We work with many distressed firms to place Lawyers Professional Liability Insurance Coverage. Most of the time the firm is in the distressed or surplus lines market because of claims. Distressed firms depending how much work they are willing to put into the disclosing claims information can end up paying dramatically different premiums for basically the same type and cost of claims.
How would this happen. One of the biggest problems with working with a distressed firm is getting the firm to spend the time to properly disclose what happened to cause the claim. Underwriters want to know not only what happened to cause the claim, but what steps the firm has taken to either find other like instances and what changes the firm has made to prevent future occurrences.
Law Firm A takes the time to fully answer the questions on the claims supplement, describing what happened, to audit other like files to determine if there may be other occurrences of the same issue, and what steps have been taken to prevent future like claims. Law Firm A answers all of the questions fully and honestly, but does not volunteer information that was not asked for. This gives Law Firm A the chance to frame the claim in the best light and present the firms controls in the best light.
Law Firm B reluctantly discloses the fact that they have had a claim. Law firm B determines that all they need to do is either send over the initial complaint filed against them or a long pleading. The initial complaint that was filed against them presents every accusation under the sun against Law Firm B. The pleading route also presents the accusations against Law Firm B with responses. The underwriter now has the worst impression possible of Law Firm B. The underwriter also is not very happy about having to read through, if they do, 20 to 100 pages of a complaint. Also the information provided by Firm B does not address what steps the firm has taken to find out if there are other similar problems and what steps have been taken to prevent future similar claims from occurring. This information, also can “volunteer” information that was not directly related to the claims matter that can be damning to the firm in the acquisition of new malpractice insurance. If the underwriter even provides an Attorney Malpractice proposal, it is likely to be with terms that are draconian to Law Firm B. More likely is that the underwriter will request the information provided in the claims supplement before providing terms. Even when Law Firm B finally provides the same information as Law Firm A, you cannot “unring the bell”. The initial information provided by Law Firm B is now part of the information that the malpractice insurance carrier has. The terms provided for Law Firm B will likely never be as good as the terms provided to Law Firm A.
What Law Firm B also forgets, is that it is not just the current year that will be a problem, but successive years. Each Attorney Malpractice insurance carrier retains information used to quote from one year to succeeding years. In addition, the number of insurance carriers that will write distressed law firms is limited. So there may not be a new carrier to go to the next year to try and get better terms.
The moral of the story is to spend the time to properly address the claims questions on the Attorney Malpractice claims supplement. Answer the questions as posed, presenting the law firm in an honest but as much as possible good light, without volunteering information that was not asked for. Following this advice will not only save the Law Firm time, but money this year, and in the years to come.