory of claims does not match what was disclosed on the application, you will be asked why.
2. With new business underwriting, if the incumbent insurer’s premium seems out of line with the expiring premium the loss runs can verify that there are no hidden claims not disclosed by the firm.
3. With renewal accounts if there were open past claims when first written by the current insurer, loss runs help underwriters to see what development has happened to claim(s) over the past year and if it has been closed.
4. Decline claims coverage for claims previously reported to another insurer (remember this is claims made coverage).
Since past claims experience is one of the best predictors for future malpractice claims activity, the frequency and severity of claims is a key malpractice insurance underwriting component. Many underwriters will not even a give ballpark premium number for firms with reported claims without this vital tool.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080