How to fix your partnership agreement now so you don’t fight about insurance later

Your law firm partnership agreement is a working document for the firm as well as a guide to what would happen should the partnership end.  Most agreements lack direction when it comes to dealing with the professional liability insurance in the event of an ending to the partnership.

It is well accepted by firm partners that law firms need professional liability insurance to cover their practice.  As a matter of asset protection for the partners, the insurance policy and firm cash are the only protection between your client-turned-plaintiff and your personal assets.  It is less discussed and known that firms need professional liability insurance coverage after they cease practicing together as a firm to cover the trailing personal liability from the legal work completed during the life of the firm.  This coverage is issued as a policy endorsement called the Extended Reporting Period Endorsement, also known as the “tail policy”.

Having been involved as the insurance broker in many law firm closures (and related disputes), it is common for partners to disagree about the tail.  Your partnership agreement should clearly address the tail issue to short circuit needless disagreements, sleepless nights, and fear of claims chasing you into retirement or a career with another firm.

Your partnership agreement should state that in the event the partnership ends, the firm will execute all tail options available to be paid by firm assets.  This makes sense to all of the partners that the insurance coverage that was adequate during the active practice period should continue the needed protection for the subsequent personal liability in the post active practice years.  In rare circumstances, the tail options limits might not be enough insurance for the future liabilities, but as a rule of thumb and starting point, it must be agreed that as a minimum the firm will execute its available tail options.  Your professional liability broker can help you with that too.

What other law firm partnership issues related to risk management do you suggest for effective managing partners?  Post your suggestions below.

Five Filthy Flaws in your malpractice insurance—How to avoid and clean them

There is a right way and a wrong way to save money on your professional liability insurance.  Here are the Five Filthiest economic mistakes law firms make in their malpractice:

1)  Area of Practice Misclassification – The professional liability application is the face of the firm.  A key part of the application is the area of practice grid where you indicate the areas of practice that make up your firm’s activities.  Many firms misclassify their work, unknowingly into more expensive categories.  For example, Litigation may be an appropriate category but Defense Litigation (a lower rate) would be more appropriate.  There are countless of examples where drilling down (even when you have to write it in the margins, or explain via addendum gets the lower rate).

2)  Deductible selection.  Since in personal insurance it frequently makes sense economically to raise your deductible, some firms raise their liability insurance deductible to save premium costs.  This almost always does not make sense in comparing the risk / reward (lower premium) in professional liability insurance.  The pay back period in premium is frequently more than 15 years per claim!

3)  Limit selection.  The most important “big” decision on the insurance purchasing process is how much limit you should buy.  There are various matrix methods for selecting the appropriate limit for your firm (case size, lawyer count, exposure analysis, etc.), but not using ANY method for this decision can be a big mistake.  Within reason, the entire purpose of buying this insurance is to be able to practice law without putting your personal assets at risk.  Excess insurance is the least expensive than it’s been in 20 years – find out the cost, and make an informed decision.

4)  Term erosion.  If your firm’s current insurance program has term enhanced policies, it is tempting to eliminate these improved terms to save premium.  The most common term enhancements are improved coverage for legal fees such as – Defense Costs In Addition to your liability limits (aka Defense Outside) and Loss Only Deductibles whereby the firm is only exposed to pay the deductible in cases of judgment or settlement.  This is a very valuable provision since a tiny percentage of claims actually reach the judgment or settlement stage – most malpractice costs to law firms are legal fees only.

5)  Not reporting claims.  In deciding not to report potential claims to your insurance company, you are putting short term pain (higher short term premiums) ahead of catastrophic pain should the non reported claim blossom into a claim and not be covered by insurance or the blossomed claim used against you by your insurer as an omission to void your coverage for another future costly malpractice claim.  In today’s competitive market, the difference in a reporting firm philosophy (with no subsequent claims) will likely result in a 5% – 6% surcharge.  In observing many claims situations at firms, premiums can be handled by current firm revenues, while an uncovered claim is far harder to manage.

Your insurance broker needs to properly advise you on these Five Filthy Flaws.  If yours is not, mention this blog post and my team will provide you with a free analysis of one of the issues above.  E-mail me at

What Dewey & LeBoeuf Employees Need to know about Medical Insurance

Medical Insurance Issues

Virtually all medical plans that involve employee contributions operate under Section 125 of the Revenue Code which sets forth the rules for taking contributions on a pre-tax basis. One of the caveats is that you can only change your election at open enrollment or if you have a life event. Loss of your coverage is a life event. If a firm goes bankrupt and there is no successor firm then COBRA coverage is not available.  We recommend the following:

Monitor the situation. If you have availability of spousal coverage, you can only join their plan within 30 days of actually losing your coverage or at open enrollment.

  • Check the website of the Insurance Department in the state where you live. Some states are better than others for individual coverage. InNew York, the rate are prohibitive. Also, some states allow individual underwriting.
  • Check with your local, state and National Bar Associations or other organizations that you belong to.
  • If you are eligible for Medicare, pick up a supplemental plan and Part D drug coverage. Make sure you are enrolled in Medicare Part B.

Make sure that you do not go more than 63 days without coverage. Under Federal HIPAA rules, if you had not had coverage for 63 days, then your new insurer can impose a pre-existing condition limitation.

Attention Dewey & LeBoeuf lawyers

Issue Summary:

We help individual lawyers (and groups of lawyers) who work at law firms facing bankruptcy purchase insurance policies to cover their professional liability exposure that will remain with them personally beyond their current employment.


An attorney’s professional liability exposure is personal.  Under normal circumstances, law firms provide ongoing coverage for its lawyers for legal work done at the firm.  Absent any firm assets or insurance policies in place, the individual lawyers will likely be held personally responsible for defensive legal fees and any settlement or judgments for any malpractice they are alleged to have committed.

Professional liability insurance policies are claims made in nature.  Coverage will be provided by the insurer that is in place at the time of the claim.  When law firms are facing bankruptcy there is a cloud of liability insurance uncertainty as to if the firm has insurance currently in place, for how long it will be in place, and if a long term tail will ever be executed for the lawyers who work at the firm.  The large law firms that have entered bankruptcy over the past years have a spotty history of providing this coverage on a long term basis.

The Solution: Individual (Small Group) Tail Insurance

Anyone who worked at any time at the bankrupt firm should inquire about this coverage.  Even if the lawyers have not recently been employed at the firm, absent this solution under discussion, there will not be any coverage for the previous legal work when they were employed by the firm.  Professional liability claims lag the actual legal work completed by 2-4 years.

Why Now?

The lawyer’s marketability to move to another law firm is significantly impaired by the uncertainty of future liability claims.  The individual tail insurance will give the new firm a sense of security that the lawyer will not be distracted by uncovered claims.

There is tremendous anxiety for lawyers who want to close this chapter of their careers.  The long process of unwinding the firm or bankruptcy proceedings will drag on for months if not years.  This product returns the control and certainty of the situation back to the individual lawyers.


Each lawyer (or group) must complete an application that describes their areas of practice, claims history, revenues, etc.  We will then submit these applications to our approved insurance companies who understand the unique exposures that we are discussing.


Won’t my new firm provide me with professional liability insurance?

Common practice in the legal industry is that the new firm will only cover you for legal work as of the date you join the new firm.

What is the downside to purchasing the individual coverage?

The premiums might be significant depending on the exposure and experience of the lawyer being underwritten.

What if the bankrupt law firm does purchase a firm-wide tail policy in the future?

Even if there is a tail purchased at some date in the future, it will likely include a large deductible unsuitable for individual finances.  The individual policy may be able to cover that exposure and here may not be sufficient insurance limits available to the lawyer in the future.

Who are we?

Risk Strategies Company is a regional insurance broker specializing in insurance and risk management solutions for law firms. Contact Uri Gutfreund 212-826-9744.

Stop buying health insurance, start buying Health Care – Your Four Point Strategy for 2012

Your firm has a comprehensive costly top tier insurance plan with unlimited benefits.  When a catastrophic illness or injury impacts you, your medical insurance will LIKELY fail your needs.  Why?  Even top of the line expensive health insurance policies are no longer structured to fully cover your health care needs.  There are so many limitations and protocols in group health insurance policies that more and more people are experiencing for the first time, the pain of the growing gap between health insurance coverage and their health care needs.

When you or your family members are faced with a life threatening illness or sudden injury, you will work non-stop to be treated by the best medical professionals in the quickest time possible utilizing the best of the medical system.  Issues of costs, insurance company procedures: doctor limitations, facility limitations, and even the hours needed to get appointments with the right people take large amounts time. 

Months later, when the bills are totaled, your health insurance policy will likely cover 50-60% of the total costs.  Non covered charges, cost sharing provisions, large copays, non-network doctors (particularly surgeons) and non-network facilities are commonly part of your health care solutions to complex issues. 

Out of Network = Out of Coverage

Insurance companies have limited the out of network reimbursable coverage through artificially low limits on what fees are “reasonable”.  While historically, out of network coverage fees were calculated based on a metric called “usual and customary” (70th or 80th percentile being recognized as appropriate), many insurance companies have moved to a method of calculation using 140% of the Medicare rates as appropriate.  We estimate the 140% method of calculations to a 30-40% reduction in fee coverage!  On a complex medical issue, this is an additional $30,000 – $40,000 out of your pocket.

Your 2012 Strategy:

Your simple health insurance policy is not enough to cover your health care needs.  While health insurance plans are the foundation for your total health care needs, today’s buyers need to consider:

1) Tax Optimized Plans – Out of pocket costs X your tax rate, ie 1.45 = real cost of out of pocket health care spending.  Know your numbers.

2)  HSA, FSA, HRA type plans – these are critical tools to consider in your new vision for funding health care, not health insurance.

3)  Group health care supplemental plan – A correctly implemented Group supplemental plan for you and your key staff members is fully insured, compliant with tax rules, a tax deductible business expense for the firm and is not taxable income to the employees. The basic benefit plan covers out of pocket expenses on a “per occurrence” basis each year.

4)  Concierge medical advisors.  Group plans can be set up for your firm where you receive unbiased, up to date medical information when faced with a new illness or condition.  They can also assist you in getting timely appointments with the right doctors when time is critical to respond to your condition.

Make 2012 the year you stopped buying health insurance and start buying smart health care solutions.  The right planning now will set you up to be financially secure when you are hit with health challenges in the future.

Surprise! Your professional liability insurance underwriter doesn’t understand the practice of law.

Have you ever felt that your professional liability insurance underwriter does not know how a real law firm works?  The shocking truth is that most are not lawyers, have never practiced law, and therefore are misguided as to how a law firm works and how legal services are provided.  This causes unnecessary questions, erroneous overpricing, and fewer options for a law firm seeking excellent coverage at a fair price.

Three recent examples:

1) An underwriter thinks all SEC work (think IPO risk) is the same so overcharges for a firm that advises on small private placements.   Another recent SEC misunderstanding was an underwriter who classified a firm that does complex corporate litigation as an SEC firm and required them to complete a long (completely unrelated) Securities supplement (1933/34 issues) since a tiny fraction of their practice is representing defendants from SEC actions.

2)  A firm’s insurance was cancelled since the underwriter didn’t understand that in a given year a large IP litigation can make the regular 10% (in a general practice firm) go up to 20% in one year.  The underwriter judged the firm as becoming an IP firm (think Patent).

3)  An insurance company canceled a mid size General Practice / Commercial firm since they deemed them a Class Action law firm (higher rates than commercial).  Their “crime”?  They defended one of their clients who are one of many defendants in one class action suit.

So what can you do to protect yourself from being negatively impacted by underwriters?  The first step is to consider if what you are being told makes sense.  If not, question your insurance company and question your broker.  All too often, brokers act like messengers from insurance companies and parrot the insurance company nonsense.   Assuming that your broker understands themselves these issues, they must work to educate the insurance underwriter.

The bad news is that some underwriters cannot be educated enough to insure complex law firms.  The good news is that the New York law firm professional liability insurance market is so competitive that a specialist law firm insurance broker can manage a 15 company reverse auction.  You’ll never persuade all 15 insurance companies, but if done right you will have good options every year.

Law Firm Landlord – 5 General Liability strategies to keep the rent money and avoid the risk – Part II

In our last post about the Law Firm Landlord, we addressed the Law Firm Landlord’s professional liability exposures and in part II below, we will address the general liability insurance risks involved when subleasing your office space to another firm.  While it is tempting to receive the rental income, you must follow certain steps to insure that you are not exposing your firm to additional costs and liabilities.

Let’s consider this scenario – your tenant has a visitor who gets hurt after tripping and falling over files on the floor in your tenant’s office.  You, as the law firm landlord, could be involved if this scenario resulted in a lawsuit.  Here are five ways you can help reduce the impact of these and other types of general liability risks for your firm:

1)  Make sure your tenant has their own Commercial General Liability Insurance for the leased space.  Require the tenant to name your firm as an additional insured on their General Liability policy.  The additional insured status gives you some protection if you are brought into a suit due to your tenant’s negligence as it relates to the office space.  Typically there is no cost for the tenant law firm to have their landlord named as an additional insured for General Liability.

2)  Have the tenant provide you with a certificate of insurance showing their current General Liability policy and your firm as an additional insured.  Your firm should be listed on the certificate as the certificate holder.  Obtaining a copy of their policy helps to make sure they have insurance, but it is not enough.  By being named as a certificate holder, you can be notified if their policy is canceled.   You should ask for a certificate every year.  Set a reminder in your calendar to request an updated certificate from the tenant about 30 days prior to their policy expiration date.

3)  The General Liability, additional insured and certificate requirements should actually be part of your tenant’s lease.

4)  Make sure the tenant understands you are not providing insurance for their office equipment.  The tenant must purchase their own property insurance.  Typically, they can purchase what’s called an Office Package policy which can provide coverage for both their General Liability and Property.  These policies are inexpensive and easy to obtain.

5)  If you are providing the tenant with any office equipment, you should have some type of agreement in place detailing who is responsible for repairing or replacing the property if it is damaged or destroyed (for example due to a fire caused by the tenant).

These tips will help your firm collect the rent without collecting the lawsuits.  If you have any other tips on this issue, please share them by commenting below.  What’s worked and what hasn’t worked in your situation?


Public Service Announcement: Empire Blue Cross Ending the Plus Wraparound Plan

The Tradition PLUS Wraparound Plan from Empire Blue Cross (the plan you didn’t mind paying a fortune for), will be disappearing in January.

Partners, S-Corp owners, LLC members loved this plan.  Yup, the one that lets you go to any doctor or hospital with a $200 deductible and $400 coinsurance cap, not to mention the $7 drug copay and private duty nursing coverage the plan had.  Even though the plan’s cost was really high – over $15k a year for single coverage, many people found that it was worth paying the pre-tax premium instead of paying for expenses with post-tax dollars.

Blue Cross is now alerting these loyal customers that they will no longer be allowed to keep this plan past December 31.  As companies look for a suitable replacement, they soon realize that buying standard plans off a spreadsheet in the managed care arena just doesn’t work.   The good news is that there are solutions, but you’ll need to move fast because it could take a bit more time to put it together right.

Get started now.  Discuss with your broker today.

Law Firm Landlord – 5 strategies to keep the rent money and avoid the liability risk – Part I

It is very common for a law firm to sublease its extra space to a smaller law firm or solo practitioner.  While it is tempting to receive the rental income, you must follow certain steps to insure that you are not exposing your firm to additional costs and liability.  From a risk management perspective, there are two main areas of concern:  professional liability risk and general liability risk.  In this post, we will deal with the professional liability risk and our next post will deal with the general liability risks.

When your tenant gets sued for malpractice, it is common for the plaintiff (the one suing your tenant) to include you in the suit.  Since you are usually the larger firm, the plaintiff (the one suing your tenant) will assume that you have more assets and more insurance coverage.  The courts have viewed these issues from the perspective of the expectations the client had at the time the services were performed.  That is, did the client think that your lawyer tenant was part of your firm?  If yes, he may have a valid claim that in fact your firm was representing him, and you might be held liable under an apparent agency theory.

While the good news is that the law firm landlord usually gets out of these cases eventually without a finding of liability, your goal is to get out of the case earlier and cheaper in the lawsuit process.  There are five easy to implement strategies that you can employ to lessen the impact of this risk:

1)  Physically demonstrate where one firm ends and the other firm starts.  Tenants should have their own office area, staff, equipment, phone lines, web domains, email addresses, etc.  Behind the scenes technology (i.e. internet provider) sharing can be okay.

2)  Avoid any possible confusion by clients.  Tenants must make it verbally clear to any potential and actual clients that they are not part of your firm.

3)  If the client has retained both you and your tenant for a related transaction or problem, you must have an extra clear engagement letter detailing the work to be done.

4)  Never share letterhead with your tenant.  If you do this, you can bet your deductible that this will be Exhibit A against you in a professional liability claim.

5)  Insurance Requirement:  In your sublease, require your tenant to maintain a certain amount of professional liability insurance.  Though it might not be entirely practical if the tenant is a much smaller firm, it is a good idea to require the same limits of coverage that you have on your policy.  If the tenant has adequate insurance, it lessens the likelihood that the plaintiff will try to reach your policy.  Don’t accept copies of their declarations page to prove coverage, ask for a certificate of coverage.

These tips will help your firm collect the rent without collecting the lawsuits.  Our next post will cover what you need to do to protect your firm from the general liability risks involved in being a Law Firm Landlord.

What’s the most common claim against law firms? Hint: 50% of all law firms think it would NEVER happen to them so they don’t insure against it.

Employment practices liability claims and circumstances are the most frequent legal claims against law firms today.  The insurance policy for these claims, called Employment Practices Liability Insurance, is cheap and with the right law firm industry customization (details below) can protect these headline grabbing cases from turning into your worst nightmare.

What is it?  Employment practices liability insurance policies (EPLI) provides defense coverage (legal fees) and settlement / judgment reimbursement for employment related claims such as allegations of harassment, discrimination, wrongful termination, wrongful discipline, etc.  The policy is relatively inexpensive – around $200 per employee covered.  While often these claims do not have any merit, there is still the expense of defending your firm and its reputation.

Every law firm EPLI policy should include:

  • Third party coverage.  This provides coverage for discrimination and harassment claims from people other than your employees (i.e. vendors, court reporters, clients).  Watch out for policies that include Third party coverage but exclude claims made by clients.
  • Coverage for failure to make partner/ promote should be provided.  Some policies that are not specific to law firms may not include this coverage.
  • Prior Acts Coverage.  As a new policy, it is far more valuable with this clause.
  • Wage and hour law defense sub-limit – most policies exclude wage and hour law claims for law firms.  Some policies will give you a sub-limit to defend these types of claims.  If available, it’s usually a very minimum or no cost to have it added to your policy.  Ask about it.

The most common excuses why law firm don’t buy the coverage:

“But we would just defend ourselves anyway”

Reality check: Think about how much time that takes away from other (billable) work you could be doing.

“But we have great long term employees and partners that wouldn’t do anything wrong and all get along well together”

Reality check: Even disgruntled prospective employee who feels they were wrongly denied an opportunity to work at your firm can cost you money without the coverage.

“We don’t have an employee handbook?  The application is asking about our handbook – now what?”

Reality check:  Don’t worry.  Some insurance companies will allow you to purchase the policy and give you a certain time period to get an employee handbook in place.  Some insurance companies even have online programs with sample handbooks, policies and procedures to help you create a handbook.

Employment Practices Liability Insurance is one area of insurance firms often dismiss until AFTER they have a claim.  Speak to your broker today – don’t let that happen to your firm.