Most of us believe we can easily identify a real estate property that’s “distressed”. It’s pretty obvious when looking at a photo or visiting the property in question. It may not be quite so easy to identify a distressed law firm as respects their professional liability insurance.
Insurance companies that underwrite professional liability for attorneys will consider some of not all of the following risk characteristics when classifying an account as distressed, or hard to place:
- CLAIMS – Just because a law firm has had a claim does not necessarily make it hard to place. There may well be standard, admitted markets willing to quote that account. Key elements to consider are the details of the claim, when the claim occurred and the outcome.
- DISCIPLINARY PROCEEEDINGS – An attorney could be subject to fines, license suspension or revocation (disbarment) as a result of a variety of action/lack of action. As with a claim, a disciplinary complaint against an attorney does not automatically disqualify them from the standard insurance market. Repeated offenses probably will cause your prospect or client to seek coverage in the non-standard market.
- SUITS FOR FEES – It’s certainly not illegal or unethical for a firm to bring a legal action against a client that has failed to pay for legal services. The problem is that frequently that results in a counter suit from the client, alleging that the law firm committed malpractice, among other things. While a single suit for fees on an application for insurance may not disqualify an account, expect few if any standard markets to quote a law firm that makes a habit of suing their clients for fees.
- AREAS OF PRACTICE- These are the disciplines or categories in which an attorney or firm works, or practices. Domestic law is an area of practice, as is Taxation, Insurance Defense and Criminal law. Areas of practice considered “distressed” will vary by insurance company, but a few that are consistently going to create problems for standard companies include: Intellectual Property, Securities and Class Action (Mass Torts). You may also find that many carriers are now limiting what they can write for firms that are heavily involved in Real Estate, as well as Copyright, Patent and/or Trademark. Much of this will vary by state, or areas within a state.
- NEW IN PRACTICE WITH ANY OF THE ITEMS MENTIONED ABOVE - An attorney just starting out in their own practice, especially if they’ve just graduated from law school, will have a smaller pool of companies willing to offer professional liability insurance. If the attorney or firm is new and is also dealing with a disciplinary action, claim or other item listed above, it's almost certainly going to be considered a distressed account.
Many of the issues listed here can be risk managed to prevent them from happening to begin with, or minimize the chances of a recurrence. We're happy to give you some ideas along those lines as well.
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