Law Firms' Changing Landscape of Risk

"It just seems to be more prevalent in this time than in the past," Pihlstrom says. This trend is evident particularly in areas where assets are impacted, estate probate trust, family law, corporate law, various kinds of asset management and real estate. "When people lose money in deals they look for someone to blame and sometimes it's the lawyer," she says.

Moreover, a tough economy often pushes lawyers to inadvertently increase risk–more marginal cases, more suits for unpaid fees (leading to counterclaims for malpractice), more job mobility and more young lawyers who hang out their own shingle when big firms don't hire them.

In response, OneBeacon is working more closely with brokers and its insureds to carefully evaluate and accurately underwrite the actual risk that law firms face and to help to educate policyholders about their growing number of risk factors and how to better manage them.

Electronic Exposure: Information and Technology Liability

From the exponential growth of information technology has emerged a multiplicity of risk factors affecting firms of all types, including lawyers.

"Lawyers who are sometimes not the most technologically advanced are having to deal with issues like electronic discovery, keeping privacy data secure, communications through electronic media, networks, and so on," Pihlstrom explains. "All of these things have changed substantially in the last 20 years."

Of course, "It's not something new that lawyers hold a lot of confidential information," notes David Molitano, OneBeacon's Vice President for Technology, Media, Network security, and Miscellaneous Professional Liability. "What has been happening over the last 20 years, especially the last 10 years, is that a lot of that information is electronic. So exposures that happen with that continue to grow. Lawyers now are holding things on networks and laptops, for example, trade secrets if you're a high-level patent attorney. So their due diligence increases accordingly."

Molitano's advice to lawyers: Make sure there is no gray area in their professional liability coverage. And beyond client data, don't forget that law firms hold employee data that can be stolen, a risk not covered under professional liability policies.

"Coverage should be clear, and both parties to the contract should know what's covered and not covered," adds Pihlstrom. "But it's such a new area, in terms of claims and exposure, so we continue to look at it and develop new underwriting and risk management approaches as things evolve."

Employers' Liability: A Growing Risk

Like malpractice suits, employee claims are familiar turf for lawyers. Until recently, most law firms haven't worried much about their own liability as employers. That's changing fast, according to Laurie Sablak, product manager for OneBeacon's employment practices liability insurance (EPLI).

"Right now is an interesting time for law firms because their business models are changing, and a lot of that [is being] driven by economy," she explains. "So law firms are looking to shrink their workforces at levels not seen previously," even as they look to extract maximum productivity from their lawyers and support staff.

Changes to law practices manifest in various ways–a push for early retirement (even as lawyers often seek to work past normal retirement age), outright layoffs, withdrawing hiring offers to summer associates, postings of more experienced lawyers to pro bono positions, introduction of merit-based pay practices and client pressure to shift from billable hours to project-based costing.

"All of these changes make law firms vulnerable to employment issues," Sablak says. "Are changes made without discriminating against a protected class? With downsizing, are firms able to pay as much attention to diversity in that process? Is their mandatory retirement policy antiquated? And, in addition to these issues, we still see a number of traditional claims for sexual harassment, employment discrimination and claims related to medical and maternity leave."

Salaried staff, such as paralegals, as well as independent contract employees, also represent an emerging exposure.

"We've seen an uptick in firms being scrutinized by departments of labor for potential wage and hour violations," Sablak notes. "A lot of wage and hour claims come out of former employees having another type of problem in the workplace. They think they're being discriminated or retaliated against, then a plaintiff's attorney may find that there's a wage and hour issue that may be even more compelling than the discrimination claims. That's how a lot of these wage and hour issues are coming to the surface."

Fortunately, law firms can learn from their experience, not only by maintaining adequate professional and employers' liability policies, but also proactively reducing their risk through risk management efforts, communicating clearly with clients and employees and maintaining up-to-date employment and information management policies.

"Firms do make themselves a better place to work as a result of this process," Sablak says. "They may end up being better insureds because of claims."