Ahh yes, the soft market. Everybody's favorite topic. You knowthe drill: Carriers slashing premiums to maintain market share.Fierce broker competition for new business and even fiercercompetition on renewals. And retailers and wholesalers earning lessmoney while working harder than ever.

So is there an imminent end to this wicked environment? Someunderwriters and retailers say they see the market turning.However, given my daily involvement in the lawyers' professionalliability (LPL) arena, I don't see the marketplace significantlyhardening in the near term. But current conditions are creatingreal opportunities for those of us selling LPL. Many carriers nowoffer attorneys coverage enhancements that were previouslyunavailable, cost prohibitive or only given to the big lawfirms.

Once the market hardens, some of these opportunities may not beas readily available or affordable. So now's the time for carriers,wholesalers and retailers, working in tandem, to create lastingadvantages for themselves and the law firms they represent.

Get What You Pay For

There is a tendency—especially given the recent economicdownturn—for attorneys to focus more on price than coverage.Obviously, we must put a competitive LPL product on the table fortheir consideration. Cheap pricing abounds in this marketplace. Butonce the issue of cost has been addressed, the substance of thepolicy is what determines the winner. This is critical tounderstand because there is not much uniformity or consistencybetween LPL policies. Many carriers use their own forms, creatingunique policy provisions, conditions, endorsements and exclusions.The devil is more often in the details, not the dollars.

Related: Read the article “Real Estate Attorney Malpractice ClaimsRising” by Mark E. Ruquet.

As an example, there is no standard definition of “professionalservices.” It is the rendering or failure to render such “services”that will give rise to a claim against a law firm. Thus, great caremust be taken to propose a policy in which the professionalservices definition encompasses the full scope of a law firm'spractice. Carriers today are more willing to tailor various policydefinitions to fit the nuances of law firms.

In meetings with law firms large and small, I have watchedagents resolve major coverage concerns that had otherwise beensources of pain to the law firms—only to have the managing partnerpurchase deficient coverage elsewhere because another LPL productwas less expensive.

The message here is that we must become advisors, advocates forour attorney clients. While they may know their businesses, theyalso may understand little of ours and how this market can benefitthem.

Key Enhancements to AskFor

The willingness in the marketplace to provide policyenhancements is very real. Those enhancements fall into severalcategories. While too numerous to delineate in this article, hereare some of the more important benefits to request.

1. Defense and settlement: Many LPL policies havea duty to defend the law firm in the event of a claim, even if theclaim appears groundless or without merit. But all too frequentlythat duty to defend also gives the carrier the “right” to designatedefense counsel. While there is nothing wrong with this process,many carriers now extend to firms the option to select theirdefense counsel. This has the immediate impact of increasing thefirm's comfort level, giving them more of a say in the process andoutcome of the claim. The freedom to work with familiar andcompetent defense counsel is invaluable. Carriers who have theability to offer this coverage, often referred to as “choice ofcounsel” or “mutual choice of counsel,” may charge a smalladditional premium or may simply add it upon request
2. Consent to settle provision: Once a claimbegins to mature, a carrier may at some point suggest settlementrather than outright litigation. The potential problem arises whenthe law firm and carrier disagree over the amount of the settlementor whether the case should be settled at all. Typically, if the lawfirm spurns the carrier's settlement offer and, at some later date,settles the claim for more than what the carrier originallyauthorized, the law firm will be on the hook for 100 percent of thedifference between the actual settlement cost and what the carrierhad earlier proposed.
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   In an effort to minimize this financial hit to the law firm,many carriers are amending their consent to settle language. Notonly will the carrier pay its initial authorized amount, but italso will contribute as much as 50 percent of the settlement amountin excess of the original figure. This beneficial change gives thelaw firm more courage to pursue the claim on its own withoutcompletely losing significant contribution from their LPLinsurer.

3. Reducing the deductible via mediation and ADR:As a way to encourage attorneys to participate in alternativedispute resolution (ADR) such as mediation, many carriers offerdeductible credits once a matter has been settled in this manner.That is, the carrier often will reduce the firm's deductibleobligation by up to 50 percent, so a firm with a $25,000 deductiblewill only be out-of-pocket $12,500. Some insurance companiesoffering such enhanced language in their policies are IronShore,OneBeacon, Liberty and CNA. This is yet another way to garnergreater value while paying less.
4. Common exclusions to be eliminated: Exclusionstake away coverage. And while not all claims are or should beinsurable, certain troublesome exclusions can frequently be removedtoday by simply requesting the insurer to do so. Ensure that claimsare covered broadly to avoid unnecessary declinations. Many oftoday's policies have securities and patent exclusions built in.Granted, these can often be removed via endorsement. But if a firmpractices securities work and the exclusion exists, a securitiesclaim could be denied.

Related:Read Jennifer Dumont's article “Risky Business.”

I recently took over an LPL policy for an SEC firm and quicklydiscovered it had been placed with a carrier for 2 years whosepolicy contained an extremely broad SEC exclusion. The firm hadpurchased a cheap policy that afforded zero coverage for the typeof work they perform.

Although many insurance carriers have a dutyto defend, there is one category of damages that is routinelyexcluded under LPL policies: punitive damages. Punitive damages areuninsurable in many states, including California. But if a firm issued in a jurisdiction where punitives are insurable as a matter oflaw, failure to delete this exclusion could be financially ruinousto a firm. The firm would face potentially massive out-of-pocketexposure. States change and amend their laws so it is vital torecognize that punitive damages may one day be insurable in yourstate. Better to have the exclusion removed just in case coverageis needed.

If a claim actually makes its way to the litigation stage, thelaw firm's attorneys may be required to spend considerable time inthe courtroom and away from their daily practice of law. Thisinconvenience creates lost billing opportunities and could impactlaw firm revenues. Today, carriers can help mitigate this financialloss. Many policies include expense reimbursement of up to $500 perinsured for each day he or she must appear in court. It is anotherway carriers are attempting to sweeten the pot for firms.

In the event that a law firm dissolves, merges with another firmor is acquired, the LPL policy must have a mechanism to protect thefirm from claims that may arise in the future based upon workperformed in the past (also known as prior acts). In response tothis exposure, most policies offer the option of purchasing anextended reporting period (ERP). This benefit gives the law firm,for a price, the right to report future claims against the mostrecent LPL policy. ERP is commonly referred to as ” tail”coverage.

Related:Read “Changing legal landscape increases risk” by Dan Reed.

The longer the ERP option period, the better. When the marketwas harder, carriers were generally reluctant to offer ERP optionslonger than 3 years because they wanted to limit their exposure tofuture claims. Today, however, many insurers are willing to offer“tail” options for periods extending well beyond 3 years. In fact,an unlimited tail option is now quite common, enabling coverage toextend into the future with no sunset. The costs for theselengthier ERP options also have declined significantly. Moreover,some carriers are even willing to provide an individual unlimitedtail to an attorney retiring from the firm, a benefit that oftencosts nothing.

Other Initiatives

Carriers are continuing to enhance the value proposition fortheir LPL clients by providing a variety of services for free orfor a nominal charge. Risk management, monthly topical newsletters,webinars, toll-free hotlines and other benefits are readilyavailable from carriers in an ongoing effort to better informlawyer clients, to better retain those lawyer clients, and tobetter bulletproof those lawyer clients.

Competition within the LPL marketplace will continue for sometime, creating better products and favorable pricing. If it wasn'tfor the soft market and the resulting competition for business,many of these bells and whistles might not be so readily available.Times may be challenging, but that challenge can be a greatopportunity rather than an insurmountable problem. Embrace the softmarket. The long-term impact on your business and that of your lawfirm clients will be invaluable.