Several times a year, we receive a call from a law firm managing partner. It goes like this:
“We have had a tough year and have had a number of claims (or potential claims) against us. Our malpractice insurance broker has told us that getting insurance is therefore tougher for us this year compared to the past and in fact our current insurance company is non-renewing / cancelling us.”
The client pauses, swallows hard and then explains the reason for their call.
“We used to pay X for our insurance per year for the firm. In light of our current situation [referenced above], the only way to get insurance is to buy two policies: 1) a tail policy from our old insurer and 2) a policy from a new insurer to cover the new legal work going forward. The problem is that the tail coverage is 2-3X (two or three times) our annual premium and the new policy will cost us about 2x (twice) what we used to pay too.”
So when the costs are added up, this law firm is going to pay four to five times their regular premium this year!
Why is this a scam on law firms? Because 99.9% of the time, there is a far less expensive way to purchase the insurance. The purchase of a Tail PLUS another policy rarely makes sense. Insurance brokers peddling this scam are either inexperienced in representing law firms (and don’t know better) or see their clients’ travails as opportunities to earn higher commissions. Why do law firms fall prey to this? They believe the story told to them and are often only told the grim news at the very last minute when the firm is desperate to lock in their coverage at any price.
The best protection against this trap is to interview another broker who specializes in law firms in your area. Bring them in, look them in the eye, and ask them point blank what they think of your specific situation and how they have helped their clients deal with your issues in the past. If they can’t answer to your satisfaction, interview another broker. Repeat your search until you have specific action plans from law firm insurance specialists.
