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Two lawyer malpractice insurers with substantial business in New Jersey suffered setbacks last week, deepening the gloomy climate for attorneys seeking coverage this year. Legion Insurance Co. of Philadelphia, which stopped renewing policies last June but continued to service existing lines, was taken over by the Pennsylvania Insurance Department, making the carrier a candidate for liquidation. Reciprocal of America of Richmond, Va., and three affiliates, including American National Lawyers Insurance Reciprocal, lost their A-minus, or excellent, ratings from A.M. Best Co., slipping to B-minuses, or fair. ANLIR is the officially endorsed carrier of the Bergen, Passaic and Morris bar associations and covers 1,500 lawyers in New Jersey. A company spokeswoman says the change should have no impact on rates or the company’s ability to insure lawyers. But insurance industry professionals say the downgrade by the nation’s premier rating service, in effect, puts ANLIR on a watch list of carriers with problems. “It could be something to be concerned about,” says Tom Dattoli, vice president of Jorgensen & Co., a Maywood, N.J., brokerage firm. At the least, he adds, “It highlights the kind of instability the market is experiencing now.” A rise in premiums and the difficulty some professionals have had in obtaining coverage have been well-documented phenomena in the past year, particularly since Sept. 11. The terrorist attacks, the continuing recession and even the Enron scandal, Dattoli says, have created deep financial woes for insurance companies and those woes are being passed along to customers. Dattoli and other brokers say that their worst fears of the fall — that rates would almost double for the average lawyers — have not materialized. Even so, lawyers with spotless records are paying 20 percent to 25 percent more to renew policies and it’s worse for attorneys with bad histories or those in fields that attract suits — like intellectual property and matrimonial law. Some are risking practice without coverage, says Roberta Jenkins, an account executive at USI-Colburn Insurance Service of Tinton Falls, N.J. Legion, a longtime carrier in New Jersey, already had 5 percent of the state’s legal malpractice market in 1999 when it picked up business from Garden State Indemnity Co. When that company went out of business as a carrier, it referred customers to Legion. Last June, however, Legion also stopped writing new legal malpractice business in New Jersey, which meant lawyers had to find other carriers as their policies came up for renewal. As a result, the only lawyers still with Legion for the typical one-year coverage are those with policies up for renewal between now and June. The exceptions are lawyers — mostly those in retirement or headed for retirement — who purchased extended reporting period endorsements, better known as tail policies, which cover future claims for past occurrences. Lawyers with such policies from Legion would still depend on the company for coverage. The Legion group of companies that includes the malpractice carrier operates in 50 states but its financial situation is so perilous the stock of the parent company, Mutual Risk Management of Bermuda, was delisted by the New York Stock Exchange on Tuesday after its stock fell to 60 cents a share. It had been trading at $12.30 last year. Rosanne Placey, press secretary for the Pennsylvania Insurance Department, says regulators will examine Legion’s financial strength, and the goal is to restore the company to health. But “if it is determined that policyholder claims cannot be paid, the rehabilitator will petition the court for an order of liquidation.” That would trigger a takeover of claims by state insurance funds that provide protection to claimants, and those funds have claim limits, Placey notes. New Jersey’s fund, the Property-Liability Insurance Guaranty Association, has a $300,000-per-claim limit on payments. Legion covers 248 firms in New Jersey, the Pennsylvania regulators say. Also unclear is how the rehabilitation order would affect defense counsel working for Legion. A lawyer who asked that he not be identified says some defense firms were waiting for payment even before the rehabilitation order. RECIPROCAL OF AMERICA’S WOES In a notice to subscribers about its downgrade of Reciprocal of America, A.M. Best said the action was taken after the company reported in March that it increased its loss reserves by $39 million. The adjustment was made primarily because of potential losses in workers’ compensation and medical malpractice lines handled by ANLIR’s sister companies, notably, American National Doctor’s Insurance Reciprocal, the rating company says. It’s perhaps ironic that a company that insures lawyers is having difficulties because of bad claims experience by doctors being sued by lawyers. ANLIR marketing director Marcia Barber says the company remains profitable and that the rating change won’t affect rates. She says the company’s problems are linked to the difficulties faced by all liability carriers in recent months. “2001 was a horrible year, the worst ever,” she says, but she adds, “We are a strong company.” Dattoli and Ariel Hessing, executive vice president of a brokerage firm, Walnut Advisory Corp. in Watchung, N.J., say lawyers insured by a company with less than an excellent rating from A.M. Best could have problems with clients. Some retention agreements, particularly with real estate lenders, government agencies and insurance companies themselves, require the lawyer to be insured by top-rated companies, they say. As for the market as a whole, Hessing says the 20 percent to 25 percent rate increases now being experienced aren’t as bad as doomsayers were predicting in October. Still, he and other brokers say some lawyers can’t get coverage at all because of their history. USI-Colburn’s Jenkins says she knows of a firm whose premium jumped to $200,000 from $35,000 a year, and she concludes, “there are some firms that may be forced to go bare.”

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