December 30th, 2015
Follow these five easy steps and you will certainly overpay and buy the wrong professional liability insurance for your firm. When you speak to your peers or have a claim, you will find that you paid far more than you had to and there’s a good chance that your claim won’t be covered at all. So if you are looking for higher end-of-the year business expenses or uncovered losses to deduct – you’ll be set!
Five Easy Steps:
- Select your broker for not good reason at all. Use an insurance generalists, like the mom and pop place on the corner, or a mail away insurance program where you never speak to an experienced person (i.e. press 1 if your firm starts with A-D, press 2 if your firm starts E-N).
- Avoid all brokers that specialize in law firms and don’t ever buy Cyber, Employment Practices Liability, Valuable Papers coverage, that are customized to law firms.
- Mail back a hand marked copy of last year’s application that is barely legible. Give vague answers and don’t provide any follow up information especially on the claims sections.
- When in doubt, add all of the less risky expensive specialties in your percentage total to the more expensive practice areas. Just pile into the catch-all Securities, Corporate, IP, and Class Action categories.
- Do not report incidents or matters that could give rise to a claim during your policy period. Better yet, don’t even discuss them with your broker to eliminate any possibility of coverage.
If you follow these five easy steps, I guarantee higher end of the year business deductions. You will get the opportunity to share with your management team how this year there won’t be any bonuses or distributions. Happy New Year.
December 5th, 2014
Everyday, there are reports of another company being hacked (Sony, Target, Chase, etc.). A New York law firm was recently attacked by a sophisticated cyber fraudster attempting to steal a substantial amount of money. Learn from this incident so that it doesn’t happen at your firm.
What Happened: The firm received an email from the other side’s attorney requesting the transfer of funds. The routine instructions were to send the funds from the recent real estate transaction to their bank account. Everything looked in order. The referenced real estate deal had just closed and the request was on firm letterhead, sent to the right lawyer at the firm, and with routine proper instructions for this type of transaction.
The astute attorney at the firm sensed something seemed a little not right. Hard to quantify, but something about the lawyer’s language seemed a bit oddly worded. The attorney called the other attorney who was shocked and horrified. He had not sent the instructions and learned that he was the victim of a sophisticated but simple cyber fraud.
How: The criminal fraudster illegally gained access to the small law firm’s email system. For some undetermined time, he monitored the email account – reading the emails, learning the legalese, and waiting patiently to strike. He saw the emails about the transaction being completed and then applied what he had learned in drafting the fraudulent instructions to the larger firm. Put on stolen firm letterhead (easily accomplished in a virtual letterhead environment), the criminal instructed the transfer to his bank account attempting to steal the proceeds.
So what can you do to protect your firm?
- Pick an amount in transfers that require verbal confirmation to the requester (whose identity you must know) by initiating the phone call to them. Like requiring double signatures on large firm expenditures, it’s inconvenience, but worth it. Unfortunately, even if your firm environment is secure, your counter parties can harm you and your clients.
- Make sure that your crime insurance coverage is properly structured to include these kinds of frauds. While there may have been some Cyber Insurance coverage applicable in this scenario, cyber coverage limits are frequently insufficient for these larger losses.
- Have Cyber Insurance in place to cover you for the fallout from breaches (as the attorney in the case above) when they occur at your firm. While these policies are narrow in the cyber scope and not structured to cover outright theft, they are critical to crisis management when you do (and it isn’t if – it’s when) get breached by cyber criminals. This policy is currently very inexpensive.
- Hire street-smart people and train them. Lawyers and non-legal staff have to adapt to the new world. Just like we all adapted to walk alertly at night in dark neighborhoods, we need to conduct business defensively so as not to become cyber victims.
We have become highly reliant on our computers, software, and the internet. It has made us more efficient, knowledgeable, and profitable. While some of the inherent risks can be controlled and monitored to a certain extent, virtually all businesses are susceptible to cyber crime. This insurance policy is a necessary way to transfer risk and support you at the time of crisis. Speak to your law firm insurance advisers to keep your firm from suffering from this kind of cyber plot.
September 17th, 2014
Sometimes when we are asked to review a firm’s professional liability insurance programs, there is nothing wrong with the existing policy language but upon further review, we uncover that it’s COMPLETELY wrong for THIS firm. This is the top 5 square insurance programs for round firms:
1) It’s way too expensive. The premium seems ok (average) at first glance but after further review, we find a well-run firm with an excellent claims history with a low risk practice profile. Average premiums for them is way more than they should be paying.
2) The layer structure is all wrong. There are various ways to layer policies but all methods need to be quoted annually. In situations where quota share make sense, layering will come out more expensive and lacking in coverage coordination. Rule of thumb – more than 20 million should be quota share. Under 20 million should be layered.
3) It’s the wrong deductible structure. Low deductibles frequently make sense for firms that have lots of little nuisance claims. The low deductible transfers the claims administration and risk on the multiple losses to the insurer. Conversely, a firm that rarely has claims that purchases a low deductible is likely wasting premiums.
4) The application is misleading. The insurance application is technically correct but far too vague for the insurer to have a correct understanding of the risk and related premium that needs to be collected. Common errors are with litigation firms and corporate securities work. Both areas of law, while technically the same area of law, can have very different risk profiles and related premiums.
5) Not enough coverage. The limit is enough for the average firm, but the firm is above average in its limit need. They might handle large transactions, large and complex cases.
Your professional liability insurance program needs to be customized by a broker who can create the best possible program for your firm. Off the shelf products as exampled above, lead to overpaying and inadequate insurance in your times of need.
July 17th, 2014
Having the right amount of coverage is important, maybe the most important factor, in your insurance program. While there are detailed processes (here) we suggest to figure out what limit you need, here are four signs that you have too little malpractice coverage:
1) “Same limit as ten years ago” – Times have changed – deals are bigger and clients are more inclined today than before to sue their lawyers when the outcome is less than expected. Lawyers are under tremendous pressure to do more and more legal work in less time – pressured by clients and pressured by their desire to keep hitting high financial goals.
2) “You haven’t reviewed higher quotes in years” – All methods of selecting your limits use a financial benefit cost analysis, ie weighing the premium cost against the risk. Excess coverage premiums are half of what they were 10 years ago. This lower cost makes old analysis obsolete. The new analysis needs to be done with your broker with the new premiums in mind.
3) “Misunderstanding your limit” – Many firms have an historic affinity for coverage that has defense costs separate or in addition to their limits. While this is a nice feature to have, the reality is that insurance companies sometimes charge significant premiums far in excess to risk of your benefiting from this extra coverage. The tradeoff, in premium, by eliminating this feature can usually free up enough premium dollars to purchase significantly more coverage. In 99% of the claim cases, the actual higher limit and not the limit feature will best protect the firm in times of need. Insurance companies today do not spend a significant amount of money defending claims and are more likely to quickly assess and settle the matters. Exceptions where defense costs can be significant, are complex commercial litigation, IP litigation, and securities work.
4) “You don’t know what coverage your peers have” – Since many professional liability claims include multi-party defendant firms, for example multi-party litigations, it is important that you have similar coverage amounts to avoid not having enough coverage for global settlements. It is also important to know what your peers have so that you don’t buy too much insurance – wasting money and making yourself a “deep pocket” target.
Doing the extra analysis with your broker when you purchase insurance can ensure having the right amount of coverage. Don’t wait until you have a claim to find out. Take the first steps to fix the problem here.
June 25th, 2014
After law school, lawyers know big bills. But nothing unnerves the seasoned litigator more than getting exorbitant vague notices of funds due after a traumatic surgery. Their own surgery or a family member’s, no one is in a state of mind to deal with this mound of paperwork filled with insurance and medical jargon.
Use these 5 steps to plan for a financially successful surgery:
- Understand your Health plan – Unless you are moonlighting as a health insurance adviser, review your health plan documents with your firm’s insurance broker. Of course you can always contact the Insurer’s member services division to learn exactly how your coverage works.
- Research your Hospital – Contact your Hospital’s billing department to learn whether the Hospital contracts, or participates with your insurance company’s network. If you discover that they don’t, your insurance claim will become Out of Network resulting in larger out of pocket costs.
- Research network compatibility of all physicians involved in your procedure – This includes Assistant Surgeons, Anesthesiologists, etc. Inquire with your Doctor or Surgeon to discover if anyone involved with your care is not contracted with your Insurer.
- Compare Costs – Healthcare Blue Book (www.healthcarebluebook.com) is an excellent source for comparing the expense of surgical procedures, drugs, Labs, and possible rehabilitation amongst various hospitals and providers. Choosing a different location could result in a better financial outcome.
- Negotiate Out of Network expenses – Question and challenge any expense that you find erroneous or suspicious with your hospital and insurer. Outside of personally haggling with your Insurance company’s Claims division or the billing department of your hospital on your own, your broker can advocate for you through the bureaucratic process.
The uncertainty of surgery does not need to become an uncertain financial boondoggle. Use these 5 steps to take control and become an educated consumer.
June 11th, 2014
It’s true. Managing partners are making some key mistakes that are costing the firm money and more importantly, imperiling their firm. They are pressed for time, so some of these mistakes are from a lack of attention, but it’s mostly from a piecemeal understanding of key decision points for their professional liability program.
The four mistakes:
1) Areas of practice Most partners erroneously assume that this is a routine item on the application that can be handled by the legal administrator. In reality, non-lawyers often make mistakes on this section that can cost the firm significant extra premium and put the coverage when needed in jeopardy. Insurance companies will source this section for misleading information (or fraud) even when it wasn’t intentional.
2) Coverage limit How much coverage to purchase is usually the last decision of this multi month torturous process. Eager to move on to actual billable legal work, managing partners underestimate the importance of how much coverage they should have. Most firms just buy what they had in last year’s policy, but after many years of not reflecting litigation inflation and changes in the firm risk profile, this can be a substantial error. This analysis should be carefully and thoughtfully analyzed with your broker. Learn how by clicking here.
3) Claims Reporting to your insurance company and disclosing updated claims information on your application is a critical role as managing partner. Your broker can help you do it correctly, but missteps here can void your coverage.
4) Choosing your broker Lastly, choosing your professional broker to represent your firm is the most important decision (should be the first in the shopping process). The main point is to choose the broker just like you are choosing any professional – who will best represent you to others. Check their qualifications. Try these questions.
Managing Partners do not have time or ability to become experts in every topic. By focusing your time on these four areas, you will be maximizing your time serving your firm.
October 16th, 2013
If properly reported to insurance companies, your professional liability policies cover you for claims made against you for errors and omissions in your practice of law. While most claims are reported when you first are put on notice of an impending lawsuit, other times it is appropriate to report a claim when a circumstance arises that you think can rise to a claim in the future. Your obligation to report potential claims are both in your policy as a requirement as well as listed in your annual application. You must disclose to the insurer events also called “circumstances” that can reasonably become a claim. Common examples can be – mistakes that occurred in the handling of the matter, a lost calendar matter, or an irate client that seems convinced that errors were made in your legal work, etc.
Since insurance companies use reports of potential claims in their underwriting matrix to determine annual premiums, it is common for managing partners to weigh if they should report these events or wait until something more concrete like an actual lawsuit develops to report the claim to their insurer. The logical justification is that since in most instances “circumstances” do not result in a claim, there is no need to report it until you know for sure.
This is a flawed argument and it imperils your firm and your future financial health. The real truth is that even if you are comfortable that this actual “circumstance” won’t mature into a full blown claim, an insurance company may use your lack of timely reporting of the event to either disclaim coverage on this particular claim or catastrophically attempt to void your policy when you seek coverage on a far larger unrelated claim, citing this mistake as evidence that you completed an untruthful application.
Do not give the insurance company an excuse for denying your claims. We have seen it happen and it is a difficult position to overcome. The only way to conservatively run your firm is to report potential claims to your insurer. It is 100% true that reporting potential claims can cause your premiums to rise. Our experience is that a firm that reports potential claims can pay as much as 10% higher compared to one that reports no potential claims. The 10% penalty however is far better than risking the coverage when you need it most – for the multi-million dollar claim. When in doubt – discuss with your broker AND report.
August 14th, 2013
Watch this post – Length 2 minutes
Lateral hiring is a statistical disaster. Is it the right move your firm?
A survey from American Lawyer found that “96 percent of managing partners said they expected to grow through lateral partner hiring over the next two years, yet only 28 percent reported that lateral hiring had been a highly effective strategy in the past.”
So can Lateral Hiring work?
The Law Firm Insurance Guru recently moderated a conference on the topic with a panel of industry experts. The program entitled – Lateral Success: How to find, attract, and develop your next rock star partner answered this question.
Click here to watch the segments: http://www.risk-strategies.com/lateral-success-seminar/
In these 90 minutes, you’ll hear from law firm talent experts and successful managing partners what strategies work for attracting top talent, deal making with top talent, and integrating your new talent into your firm. With the right planning, lateral recruiting can work.
William D. Henderson – Professor of Law, Indiana University Maurer School of Law
Arthur Levin – Founder and President, AGL Associates,
Sam Roberts – Senior National Executive Director, Mestel & Company
Click here to watch the segments: http://www.risk-strategies.com/lateral-success-seminar/
What’s worked for your firm?
April 17th, 2013
As old as the practice of law, the rare but always present need to deal with clients who do not pay their bill has persisted. There are the accounts receivable calls, the awkward reminder calls, the pressing deal-making December calls and every other follow up procedure that you have implemented in the firm to avoid legal confrontation in court by suing your clients. By this point, you have offered a discount settlement and maybe mediation but at some point you have to decide to sue or not to sue in the effort to collect your duly earned fee.
Before you proceed, consider these three important considerations:
1) Impact on you current insurance coverage – Check with your broker that you do not have an exclusion for coverage for claims that are in response to suits for fees. Though these exclusions have been rare recently, we used to see unsuspecting law firms contain this provision. If you have this exclusion, there is NO coverage for claims in response to a suit for fees.
2) Impact on your application and future premiums - Many insurance company applications ask how many suits for fees the firm has initiated in a look back time frame (usually one or two years). It is important to discuss with your broker where you stand in your total and in the impact on your firm’s risk profile. For a small firm, more than a few per year can have significant negative impact on your premiums and terms.
3) File Review – Have a second pair of eyes review the file. One of your partners should review the file with a critical eye to possible communication errors and legal errors. If it’s a significant or complex matter, consider hiring an outside firm to review the file for weaknesses. See excellent Fee Collection Checklist -click Fee Collection Checklist here.
There is an old law firm risk management saying that suing your client for fees is the “invitation to the dance” i.e. to the counter claim for malpractice. While many claims do start with a suit for fees, not all suits for fees lead to counter claims for malpractice. The best risk management strategy to avoid “having to sue” for your fee are to watch your accounts receivables so that you don’t put yourself in that position.