1976, December, Pg. 1794. Lawyers' Professional Liability Insurance: The Problem and Some Solutions.

• Author: by Edward A. Jersin

5 Colo.Law. 1794

Colorado Lawyer

1976.

1976, December, Pg. 1794.

Lawyers' Professional Liability Insurance: The Problem and Some Solutions

1794Vol. 5, No. 9, Pg. 1794Lawyers' Professional Liability Insurance: The Problem and Some Solutionsby Edward A. Jersin and Paul D. RennerEdward A. Jersin is Chairman of the Colorado Bar Association Insurance Committee and Paul D. Renner is Vice-Chairman of the Denver Bar Association Insurance Committee.1795Recent years have seen an enormous increase in the number and size of professional liability claims against lawyers, accompanied by an alarming shrinking of the market or availability of professional liability insurance.

A major insurer of this class of business nationally had one claim presented for each 41 lawyers insured in 1971. By 1975 this ratio was one claim for each 29 lawyers insured. At the end of 1971 it had 1,038 outstanding or open claims with an average value perclaim of $5,622. At the end of 1975 this had increased to 2,123 outstanding, with an average value per claim of $11,938, for 34 percent more lawyers than it had insured in 1971.

Pro-rating this for the same number of insured lawyers would indicate an increase from 1,038 outstanding claims to 1,583 and an increase in combined value from $5,735,636 to $18,903,735 for outstanding claims. This represents a 300 percent overall increase in volume and exposure.

Results for other companies are similar. CNA reports nationwide a 10-12 percent rise in number and cost of claims in every year since 1970. Today CNA receives four claims for every 100 lawyers insured each year, twice the 1970-1971 rate. It now also figures that each out-of-court settlement costs $9,000 plus expenses. As a result, CNA has cut back to 5,000 attorneys from the approximately 25,000 it insured in 1970.

The Travelers, which entered into an ambitious state wide plan in California (approximately 20,400 attorneys), has had such adverse experience that it has sought rate increases of 383 percent this year alone in its basic coverage (already at $330 per attorney per year) in violation of its contract with the local bar associations, and anticipates further increases of 25 percent per year for the foreseeable future. As a result, Travelers is currently involved in litigation on its rates and contract in Alameda County. Fireman's Fund simply left the market in 1974.

Rates are going up in all states. For example, proposed increases by insurance commissioners range from 500 percent in Arizona and South Dakota where attorneys currently pay as little as from $60 to $70 for minimum coverage, to 1251796 percent in California, 225 percent in Massachusetts, and 300 percent in Ohio. Insurance rating agencies asked for increases of 500 percent in Nevada and 425 percent in Kentucky, but were limited to 200 percent in both cases by the insurance commissioners (see "The Bar at Bay," Wall Street Journal, February 3, 1976).

THE PROBLEM IN COLORADO

In Colorado, the problem was similar to the national problem in that the lawyers arranged for Lawyers Protective Coverage through the bar association and issued by the St. Paul Companies in 1971. This coverage brought the St. Paul Companies $225,000 in premiums and $282,000 in reserves for losses, with $70,000 expenses by 1974. In 1975, it brought $244,000 in premiums, $832,000 in reserves for losses, and $73,000 in expenses. St. Paul started issuing endorsements to limit coverage and excluded Securities Exchange practice and Rule 10 B(5) violations from coverage. The insurance commissioner called the company's attention to the provisions of Rule 265 of Chapter 33, 1963 C.R.S.:

Lawyers may form professional service corporations for the practice of law under the Colorado Corporation Code, providing that such corporations are organized and operated in accordance with the provisions of this Rule. The articles of incorporation of such corporations shall contain provisions complying with the following provisions:

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G. The articles of incorporation shall provide and all shareholders of the corporation shall agree. . . (b) that all shareholders of the corporation shall be jointly and severally liable for all acts, errors and omissions of the employees of the corporation except during periods of time when the corporation shall maintain in good standing lawyers' professional liability insurance which shall meet the following minimum standards:

1. The insurance shall insure the corporation against liability imposed upon the corporation by law for damages resulting from any claim made against the corporation arising out of the performance of professional...