Specialization gives us an edge in LPL insurance

Prospecting and marketing

We've developed a database of prospects that we market to in various ways. In building it, we've drawn on several resources, including the Martindale-Hubbell directories, which provide a great deal of information about law firms, including their number of associates, practice areas and location. We also check individual states' law directories. Some are published by state bar associations and others, like Sullivan's Law Directory in Illinois, by specialized publishers.

I also read the National Law Journal and numerous other legal journals. They provide news about law firms across the country-including those that have experienced large claims, which we may be able to assist. I also have relationships with law firms that do legal malpractice defense work, which can put us in touch with distressed prospects, as well as defend our current clients and offer them risk-management advice.

In some areas, we work closely with bar associations. For example, we have the endorsement of the Tennessee Bar Association. The possibilities for endorsements go well beyond state bar associations. Indeed, there are bar associations for just about any type of lawyer. There are local, state and national bar associations for women attorneys, for Italian-American attorneys or those belonging to other ethnic groups, for plaintiff attorneys, for defense attorneys, etc.

While we may uncover large prospects by working with bar associations, more often they are sources of sole practitioners, or two- and three-attorney firms, which don't have risk managers or office managers to take care of their insurance needs. Instead, such firms tend to ask the local bar association for a referral when they need professional liability insurance.

I don't often work with the individual members of these bar associations, but members of my staff do. Meanwhile, I developed relationships with the associations themselves and pursue their endorsements. In the past few years, we've found the associations more receptive to our entreaties. Many bar associations, which once customarily endorsed insurance companies, have been rethinking that practice after seeing companies like Kemper either leave the LPL field or go out of business altogether. Therefore, some associations have decided to endorse brokers, concluding that they are in a better position than insurers to find appropriate markets for individual members and to assure continuity of their LPL programs.

Legal administrators, who are often our primary insurance contacts at large law firms, also are important sources of business. We are involved with the Association of Legal Administrators and participate in its national and regional conferences.

We advertise in bar association journals, primarily with the intention of promoting our "brand" rather than with the expectation of generating immediate inquiries. We also have a Web site whose main purpose is branding, although it does have a relatively brief form that small law firms can use to obtain quote indications.

When it comes to bringing in business, I believe that nothing is more effective than old-fashioned cold-calling. When I dial up a law firm, I may not immediately be asked to quote, but if I can establish a relationship and get some information to update our database, I consider it a successful call. Among the information I try to obtain are the firm's profile, the identity of the current insurer and broker, the names of the people involved in the insurance-buying decision, and the nature of any dissatisfaction with the current program. From that point, we look for opportunities to further the relationship, to be of service and, eventually, to offer a proposal.

Occasionally we conduct seminars to enhance our relationships with prospects and clients. At the last one we conducted, I spoke on the state of the insurance market. We also brought in an outside speaker to discuss the compliance requirements of the federal Sarbanes-Oxley Act, which has particular significance for attorneys involved in corporate law. It can be difficult, however, to persuade lawyers to attend seminars, since they must give up billable hours to do so. In some cases, carriers will offer insurance-policy credits for seminar attendance. Some of the insurers we work with also can conduct seminars that confer continuing legal education credits, which can attract attorneys in those states that require them. (Illinois, where I am based, is not one of them, however.)

I don't go into an initial meeting with a pre-planned approach. Each law firm will tell me a different story. By listening to its principals, I can determine the right questions to ask about the law firm, their current insurance, their experience with it and their objectives. The pattern of questioning is unique for each law firm.

The main things I listen for in these interactions are indications of pros-pects' dissatisfaction with their current programs or something that leads me to suspect there might be deficiencies that I can point out and correct. I also may discover deficiencies when reviewing a prospect's previous application for coverage. For instance, when looking over the application of a firm known for its plaintiff-attorney work, I found it did not reflect the fact that the firm actually spent 50% of its time on far-less-risky lobbying work. That changed the firm's underwriting profile so dramatically that it obtained a significant premium reduction-even in the hard market.

Sometimes we can be a problem-solver. For instance, large law firms, or those with high-risk practice areas, sometimes approach us after attempting unsuccessfully to obtain high coverage limits. The firms come to us both directly and via their current agents and brokers, through our wholesale facility. Either way, our broad access to both primary and excess markets enables us to provide the amount of coverage sought.

Submissions

For large law firms, particularly those with six-figure SIRs, some markets require financial statements. Underwriters want to make sure such firms can afford to pay the losses they agree to retain. Also, Lloyd's and a few domestic insurers will not quote without revenue figures.

The main thing we need for a submission is an accurately completed application. LPL apps are long and detailed, and we assist firms with them as much as we can. However, the applications must be signed and dated by the law firms, because they contain warranty representations that become a part of the policy. Filling out supplements, which must be attached when applicants respond affirmatively to certain questions, can be as laborious as completing the apps themselves. Supplements are routinely required for law firms involved in securities, plaintiff work and other higher risk areas of practice. Some LPL applications have a dozen or more poten- tial supplements.

Before sending it to the markets, we examine the application carefully, looking for opportunities to enhance it. For instance, if the firm has obtained a risk management audit in the past year, we may ask for a copy and attach it. Such an audit can prove to underwriters that an objective third party has examined the administrative practices of the firm. For an exemplary law firm, such an audit and the auditor's accompanying opinion letter can document that the firm is using optimal administrative and risk-management procedures. Generally, however, there will be at least one or two recommendations. If so, the firm can document to the underwriters that it has responded to the recommendations, again putting its application in the best possible light.

Enhancing an application also can be a matter of explaining adverse data. For instance, I recently reviewed an application for a law firm that in the past year had filed six lawsuits to collect fees owed by clients. This is above average, and I knew it would concern underwriters, since suing clients for fees can often result in counterclaims for legal malpractice. So I asked the firm whether the fee-collection litigation resulted from some unusual occurrence or had some other explanation. In essence, we ask such questions before the underwriter has to, so the underwriter's first impression of the client is the best possible.

There are five main factors we consider when deciding which markets to approach with a given submission: the number of attorneys in the firm, the state in which it is located, its areas of practice, its claim experience and the limits it desires. After selecting a market (or markets), the best way to work with it is to respect the underwriter's time. When giving underwriters submissions that are not complete, we tell them up-front what information is missing and that we've requested it; we don't wait for them to discover the omission and then call us for an explanation.

To the greatest extent possible, we pre-underwrite applications for underwriters. That is to say, we make sure all the questions are answered and that the app is dated and signed. (You'd be surprised how often these matters are overlooked.) We also make sure the practice areas are well-defined, and that any current or potential conflicts of interest, such as attorneys' equity interest in any of their clients, are disclosed and fully explained. If any of the answers on the app seem to raise additional questions, we'll ask them so the underwriter won't have to. If the law firm is providing extensive loss data, we will analyze it for the underwriter. For example, we'll look at the loss premium data over the past five years and calculate the client's loss ratio over that period. Our objective is to ensure that when underwriters pick up our applications, they will know exactly what they are looking at and won't need to call for additional information.

Market conditions

The marketplace for lawyers professional liability insurance began to harden around July 2001, a little later than many other lines, then tightened up further with the rest of the market after 9/11. In the last three years, LPL insurers have made corrections, dropping business written in the soft market that didn't really match their underwriting profiles. Now that they've corrected their books, they are pursuing new business. Not that underwriting is being thrown out the window, but we've seen a shift in emphasis to meeting production goals. No doubt the softening is compounded by the entry of new carriers into the marketplace.

The fact that there are more markets makes it a little easier today to layer higher limits for clients, not that the capacity of individual insurers has increased significantly. Rates are coming down, and it is easier to obtain certain coverage enhancements, like defense outside the limits and first-dollar defense. Coverage for claims brought anywhere in the world can be added by endorsement to policies for law firms with international operations. Extended reporting periods longer than 12 months can be negotiated for even large law firms. Except for one carrier in one state, however, we have yet to see a return to multiyear policies.

The presentation

After receiving responses from our markets, we prepare the presentation. It includes a review of the markets we have approached, along with their Best's ratings and other information about their financial condition. We identify which markets are admitted or nonadmitted and explain what those terms mean. We provide a copy of the policy we recommend and, particularly for large law firms, prepare a customized comparison of it and the client's current coverage. (This cannot be done by using "boilerplate" language and takes a significant amount of time and effort.) We present a premium summary, which lists the policy form and all the endorsements. Price obviously is an important consideration in clients' decisions, but if we've made an effective presentation, they also give due credit to the value that we represent as a broker-e.g., our market intelligence and underwriter expertise. From the outset of our relationship, they've seen us provide professional advice-for example, in our assistance with the submission-and I think that helps in our close. Our emphasis on specialization also helps. They know that we don't recommend that law firms dabble in practice areas outside their expertise, and they see that we practice what we preach.

Servicing the account

After the sale, we stay in touch with our clients and stress that they should inform us of changes in their practice areas or the addition of associates. We also send clients a quarterly risk-management newsletter, published by a law firm that specializes in defending legal malpractice claims. For large law firms, we often develop customized risk-management programs that include seminars, audits, hotlines, etc.

According to an American Bar Association study that came out a few years ago, 56% of LPL claims result from substantive errors-i.e., the failure to know or apply the law. For example, an attorney may not realize that a special statute of limitations applies to a certain area of the law. The fact that so many claims are attributed to substantive errors explains why underwriters look carefully at law firms expanding into new practice areas. Additional training can help lessen this exposure, and some LPL insurers offer CLE classes to their insureds with that objective in mind.

The ABA found that problematic client relations are the second-leading cause of claims (19%). Examples include failure to obtain a client's consent for a particular action, failure to follow a client's instruction and the improper withdrawal of representation. Consistent use of letters of engagement, which outline the scope of an attorney's representation, and letters of disengagement can help reduce this exposure.

Another 16% of claims arise from administrative or clerical errors. Failure to make a court appearance or meet a legal deadline because of a glitch in the docket control system is the classic example. Thorough, enforced standard operating procedures are the best defense against such claims. This is particularly important for large law firms, simply because of the volume of cases they handle.

Unfortunately, 9% of claims consist of alleged intentional wrongs-i.e., malicious prosecution, fraud, libel and slander. (Such allegations sometimes are part of the plaintiff counsel's strategy to win a legal malpractice claim.) Such exposures have to be treated by such loss-control techniques as an emphasis on ethics.

When claims do arise, we act as advocates for our clients. Gallagher employs claims adjusters, and within our division we have an attorney whose sole responsibility is to conduct research and assist in the resolution of claims.

During the hard market, our broad access to LPL insurers was a major competitive advantage for us. It still is, but now that the market is softening, we expect our high level of service to also help us gain and retain clients. Above all, we feel our status as lawyers professional liability insurance specialists will help us prosper, regardless of conditions in the marketplace.