Price vs. Value: Making Informed Choices When Shopping for Lawyers Professional Liability Insurance
Price vs. Value: Making Informed Choices When Shopping for Lawyers Professional Liability Insurance
Everyone makes mistakes. Attorneys know what they’re doing and generally don’t get things wrong. But the unfortunate fact is, we’re all human and mistakes do happen.
Sometimes these mistakes can turn into malpractice claims. So, when you are applying for professional liability insurance for your firm, carriers will consider the nature and severity of these claims as part of their underwriting process. Depending on the outcome of this evaluation, admitted carriers may decline to offer coverage to your firm and your insurance agent will need to help you seek coverage in the non-admitted market.
Admitted insurance providers are licensed to operate by the state. Because admitted insurance coverage has been approved by a state’s insurance department, these providers must adhere to regulations regarding policy forms, rate approvals and claims handling.
A non-admitted insurance company is not licensed by the state and is often a stock company of a large admitted carrier. It is typically financially strong and stable but caters to the higher risk insured. Non-admitted carriers do not necessarily have to comply with state insurance regulations and do not contribute to a states’ guarantee fund, therefore there is no guarantee that claims will be paid if the (non-admitted) carrier becomes insolvent. In addition, if a non-admitted policyholder deems their claim was not handled properly, they have no recourse to appeal to the states’ insurance department.
Because non-admitted coverage is not backed by the state, most states have requirements that insurance agents do their best to place high-risk applicants in the admitted market before placing coverage in the non-admitted market. But there are times when the risk is too high, and coverage in the admitted market cannot be offered.
Stephen Dimiceli is an agent who is well-versed in attorney malpractice insurance. He sat down for an interview and talked through how attorneys can navigate their way back to the admitted market after having been placed in the non-admitted (surplus lines) market.
Stephen tackles the following questions in this blog:
Often times, when a firm has incurred a severe claim or a claim with a large payout (claim severity), or multiple smaller claims (claims frequency), admitted carriers may decline to offer terms to the firm and the firm’s agent must seek to place coverage in the non-admitted market.
Claims are not the only cause for admitted carriers to decline to offer terms. Sometimes it is the nature of the firm’s practice; practicing in “hazardous” areas of practice, such as patent prosecution, securities, entertainment, environmental, mass tort and class action areas of law, to name a few.
If your firm’s professional liability policy is currently written on a non-admitted basis, your agent will do their best to seek terms for you in the admitted market, however, depending on the reason that your coverage was placed in the non-admitted market, this may take some time.
If the reason is your firm’s claim history, it can often take a minimum of five years with a good claim record (claims free for five years) before the admitted markets will entertain providing your firm with terms for coverage placement.
One way you can show improvement to carriers is by implementing practices that reduce the risk of a claim being made against you. While there are no guarantees, here are some helpful rebuilding steps:
Go out of your way to show that your firm is proactively avoiding and reducing risks. This is one of the biggest factors within your control that can make yourself more attractive to top tier admitted carriers.
Perhaps your firm has had no claims made against it but is merely practicing in “hazardous” areas of practice, and the admitted market carriers are not willing to take on the risk. In this instance it may be more difficult, or even impossible, to have your professional liability coverage placed in the admitted market. But it may behoove you to provide in-depth detail on the following items to your agent and the admitted carrier you are seeking coverage from:
There are many factors that can contribute to law firms being more or less attractive to admitted insurance carriers. The good news is you can control some of them.
Implement a conflict-of-interest system. Consistently use engagement and disengagement letters. Build a strong client communication process. It will take time – but diligence and proactively avoiding risks will pay off.
High Risk Areas of Practice (AOPs) with respect to Professional Liability Insurance
How Attorneys Should Approach Malpractice Claims
Practical Steps to Potentially Reduce Professional Liability Insurance Premiums
Price vs. Value: Making Informed Choices When Shopping for Lawyers Professional Liability Insurance
Make informed decisions when it matters most by knowing how to handle a malpractice claim, when to report it to your carrier and how prompt reporting impacts both your practice and the insurance carrier.