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Risk is a word that in many ways defines the practice of law. There’s risk involved in building a competitive firm, risk in negotiating, and risk in litigation. Listing all the risks lawyers encounter each day could take a while. In fact, risk exposures have changed and multiplied in recent times. Many of the new risks can still be covered by a contractual amendment to the appropriate professional, general or property liability coverage that a law firm already has. But insurers have also devised specialty policies to cover gaps found in traditional coverage. Some of those policies may be more suitable than others. Before spending money for unnecessary or inadequate coverage, firms should carefully analyze their risk comfort level and decide whether specialty policies are worth the money. The first step in determining the correct coverage is recruiting a capable advisor. If your firm needs to hire such an advisor, you should ask other firms or administrators for referrals, recommends Jennifer Wilson, insurance product specialist at The Hartford Financial Group Services Inc., based in Hartford, Conn. It helps to have someone well versed in addressing the specific needs of law firms. Just as attorneys have specialty areas, not all insurance agents are suitable for every client. When considering the available and necessary coverage, there are typically three areas to evaluate: � Professional liability: coverage for claims arising from the practice of law. � Business liability: typically includes general and property liability, equipment breakdown (EDP), workers’ compensation, commercial auto, and umbrella coverage. � Management liability: includes fiduciary, employment practices liability (EPLI), crime/theft, directors and officers (D/O), and health, life and disability coverage. Specialty Policies. Should some of these risks be covered merely by a written endorsement to an existing policy, or should they be the subject of a separate specialty policy? There are certain considerations to keep in mind when deciding which is more appropriate. Above and beyond using an advisor, here are a few specialty areas that warrant close care and scrutiny. Business Interruption. This policy covers monetary losses sustained during the time a firm is unable to conduct business, whether from fire, flood, or other reason. It provides compensation for profits lost during that time. Coverage, however, is more restricted than in the past. “Insurance companies used to provide blanket amount coverage for losses,” says Andrew Greene of Herbert Jamison & Co., an insurance brokerage firm based in West Orange, N.J. “Firms now need to show a maximum probable loss forecast on the business interruption exposure.” This task is vulnerable to administrative lapse, according to Greene. Prior to issuing the policy, the insurer furnishes a worksheet to the firm on which to calculate its potential losses. If the form isn’t completed and returned, the insurer issues an arbitrary amount of business loss coverage, which may or may not be sufficient. It can be a costly lesson. Greene pointed to the recent example of a law firm left with a $2 million dollar underinsured business income loss, simply because completing the form wasn’t made a priority. Employment Practices Liability. EPLI covers businesses against claims filed by employees alleging legal rights violations. Legal fees are reimbursed for defending claims of sexual harassment, discrimination, wrongful termination, and other rights-related claims, regardless of the outcome. EPLI can be written as an endorsement to the management liability policy, or it can be purchased as a stand-alone policy. Rolling the EPLI in with the management liability, however, may not always be wise. “If EPLI and D/O claims are paid from the same policy, a successful EPLI claim can deplete the limits,” says Greene. “I’ve seen an insured have an EPLI loss come in under the D/O policy, deplete the policy limits, and then a D/O claim actually came in. There wasn’t enough coverage left to protect the directors.” Employment liability claims are becoming more common, so considering a separate policy may offer better protection. Cyberliability. Widespread use of the Internet to conduct business has given the legal community new risks that professional or general liability policies may not cover. The necessity of a cyberliability policy, though, may depend on how extensively a firm uses the Internet for marketing and other purposes. “Depending on a Web site’s contents, there’s the possibility it could be considered legal advice,” cautions Daniel Reed, a vice president at St. Paul Insurance Co., based in St. Paul, Minn. “Also, many states have ethical rules as to what can be contained in ads. These are all issues that a cyber-liability policy is intended to protect against.” Another possibility, says Reed, are claims of violation of attorney-client privilege in the event the firm’s Web site was hacked. While the risk that these incidents may happen is quite small, the financial impact if they do occur can be great. Internet issues can be addressed through amendments to the professional or general liability policies, but realize that coverage may be more limited than what’s offered in a separate policy. Directors and Officers. This coverage protects a firm from claims made by its members against firm management. Other possible D/O claims can arise from the business activities of lawyers in the firm. “It’s common for lawyers to serve on corporate boards, which exposes the firm to liability,” says Joel Pieper, a partner in the Atlanta office of Womble Carlyle Sandridge & Rice. “That’s something many firms don’t think about, but deserves serious consideration.” Many firms have restrictions against serving on the board of for-profit corporations. For firms that allow this type of activity, Pieper suggests creating clear policies for obtaining management approval and thoroughly checking conflicts of interest. Disability. A serious injury or illness that prevents a partner from contributing income is a critical concern. Statistically, the chances of incurring a disability during our working years is much higher than the possibility of death. Disability insurance is meant to provide income during an individual’s period of being unable to work. A problem can arise with the insurer’s definition of disability. For example, a high-dollar litigator temporarily saddled with emotional problems may be unable to litigate. If the carrier’s definition of disability is a complete inability to practice law, the litigator would not be considered disabled. But valuable dollars are still being lost. When considering disability coverage, evaluate different level policies containing more loosely defined disability definitions. With a clear definition in hand, the firm is better able to make the appropriate choice. A Full Assessment. Taking a complete and objective look at your firm is critical in protecting against misfortune. “The most common mistake attorneys make is not completely evaluating their needs,” says Barbara Sandelands, a vice president at Chubb & Son, based in Warren, N.J. “Make sure you evaluate all the personal property in the firm; fine arts, library materials, or valuable papers. There should also be sufficient insurance to cover those.” Have enough insurance where you need it, avoid it when you don’t. In a situation with temporary attorneys, which many firms are using, experts suggest passing the risk to others. “You can often transfer the obligation of providing professional liability coverage to the temporary agency,” says Andrew Greene. “A contractual relationship resolves that issue, and you’ve managed to avoid the cost of additional coverage.” Lowering risk is an important business survival skill. The time spent completely evaluating your firm’s coverage needs before signing on the policy’s dotted line will serve you well. It may even save you from the insurance headaches of tomorrow. Karen Dean is a freelance writer living in Monroe, Ga. Her work has appeared in The Atlanta Journal-Constitution and other publications. Editor’s Note: This information should not be regarded as advice that is applicable to all businesses. Specific safety issues or business concerns regarding this topic should be reviewed with a professional safety consultant. The Hartford makes no warranties and assumes no responsibility for the control or correction of hazards at your business operations.

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