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Top 10 Things to Consider in Your Legal Professional Liability Policy with Richard O'Regan - YouTube
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>> Hello my name is Dick O'Regan, I'm with
Mercer in San Francisco.
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We administer the State Bar sponsored lawyers
professional liability program.
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Lawyers professional liability insurance is
not required by the State Bar, but is strongly
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encouraged as a way to protect yourself and
your clients, should there be an error or
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omission.
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If of course if you form an LLP or PC the
insurance is required.
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Now the bar has asked me to put together a
list of ten things to consider, when you purchase
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professional liability insurance.
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The first is these policies are written on
a claims made basis.
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This means that the policy in force is the
only policy that can pay a claim.
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When you first purchase a policy.
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The first policy will more than likely have
a prior ax retroactive date.
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For example if you buy a policy effective
August one 2015, it will more than likely
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have a prior ax retroactive date of August
one 2015.
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This means that the policy will cover claims
reported during that first year only based
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upon acts that occurred after the retroactive
date.
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Because of this the premiums are relatively
reasonable the first year, but each years
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policy has to cover another years worth of
work or prior ax exposure.
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So the premium does increase each year until
you reach the full prior ax or mature rate.
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Now every carrier has a different schedule
for their prior ax factors.
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Some carriers go up every year for four years,
some max out at five, some max out at eight
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years.
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When you reach the full prior ax mature rate
the premiums should flat line depending upon
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of course changes in your practice, or changes
in the carriers rate structure.
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Now there's a number of things to consider,
when you look for prior ax, professional liability
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insurance.
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The first thing is, is the carrier admitted
or non-admitted.
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An admitted carrier files their program with
the California Department of Insurance.
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They file their rates and their underwriting
criteria.
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They can only underwrite based upon this filing.
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In the event that you have a complaint against
the insurance company, you can make a complaint
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to the California Department of Insurance
and they will advocate on your behalf.
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Also in the event that the carrier goes bankrupt,
becomes insolvent.
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The California Insurance guarantee fund will
kick in the paid claims for insolvent admitted
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carrier.
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A non-admitted carrier or surplus lines market
does not file their program with Department
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of Insurance, it's more of a buyer beware
policy, Siga will not apply.
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If you have a complaint you cannot go to the
Department of Insurance.
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There are the many fine surplus lines carriers
offering coverage in California.
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And if you consider a surplus lines carrier,
please look at the financial's with your broker.
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Find out what their best rating is, how much
surplus they have before you make a decision
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to go that route.
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Another aspect you need to consider is how
long the carrier has written coverage in California.
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Over the past 30 years there's probably been
30 professional liability carriers who have
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entered the state and then withdrawn from
the state after they've suffered severe losses.
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Normally it takes four to five years for a
carrier to determine whether or not they're
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making money in this product line, because
it takes that long for the larger claims to
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go through the legal process.
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You want to deal with a carrier who has experience
in dealing with this product.
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Another question you want to ask about is
claims handling.
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Where is the claims staff?
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A lot of companies use claims staff that are
based in the Mid West or New York.
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You really want to prefer to work with claims
people in California or at least in the same
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time zone.
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So you can get a quicker response to your
matter.
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The initial contact with the claims department
is very important.
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Now most of the carriers end up using the
same defense counsel, but your claims contact
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is important that they be lawyers, that they
be experienced and that they know what they're
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doing.
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Now in terms of the policies itself most lawyers
professional liability policies, cover the
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same thing, they cover professional negligence
as an attorney.
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But you need to ask the carrier or the broker
about the exclusions in the policy you're
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considering.
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Many policies have exclusions for securities
work, entertainment work, copyright patent
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work and there's a number of policies on the
market today that have exclusions that eliminate
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coverage for any claim that originally emanated
or began with a suit for fees.
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So if you don't sue for fees you're doing
ok.
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Another aspect a very important exclusion
in the policies, is every policy has an exclusion
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for representing a client where you have a
financial interest.
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Now that financial interest could be 1% it
can be 10% it all depends on the specific
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policy.
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But if you're doing a corporate practice where
you may have some investments in your clients
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you need to look at this exclusion very very
closely.
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Another thing you need to ask.
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Is what's the carriers position regarding
reporting incidents?
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Every company encourages their clients to
report it's and it's circumstances.
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Which could be expected to be leading to a
claim in the future.
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Normally companies will not penalize you for
reporting these incidents.
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If you report it they might set it up with
a 20 dollar reserve, because it's on the books
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and in the event it turns into a claim three
years down the road.
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You've reported it, the carriers on the hook
for the claim.
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If you report many incidents though in a policy
year it could cause a red flag and cause a
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carrier to contact you and go why did you
report six incidents in the last month.
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But generally you want to report it, because
if you don't report an incident under the
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terms of the claims made policy.
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You didn't report it becomes a claim next
year, you new about it last year, you could
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have a coverage problem with the carrier.
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One other aspect is area practice.
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Now when you look at an application, you'll
see multiple areas of practice.
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What ask you what percentage do you do under
criminal defense work, how much under workers'
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comp.
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The underwriter all acknowledge that these
are estimates, they're best guest estimates.
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They understand that a small law firm you
can't predict year in, year out how your business
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is going to shake out.
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Now the important thing to remember though,
is you don't want to intentionally misrepresent
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your area practice.
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If you do you could have a problem when there's
a claim.
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Companies do resend policies when they can
prove that an insured misrepresented their
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practice to avoid paying the proper premium.
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Two final points to consider.
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Is the policies written in California have
defense costs within the policy limits.
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The so called incredible shrinking policy
where every dollar paid for defense costs
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reduces the amount of money available to pay
a settlement or an award.
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Now many carriers offer an additional claims
expense fund that can help you.
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If you'd ask your broker the carrier, does
the carrier have this fund, can I buy additional
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claims expense limits.
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Because when you buy small limits, it limits
the amount that the defense firm can pay or
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work to defend you.
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And the last issue going through the life
cycle of a policy.
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Is the extended reporting provisions under
the policy.
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Most policies have a provision that in the
event you don't renew, either you decide not
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to renew or you're not renewed by the company.
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That you have an option to buy an extended
reporting period commonly called a tale.
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Tale's are expensive, now many companies today
have instituted a new provision.
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That if you stay with the company for a certain
number of years, five to seven years and you
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retire from the practice of law.
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They would give you a free tale.
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They would say that you've paid in, you've
paid enough money, here's the endorsement
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enjoy the rest of your life.
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And the last question we get is should I use
a broker.
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California is a unique state, there are a
number of very qualified brokers who specialize
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in this product.
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If you choose to use a broker, I strongly
advise you to use a broker who understands
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the business.
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This is not a product to go through your neighbor.
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This is a product you want to deal with a
broker who understands the business that can
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help you get placed with the proper carrier.
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Those are my answers, those are my questions.
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If you have any questions please contact the
State Bar at the numbers on the Cal Bar website.
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Thank you and have a great day.
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