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If doctors are blaming lawyers for their rising malpractice insurance premiums, who should the lawyers blame? Professional liability insurance rates for attorneys at large firms are likely to rise anywhere from 35 percent to as much as 75 percent in the next year, experts say. But while some of the increase may be due to claims against lawyers in corporate scandals such as the one involving Enron Corp., rising malpractice insurance rates have deeper roots as well. William Freivogel, a loss prevention specialist with Aon Risk Service’s Professional Services Group, said he believes the current environment of corporate scandal may see a spike in claims against lawyers much like that which occurred a decade ago during the savings & loan crisis. “There will always be a tendency to go after the professionals,” he said. Smaller firms, however, which often participate in pooled insurance plans, will probably see significantly lower increases — between 25 percent and 30 percent — reflecting their lower litigation risk, according to Anthony Davis, a New York-based partner at Chicago’s Hinshaw & Culbertson who specializes in professional liability issues. But Freivogel cautioned against making sweeping conclusions about the likelihood of surging malpractice claims. The claims made by shareholders against Houston-based Vinson & Elkins in the Enron debacle, he said, were not vastly different from claims frequently made against lawyers in the past. “They’re just bigger,” he noted. Yet size matters in the world of legal malpractice, and a trend toward bigger claims against lawyers cannot fail to affect insurance rates, said Davis. “Insurers are very conscious of increasing risk,” said Davis. “They’re looking at claims, not just settlements and awards.” Large settlements and awards paid out by major law firms remain fairly rare events. According to Freivogel, there have been just 30 settlements or awards of $20 million or more paid by law firms since 1985. The relative infrequency of major awards against lawyers is one reason attorneys at major firms face much lower premiums than doctors. While certain medical specialists may pay annual premiums in the six-figure range, law firms generally pay between $4,000 and $10,000 per lawyer, said Freivogel. During the economic boom of the last decade, he said, insurers were more than happy to sell professional liability insurance to law firms at low rates because the premiums could be plowed into lucrative investments for long periods before any claims might arise. Insurers’ incentives changed when the stock market began to dip in 2000, said Davis, and have moved even further in the direction of higher premiums since the Sept. 11 terrorist attacks, as the related payouts and concern about future catastrophes have put greater pressure on the pool of insurance funds. These larger, industry-wide issues have most likely affected insurance premiums as much as the prospect of further malpractice claims against lawyers, said Davis. But insurers are taking note of trends among claims, he said, and the insurance market is likely to become more segmented in the future, with certain practice areas carrying higher risks subject to much higher premiums. Freivogel agreed, noting that patent prosecution has come to be regarded as a high-risk area where companies can claim enormous damages against lawyers and firms for mistakes such as missed document filings. He said he thought it was unlikely, however, that firms would avoid profitable practice areas because of rising insurance premiums. “If firms want to do patent prosecution, they’ll continue to do patent prosecution,” said Freivogel. OPINION LETTERS But if rising insurance premiums are not likely to deter firms from continuing in certain practice areas, litigation risks have encouraged them to tread lightly around certain practices. The long-controversial area of tax shelter opinion letters is now generating even greater concern since claims have been filed against Sidley Austin Brown & Wood, Dallas-based Jenkens & Gilchrist, and others over their opinion letters. Louis Tuchman, a tax partner at New York-based Kaye Scholer, said his firm has avoided writing opinion letters, adding that many firms may take a similar position now as well, especially since tax shelter sponsors themselves seem to be backing away from using law firm opinion letters to market their shelters, the behavior that has generated the most controversy. In such instances, the same letter can be sold to multiple clients for huge fees. But Tuchman also said that many lawyers and firms will likely continue to find the lucrative practice enticing. “There are certain kinds of clients and certain kinds of lawyers that will always be drawn to this practice,” he said. Freivogel said he expects the current fear of litigation among law firms to dissipate somewhat as the Securities and Exchange Commission and other regulators roll out reforms in the coming months. For the time being though, firms definitely fear bigger claims, he acknowledged. “There is a concern that claims can be two or three times their insurance coverage,” he said, noting that some firm’s coverage goes as high as $300 million per incident. And it is also clear that some of that concern translates into contempt among corporate lawyers for their brethren in the plaintiffs’ bar. At a law firm management conference last Friday, Sullivan & Cromwell Chairman H. Rodgin Cohen told the audience that his firm adopted limited liability partnership status to avoid as much as possible a “perfect storm” situation involving substantial media, political and law enforcement attention and rapacious plaintiff’s lawyers. “We just don’t want plaintiff’s counsel to go after partners’ homes,” he said.

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