We work with many distressed firms in placing Legal Malpractice Insurance. Most firms are in the distressed or surplus lines market because of claims. Distressed firms depending on how they disclose the claims information can end up paying dramatically different premiums for basically the same claim.
How would this happen. Attorneys are supposed to be good at framing the facts in the best light for their clients. Sadly, many do not do that when disclosing claims information. One of the biggest problems with working with a distressed firm is getting the firm to spend the time to properly disclose what happened with the claim. Underwriters want to know not only what happened to cause the loss, but what steps the firm has taken to find other like instances and what changes the firm has made to prevent future occurrences.
Law Firm A
Law Firm A takes the time to fully answer the questions on the claims supplement, describing what happened, it audits other like files to determine if there may be other occurrences of the same issue, and documents 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 and the firm’s controls in the best light possible.
Law Firm B
Law Firm B reluctantly discloses the fact that they had a claim. Law firm B decides to do send over the initial complaint filed against them. The initial complaint presents every accusation (substantiated or not) under the sun against Law Firm B. The underwriter now has the worst impression possible of Law Firm B. Underwriters are never happy about having to read through (if they will) 20 to 100 pages of a complaint. The complaint 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. The complaint may ‘volunteer’ information that was not directly related to the claims matter that can be damning to the firm. If the underwriter even provides an Attorney Malpractice quote, it is likely to be with terms that are draconian to Law Firm B. The underwriter will still 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 ‘un-ring the bell’. The initial information provided by Law Firm B is now part of the file that the malpractice insurer 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 insurer retains information used to quote from one year to succeeding years. In addition, the number of insurers that will write distressed law firms is limited. So there may not be a new insurer to go to the next year to try and get better terms. To get a quote the information provided by Firm B may now be in the hands of many insurers, some that Law Firm B does not even realize that have their information. It is a small world.
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.