The applications are longer and the questions increasingly more invasive. I can’t help but think it’s a form of insurer-payback against lawyers. I start to think. What is this an audit?
Under the pretext of risk assessment, underwriters not only want to know the obvious, e.g., if you’ve had any claims or bar complaints, but they also ask you to disclose firm revenues, caseloads, practice areas, and some even want to know who your clients are. And most incomprehensibly, when you’re shopping for this insurance, all the potential insurers want to know what you’re presently paying for coverage. Talk about opening the kimono! Who negotiates anything by first telling the other side your bottom number?
But unfortunately, carrying lawyer malpractice insurance is a necessary evil. Accountants, doctors, engineers and yes, lawyers all carry this insurance as part of the cost of doing business. All these professionals buy this liability protection for many reasons but the most obvious is that it’s a financial safeguard for possible errors and omissions.
Apart from this, however, more and more state bar associations now require lawyers to disclose to consumers whether or not they carry such insurance. In 2004, the American Bar Association (ABA) issued a report recommending implementation of a malpractice insurance disclosure rule by the various state bar associations. The ABA’s Standing Committee on Client Protection argued that by requiring lawyers to publicly disclose whether or not they carried professional liability insurance, potential public harm could be avoided. The thinking went like this. Once the existence or the absence of professional liability insurance was disclosed, consumers could then make informed decisions on whether or not to hire the lawyer.
Since 2004, 25 state bar associations have adopted the ABA’s recommendation. At last report, an additional 4 are considering adoption. Why? According to the ABA, lawyers with professional liability insurance give clients an avenue of financial redress if the lawyer screws up while providing legal services.
I’ve had professional liability insurance coverage well before disclosure was mandated by my corresponding state bars. Despite its increasing cost, it’s prudent to carry the coverage.
Generally, insurance companies base their premiums on risk allocation grounded on individual risk and on risk per groups of individuals. If a lawyer has had past claims; or been the object of consumer bar complaints; or favors suing clients for unpaid client fees, then the odds are excellent that lawyer will either be declined coverage or will be paying the proverbial ‘arm and a leg’ for malpractice coverage. But beyond the simplistic risk assessment predicate, ultimately it’s anyone’s guess how one individual’s premium quote is set. I personally think it is a bit of a ‘cat and mouse’ game. Insurers and their commissioned agents have an interest in extracting more and more out of your professional hide. The savvier lawyers among us resist the complacent tendency to sit still and take it as the inevitable annual premium increase shows up in your mailbox – – – regardless of whether or not you’ve had any complaints let alone any claims.
Some insurance agents point to the number of claims made in a given state to support why premiums are higher in one state than in another. Others justify their rates on their company’s personal claims history. But you have to take all of this on faith.
Statistical state-by-state information concerning risk, number of claims-made, and the average premiums paid is hard to come by. You’d think the ABA and the various state bars whose rule changes generated the insurance companies more and more business would have negotiated for this information beforehand? I guess not. When state bars require mandatory membership, they don’t really have an incentive to justify what they do to their members.
And so actual histories of insurance claims-made or premium averages paid remain closely guarded secrets. And lawyers increasingly suspect premiums are set as much as by a function of ‘by guess and by golly’ and on what the market will bear but, most of all, on what lawyers are willing to put up with.