Lawyers Professional Liability Insurance for the Distressed Risk
Below is a MRR and PLR article in category Finance -> subcategory Insurance.
Lawyers’ Professional Liability Insurance for Distressed Risk
Summary:
Professional liability insurance is crucial for lawyers, but not all can secure it in the standard marketplace due to being labeled as "distressed." What does this mean, and what options are available?
Understanding Distressed Risk
A distressed risk signifies difficulty in obtaining professional liability insurance due to frequent or severe claims or disciplinary issues. Unlike “hard to place” risks linked to high-risk practice areas like Personal Injury or Patent law, distressed risks involve significant past claims or disciplinary actions. This often results in limited coverage at higher premiums. However, some markets, especially surplus lines insurers, cater specifically to distressed firms.
The Role of Surplus Lines Insurers
Surplus lines are sometimes viewed negatively because they aren’t protected by state insurance guaranty associations, nor are their rates regulated by the State Insurance Commissioner. Nevertheless, reputable surplus lines insurers are assessed by agencies like A.M. Best and approved by state insurance departments. When choosing one, ensure it is an approved surplus lines insurer and holds an A.M. Best rating of at least A VII. Many standard insurers have surplus lines facilities for applicants who don’t fit standard criteria but are acceptable under modified terms.
Choosing a Broker
Finding a reliable broker specializing in distressed placements is essential. A knowledgeable broker can identify an insurer capable of covering potential claims efficiently. Important questions for the broker include:
- Does the insurer specialize in professional liability?
- Is it approved as a surplus lines insurer with a strong rating?
- Does it handle claims internally or use third-party administrators?
- Will it work with you on choosing defense counsel?
- Is the insurer committed to defending against unfounded claims?
- Will the insurer keep you updated and involve you in claim strategies?
Examining the Policy
Once an insurer is identified, review the policy’s strengths and weaknesses with your broker. Key considerations include:
Prior Acts Coverage
Distressed markets often offer "retro inception" terms, where the policy's retroactive date matches its start date. In this “no prior acts” scenario, an Extended Reporting Period (ERP) from the previous insurer might be necessary. Evaluate this option carefully, considering factors like:
- Does suspension of your license void the ERP?
- Are claims costs included in the policy’s limits?
Policy Restrictions
Common restrictions in distressed policies may include:
- Consent-to-settle provisions
- Exclusions for certain practices like SEC-related work
- Exclusions for specific malpractice actions
- Defense costs included in, and eroding, policy limits
- Coverage limited to actions on behalf of the named insured
ERP options often have shorter terms (12-36 months) and high costs compared to standard policies.
Presenting Your Case to Insurers
For favorable terms, represent your practice positively. Underwriters focus on your proactive measures to rectify issues leading to past claims. Be transparent about claims and corrective actions. Provide loss reports from previous insurers and a narrative of improvements made to avoid future issues.
Assistance for Distressed Firms
Small or mid-sized firms facing difficulties can explore solutions like DefenseProSM Lawyers Professional Liability. Administered by Lockton Risk Services, it is designed for distressed firms. For more information, visit [DefenseProSM](http://www.defenseproliability.com).
You can find the original non-AI version of this article here: Lawyers Professional Liability Insurance for the Distressed Risk.
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