Risk Factors In RPLU Insurance - The Application Process

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1 May 19-22, 2014, Toronto ON Canada Errors, Omissions & Scares-PLI! Professional Liability Insurance Unmasked Presented by Uri Gutfreund LI24 5/20/2014 3:00 PM - 4:30 PM The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 Errors, Omissions, and Scares PLI! Professional Liability Unmasked Uri Gutfreund, RPLU Law Firm Insurance Guru Singer Nelson Charlmers, a Risk Strategies Company Goals For Today Unmask the process The market What you need to know about the process Where you should be spending your time How to do handle the process Why worry at all? 1

3 What You Will Learn Daily risk management Selecting your broker The application process Choosing the right deal I. Daily Risk Management Culture of risk management Rules and regulations Who reports what to who 2

4 I. Daily Risk Management Client Intake Mutual Good fit Financial How were you selected Can you do the job to their satisfaction Their history with other lawyers I. Daily Risk Management When Bad Things Happen To Good People The bill The collection What s next The right way to do the deed The insurance company 3

5 I. Daily Risk Management What to Expect When You Reported A Claim Confirmation of receipt Claims representative Coverage letter Reservation of Rights What s not normal II. Selecting Your Broker Timeline Application Coverage Insurance Company Third Party Analysis 4

6 II. Selecting Your Broker How To Do It Why broker at all? Interview Specialty Experience Ask the Questions III. The Application Process The Face of the Firm Who? What? When? Best foot forward Story of the firm Completed with advocacy 5

7 III. The Application Process Key Areas That Make a Difference Areas of Practice Complicated attorney count Expand the questions Claims questions III. The Application Process Areas of Practice What do you do EXACTLY? Underwriters are not practicing lawyers Translate your areas into the grid Use your best judgment 6

8 III. The Application Process Expand the questions Always or sometimes Written policies Additional time frames III. The Application Process Claims questions Never attach papers Always learn from experience Have loss runs Good explanations especially for open items Get professional analysis 7

9 III. The Application Process Common Mistakes Misclassification Yes or No Sometimes Website up to date IV. Choosing the Right Deal Reverse Auction Process Broad Deep Loyalty is dead 8

10 IV. Choosing the Right Deal The Options What you need not what you got Limit - AOP and profile Deductible capitalization of the firm Executive timing Partner participation at the right times IV. Choosing the Right Deal Key Provisions Prior Acts Dates Limit Deductible Structure Defense costs Territory 9

11 IV. Choosing the Right Deal Key Provisions Prior Acts Dates Limit Deductible Structure Defense costs Territory Exclusions Fraud Growth Personal Injury IV. Choosing the Right Deal The Right Insurance Company Rating Specialty Longevity Counsel 10

12 Conclusion Know where you stand Know where you want to go Use information and professionals to get you where you want to go Questions? Uri Gutfreund, RPLU Law Firm Insurance Guru Singer Nelson Charlmers, a Risk Strategies Company Phone: Uri.gutfreund@singernelson.com Connect: Law Guru Blog: 11

13 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. Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

14 The 10 Point Professional Liability Insurance Comparison Checklist The 10 Point Professional Liability Insurance Comparison Checklist: The fine print that you need to know in buying professional liability insurance. Part 1. When competitively bid, premiums were down another 10-15% for most law firms on their renewals. But comparing quotes is more complex then just the premiums and deductibles. You have to rely on your broker to explore all of the insurance companies and analyze the offers to your needs. While you might not worry too much about an exclusion for SEC claims in a quote if you only do plaintiff personal injury work, you should worry about the SEC exclusion if you do Trusts and Estates work. We have seen very broad SEC exclusions so that the client could be without coverage should a claim arise in a tangential practice area. Your broker has to read the entire exclusion (not just the summary) and discuss it with you. Here are the first 5 categories of points of differentiation that are relevant to your law firm: 1) Prior Acts Coverage the most important part of your policy is coverage for legal work that you have done in the past. Some policies are firm wide dates and some have specific attorney dates. Get this wrong and your policy is worthless. 2) Limit Per claim or Aggregate. Depending on your practice and risk profile, structure accordingly. 3) Deductible Per claim or Annual Aggregate. Again, depending on your practice area, this can be important. 4) Defense costs Do these expenses erode your limit and deductible available for settlement or judgment against you? This item is critical for your appropriate limit selection in your purchase. 5) Territory If you have any parts of your firm internationally, review this carefully. In our next post, we ll discuss the next 5 important points of comparison that emanate from the policy definitions and exclusions. This is the really small fine print that determines if your premiums are being well spent or wasted. Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

15 The 10 Point Professional Liability Insurance Comparison Checklist (Part 2) The 10 Point Professional Liability Insurance Comparison Checklist: The fine print that you need to know in buying professional liability insurance. When competitively bid, renewal premiums continue to be at their historic low points. But comparing quotes is more complex than just comparing the premiums and deductibles. You have to rely on your broker to explore all of the insurance companies and analyze the offers to your needs. Our 10 Point Professional Liability Insurance Comparison Checklist (Part 2) 1-5) First 5 listed here: : Prior Acts Coverage, Limit, Deductible, Defense costs, and Territory 6) Exclusion for claims where you sued for fees. If you would EVER sue for fees, be aware and do not have this in your policy. 7) Exclusion for SEC / Banking claims. If you would EVER do work that touches the exclusion, be aware and do not have this in your policy. 8) Exclusion for Investment Advice claims. Beware. We have seen some very broadly written exclusions that might exclude Trusts and Estates work. 9) Fraud Exclusion. To varying degrees, policy languages differ on the presumptions of innocence or guilt when determining if insurers will cover the defense of fraud claims. Since fraud allegations are often thrown in with regular malpractice cases, take this into consideration in your purchase matrix. 10) The definition of Personal Injury in the exclusions is sometimes broadly written and should also be in your purchase matrix. Bonus Tip: Fully understand how changes in your firm size will be treated by your insurance companies. With changes, some insurance companies place notice requirements on you and some may charge additional premiums. Lawyers are known as the experts in the fine print. Make sure you understand your own policy fine print that determines if your premiums are being well spent or wasted. Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

16 7 Habits of Highly Effective Professional Liability Insurance Applications Your professional liability application is the single largest piece of information that insurance company underwriters use to determine what premiums and terms they offer. As brokers, we spend a considerable amount of time helping our clients put their firm in the best light possible with their application. This is a time consuming process for all involved but delivers large returns on the investment of time. 1) Area of Practice. There are broad areas of practice categories that are viewed by insurance companies as the riskiest, i.e.: SEC, IP, Plaintiff, etc. What you might not know is that within those categories, some areas of practice are NOT viewed as risky. For example, within the broad SEC category, private placements are not charged as a high risk practice. Go though each of these areas with your broker to provide further information where needed to make sure that you are not overcharged unnecessarily. 2) Claims Questions. Make sure that you answer all of the questions here. Do not just attach the legal papers and say, see attached. Underwriters do not read the papers. Most importantly, explain what you ve done to avoid claims in this area of practice. This will help your broker make the argument that this type of claim is less likely to recur. Bonus tip: read the time period requested carefully. Some applications ask for 5 years of claims only. If so, don t send in 6 or 7 year old claims. 3) Expand the questions. Though most of the questions are Yes or No feel free to explain. For example if the question asks, Do you send Declinations to all potential clients? Though the answer might be NO (since you don t do it for ALL potential clients), you should provide when you do provide declination letters. For example, many firms do provide declination letters to potential matters if they met in person with the prospective client. 4) Executive attention. The trend emerged in the 90 s for law firm executives to delegate the application to non-executives. This resulted in many costly errors and too high premiums for law firms. Executives and Partners are the best equipped to understand the intent of the questions and fully answer the questions and categorize the areas of practice most efficiently. They are also best able to work with your broker on the claims information (see item 2. above). 5) Of Counsels. When counting the number of attorneys the question is usually a general one How many Of Counsels are there at the firm? Even if the question is generically written, it behooves you to further explain this position in your firm. Are they full time or a few hours a year? Most insurance companies, if they are told about it, will discount if your Of Counsels are non-full time attorneys. No need to pay full rate for a part timer Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

17 6) Application should be typed. Sounds silly, but this matters. Underwriters are human and interpret a hand written application as a firm that is not sufficiently technology savvy to run a modern law practice. 7) The application must match your website. If your website says you do something, you should proactively explain why your application says something else. Many underwriters do look at your website and get uncomfortable if they don t match what you wrote in the application. Upgrading your application is the single best way to improve your professional liability options. In today s economic climate, the best run law firms are working with their broker to leave no application stone unturned. Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

18 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 Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com

19 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. me at uri.gutfreund@singernelson.com. Uri Gutfreund, Law Firm Insurance Guru at Singer Nelson Charlmers, helps law firms navigate through the complexities of liability and health insurance policies. As a Registered Professional Liability Underwriter, he is a frequent speaker and writer on insurance and risk management issues for law firms. uri.gutfreund@singernelson.com