Legal malpractice insurers are becoming much more aggressive about renewals, sometimes denying renewals for attorneys and law practices. Although this could be the result of concerns about a particular attorney or law firm, many times these decisions involve unrelated factors.
Yet, the fact remains that nonrenewals cause attorneys to feel panicked by the situation and unnecessarily desperate for options.
In today’s market, there is little reason to panic. The legal malpractice market continues to be soft, with opportunities for law practices and attorneys regardless of size, location, practice area or claims experience.
The market includes insurers specializing in offering coverage to a wide range of different practice sizes and practice areas, from solo practitioners to the largest law firms with specialties ranging from patent law to debtor/creditor law. The number of insurers offering insurance has rarely been higher than today, increasing attorney choice and options regardless of the situation.
Even for firms with a history of claims or payments on legal malpractice claims, there are insurers that specialize in insuring such firms, including Maxum Specialty Insurance Group. To find all of these options, there are also plenty of resources available to attorneys and law practices—including the checklists and tips in our book, “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance” or the other resources provided by the ABA Standing Committee on Lawyers’ Professional Liability.
Nonetheless, attorneys nonrenewed by their insurers should definitely ask “Why?” The answer may be surprising.
Some insurers are simply moving out of the market. Others are part of a program (like a bar endorsement or association) that has changed its position regarding the insurer.
Other times, the law practice may have grown larger than the parameters for the insurer’s portfolio, or the law practice may now include a specialty (like securities or intellectual property) that the insurer does not insure.
Of course, in some situations, nonrenewal results from a law practice’s claims frequency or claims severity. Notably, rarely does a single claim trigger a nonrenewal. However, sometimes, in the course of adjusting a claim, an insurer discovers firm practices that involve too much risk. These include not having an effective docket control system, not using engagement letters, not having a conflict resolution process, handling matters outside the firm’s expertise, or commingling funds. When that happens, the combination of the claim and the unsafe practices can trigger a nonrenewal.
So, if it happens, here are some suggestions (remembering that nonrenewal is not always about the law practice).
Use a Good Broker
A good broker is invaluable to a law practice or attorney—and to insurers. A good broker helps an attorney find the best program of insurance and can navigate the marketplace for the best coverages from the best insurers at the best prices.
Brokers are also primarily responsible for addressing law practices’ unique interests and needs with insurers. If there are unique risks, or special circumstances, brokers can recommend special insurers or programs for law practices with unique needs.
Finally, even after placement, a broker can help open the lines of communication with an insurer after a particularly bad or high profile verdict against a practice. When this happens, brokers can use relationships with insurers that assist law practices in getting back on their feet and making sure they are covered.
Clean Up Whatever Issues Exist
As stated above, the first step is to find out the actual reason for the nonrenewal. If the nonrenewal is not something that the firm can do anything about (such as that the insurer is leaving the market), then consider other insurers. But, if the reason for nonrenewal involves something the firm can address, then the firm should take corrective action to address it.
For example, if the insurer felt that the law practice was exposed to an extended statute of limitation for its failure to include limits in its engagement letters or for its failure to send file-closing letters, the law practice can use this time to correct those mistakes. Or, if the firm has accepted a matter outside the practice areas for the insurer, consider whether the matter merits exploring other insurers.
Adopt Best Practices Important to Insurers
Most brokers and insurers routinely share the kinds of risk management that they expect and prefer. Indeed, many are reflected in the application itself. Where many firms fall short is in failing to modify firm practices to conform with insurers’ expectations.
The fact is that before an insurer moves toward institutionalizing a risk management procedure, it will have determined from the data that it works. So, even if it is not something the law practice fully appreciates, it is more likely than not that prior actual claims experience confirms that the procedure does work.
It is not difficult to determine these practices. Most are readily apparent from the insurers’ websites, applications, and risk management materials. For example, does the law practice require a conflicts check before a new matter is opened? If not, it should. Does the law practice have a standard engagement letter reflecting all necessary terms? Up-to-date docketing software? Adequate cyber protection?
After a nonrenewal, law practices can use this time to make the upgrades to its systems and tools that it has been putting off. It may find that by making these improvements, it may even be able to negotiate a better deal for premiums with its new insurer than it had with its old insurer.
Consider Alternatives in Insurers and Types of Coverage
Currently, there are a myriad of coverages available in the marketplace, with significant advantages. Law practices can save money, get more coverage, and be insured by a more reliable insurer. Some are obvious like fewer exclusions or greater limits. Others include additional coverages like cyber-attack, employment practices, or disciplinary proceedings coverages.
On the other hand, there are some significant risks to changing insurers. By far, the greatest risk is a gap in coverage between the expiring nonrenewed coverage and the new insurer which may have a retroactive date. The easiest way to address the gap is to purchase a tail from the expiring insurer and to seek an early retroactive date (preferably back to the first date of coverage with the expiring insurer).
Accurately and Completely Fill Out the Applications
After gaps in coverage, the greatest risk with a new insurer (with an initial legal malpractice insurance application) and a renewal insurer (with an abbreviated renewal application) is an inaccurate application. Errors in the application can lead to a plethora of problems and can risk coverage for the entire law practice. As a result, special attention should be given to assuring complete and accurate responses to each question.
The failure to be forthcoming in the insurance application can be the basis to deny coverage or withdraw coverage later at a time when the law practice really needs it. As a result, if the application inquires about the knowledge of all attorneys in the firm, or includes phrases like “after reasonable inquiry,” then the law practice should survey all of the attorneys in the firm. The good news is that submitting a thorough and accurate application, using a good broker, and exploring all of the options in today’s competitive marketplace should make nonrenewal just another simple task.
J. Randolph Evans and Shari L. Klevens are the authors of “Georgia Legal Malpractice Law,” published by Daily Report Books.