Selling professional liability insurance to lawyers

Marketing and prospecting

We find prospects, and market ourselves to them, in a variety of ways, including the following:

Word of mouth: We get most of our business from referrals. Every practicing attorney is a member of the state bar; typically lawyers also hold memberships in one or more county bar associations or specialized bar associations. The upshot is that our clients are in regular contact with many potential clients–and apparently drop our name with some regularity.

Association marketing: We have the endorsements of about a dozen county bar associations and are working to obtain those of some state bar associations. When seeking a bar association's endorsement, we typically are interviewed by the association's malpractice insurance committee. We try to demonstrate to the committee that we have a thorough understanding of LPL forms and are familiar with the coverage needs of the law practices pursued by a majority of the bar's members.

Bar associations expect us to have an exclusive contract with an insurance company that has a good track record in this class of business and, in a bar association's territory, to make our product available only to members. While those members still have to qualify for the product, the bar association also expects us to have options for any "distressed" members. We use Hudson Insurance Co., an admitted carrier for which we hold the underwriting pen, as our primary LPL insurer. We turn to Lloyd's of London to place bar association members with adverse claims histories or other problematic underwriting characteristics.

Typically, we must court a bar association for a couple of years; that is, become a dues-paying associate member, conduct seminars, and sponsor golf outings and similar events. If the bar association is favorably impressed, it may designate us as one of its "recommended outlets" for insurance. Later, we may receive the association's exclusive endorsement.

Seminars: In addition to conducting seminars for bar associations, we sometimes offer them on our own. For instance, we may invite New Jersey Law Journal subscribers to a free seminar. By arranging to have the seminars qualify for state continuing legal education credits, we usually ensure ourselves a good turnout. Such seminars help us establish relationships that later may lead to business.

Database marketing: We buy lists of attorneys from such sources as the Martindale Hubble directories and state lawyers digests. We maintain these lists in a computerized database to which we make periodic mailings

We send fliers that outline our principal LPL program. We also mail brief questionnaires which, when completed and returned by prospects, give us enough information to offer them quote indications. Those prospects who receive indications that are competitive with their current programs often fill out full applications, which they can download from our Web site. Returned applications go to our underwriters. Assuming all is in order, we can offer the prospects firm quotes and, if acceptable, bind coverage.

For small law firms, we often don't have to conduct face-to-face meetings to sell insurance. Generally, it's easy to determine from its returned application whether such a law firm fits our program. Therefore, the entire transaction can be completed via mail, fax and e-mail. (We need "wet" ink signatures on full applications, however, so prospects must send them to us by mail or delivery service.)

Qualifying accounts

The larger the law firm, the greater the chances that I or another agency employee will need to interview its principals. One of the first things we ask is how they screen their clients. If someone were to approach them with a patent case, I wouldn't want them to take it unless they had a specialty in that field. Otherwise, I would expect them to refer the work to another law firm or just decline it.

We consider how they manage their associates. We want to be sure they are not giving too much authority to new associates with limited experience.

In regard to loss control, we want to be sure that law firms have good docket control systems, which lessens the odds that attorneys will fail to show up for scheduled court appearances, get tripped up by statutes of limitations or overlook other deadlines.

Lawyers also need to have back-up attorneys. If a sole practitioner were to be on vacation or ill for an extended period, the attorney should have a standing arrangement to have a colleague fill in. Incidentally, we require a sole practitioner to have a secretary, to cross-check dockets and otherwise serve as a second set of eyes.

We want to be certain that attorneys make appropriate use of letters of engagement, which clearly explain to clients the scope of the law firm's representation; and letters of disengagement and non-representation, which are used to document that a law firm's relationship with a client has ended or to state that it never commenced.

We also evaluate how law firms use retainer agreements, which are particularly important in cases that a law firm accepts on a contingency basis. The agreements specify the expenses that clients will incur and how they will be billed. Much litigation against attorneys is brought by clients who have incurred large legal fees but claim to not understand how they were to be billed or to not have been told of expenses for which they'd be responsible in additional to billable hours.

We also look for potential conflicts of interest. We don't want attorneys to inadvertently represent two sides of a case–or even give that impression. Computerized systems for detecting potential conflicts of interest before a law firm engages new clients can help it avoid such problems.

We take a close look at law firms' accounts receivable. A significant percentage of accounts more than 90 days past is cause for concern. Long-overdue accounts may indicate clients who are dissatisfied with how they've been represented. When a law firm sues to collect its fees, a client may file a counterclaim for malpractice.

If more than 20% of a law firm's accounts are three months or more behind, that's typically a red flag, although certain types of legal practices will generate more past-due accounts than others. In family-law practices, in particular, clients tend to run up large fees in divorce cases and then pay them over time.

When interviewing law firms that represent plaintiffs in civil litigation, we ask for a list of expert witnesses the firms use. We want to make sure they engage qualified experts, because clients who conclude otherwise are likely to sue their attorneys, particularly in medical malpractice cases.

We want to ensure that law firms involved in real-estate work use qualified environmental consultants. The use of such experts obviously is a wise precaution in "brownfields" restoration projects and most other commercial real-estate transactions. They're not a bad idea in many residential real-estate deals either. We've seen homeowners sue real-estate attorneys over the alleged improper removal of lead paint or contaminated soil from their properties.

In general, we like to see attorneys take on less work themselves and outsource such tasks as title searches and environmental assessments to experts. We don't want attorneys to try to be everything to everyone. That's how they may wind up outside their areas of expertise and vulnerable to claims.

Explaining coverage

We take care to explain to clients the scope of coverage their policies provide. The two most important sections to go over are the professional liability coverage part and the definitions. The best policies actually say the least. In other words, you don't want a policy that specifically lists covered activities; rather, lawyers are better served by policies that grant broad coverage, then scale it back via exclusions. Assume a lawyer makes an error on a title search that he tries to conduct himself. As long as the coverage grant is broad and there is no exclusion for such activities, the lawyer is protected. Or maybe there is a defalcation in the lawyer's office–perhaps the lawyer's legal secretary steals a client's money and runs off to another country, something we've seen happen. If so, the lawyer has coverage under a broadly worded policy.

The coverage part of our admitted policy states, in part, that insureds have coverage for any wrongful act (emphasis added) and for claims "arising out of the 'professional services' rendered or which should have been rendered … and arising out of the conduct of the 'insured's profession as a Lawyer…."

In the policy's definition section, "professional services" is defined in part as "any services" (emphasis added) arising out of the conduct of the insured's profession as a lawyer." Meanwhile, "wrongful act" is defined in part as "any (emphasis added) actual or alleged negligent: act; error; omission; mis-statement; misleading statement; or neglect or beach of duty in rendering or failing to render professional services."

Coverage parts also set forth the policy's trigger mechanism. For instance, our admitted policy responds to claims first made during the policy period and reported in writing during the policy period or within 30 days thereafter. Thus, we point out to insureds that verbal communication of a claim is not sufficient; it must be reported "in writing." Also, if they want more than 30 days of extended ("tail") coverage, we point out options for obtaining it elsewhere in the policy.

The exclusions in lawyers' professional liability policies tend to be standardized. For instance, there typically are exclusions for violations of fiduciary responsibilities under the Employee Retirement Income Security Act, for employment practices claims and for work on outside boards, other than those for bar associations. Lawyers needing such coverage usually can get it via endorsement or the purchase of an applicable policy.

One crucial exclusion to point out is for wrongful acts that occur prior to the inception of coverage and that the client "could have reasonably foreseen" might lead to a claim. In fact, insureds must warrant in their applications that they are not aware of any such acts. If they are, they need to list them on the application–our insurer will then exclude coverage for them–and report them to their current carrier, which will provide insurance in accordance with whatever extended coverage provisions its policy affords.

The foregoing paragraphs highlight only a few of the coverage matters that need to be discussed with clients. Naturally, we spend a lot of time on policy particulars. The goal is to have an informed client, one who encounters no "surprises" should claims later arise.

Presentations

Lawyers who have not been sued for a long time–or ever–may feel they never will be. So in our presentations, we try to persuade them that the risk is quite real, and that even a frivolous lawsuit can be expensive to defend. We often cite claims from our own files–after deleting the names of insureds and plaintiffs, of course. After we run through the facts, the lawyers often are shocked to learn that they led to litigation. Here are a few examples:

–A divorce revisited: A party to a divorce that was closed for years reopened the case and concluded that counsel had erred in not thinking of every possible contingency. That led to a claim. It was too late to do anything about the divorce, but it wasn't too late to second-guess the lawyer.

–Investments gone bad: We've seen limited partners of money-losing real-estate syndicates sue the syndicate's attorney. He or she may not have done anything wrong, but the partners want to blame someone for their losses.

–Silent directors and loud critics: Attorneys who act as "silent directors" can run into trouble. A partner of a law firm may agree to sit on a bank board because he believes it was an honor to be asked and that the position will improve his standing in the local business community. His understanding may be that he was brought on mainly for his business connections and not to provide significant oversight. If something goes wrong, however, he may be sued for not trying to dissuade management from taking a certain course of action that he should have known was inadvisable, given his profession.

–Not getting it in writing: A client ostensibly agrees to a settlement on the courthouse steps, but it is too late in the day to memorialize it–that is, to have the client sign a notarized statement acknowledging that he understands that the settlement finalizes the legal matter and that the client cannot go back to it. Subsequently, the client says, "I never really agreed to that" and, with nothing memorialized to prevent him from doing so, sues the attorney.

Some attorneys feel they know their clients well and are sure they'd never be sued by them. But we stress there is a new breed of lawyer–one that specializes in suing other lawyers. They try to convince potential clients that their attorneys should have produced better outcomes for them, then offer to represent them. Ten to 20 years ago, lawyers were reluctant to sue other lawyers. The profession was almost like a club, and its members felt that suing fellow members could lead to ostracism. Those days, we tell clients and prospects, are gone.

It's no joke–lawyers are as apt to be sued as any other professionals, maybe more so. Our goal is to help them take steps to minimize that possibility and to provide coverage that will respond if they are hit with claims. That approach has enabled us to court and win a lot of business in the lawyers' professional liability niche.