Legal Malpractice
| Publication year | 1978 |
| Pages | 1109 |
| Citation | Vol. 7 No. 7 Pg. 1109 |
1978, July, Pg. 1109. Legal Malpractice
A. Craig Fleishman, Denver, is associated with the firm of Atler, Zall, & Haligman, P.C., and is chairman of the Colorado Bar Association Insurance Committee.
Centuries ago, Shakespeare said, in Henry VI, Part II, "The first thing we do, let's kill all the lawyers." Unfortunately, the lawyer's position and esteem in society has not markedly changed since that time, as evidenced by the April 10, 1978, issue of Time magazine, which epitomizes the current frustration and anger that the public is venting against the legal profession. The Time article complains of the prodigious rate at which new laws and administrative regulations are promulgated each year and notes that the number of lawyers has increased from 296,000 fifteen years ago to 462,000 today.
A 1{978 Harris poll found public confidence in lawyers at a par with Congress, advertising agencies and organized labor! Concomitant with the increase in public dissatisfaction with lawyers, we have seen a proliferation of legal malpractice suits and a shrinking of the number of carriers who are willing to insure members of the Bar. One used to be amused when one entered a colleague's office and saw sitting on his desk a slogan, "Sue the Bastards!" Unfortunately, in ever-increasing numbers, this phrase is more and more being applied to members of our profession.
This article explores legal malpractice insurance coverage as it is available in Colorado; the steps being undertaken by the Colorado Bar Association on your behalf to attempt to ameliorate the rapidly increasing cost of insurance; and also discusses many of the causes of legal malpractice.
We have just under 7,000 practicing attorneys in Colorado, most of whom have malpractice insurance. Of that number, 3,529 are insured with American Home Insurance Company, whose broker in Colorado is Risk Management and Insurance, Inc. There are approximately 1,800 lawyers working as inhouse counsel for corporations or in government positions in Colorado who need not have individual malpractice insurance or who, because of their positions, cannot find coverage. Approximately 500 attorneys are insured with Lloyd's of London through J.H. Minet and Company, Lloyd's broker in Montreal. Lloyd's provides $10 million basic coverage with a re-insurance availability of another $10 million subject to deductibles between $50,000 and $100,000. Because American Home's coverage does not approach Lloyd's
Prior to 1965, probably no more than 50 percent of the attorneys practicing in Colorado carried professional liability insurance. Those who did were paying around $50 for adequate limits. Today, most Colorado attorneys have coverage, but at significantly higher cost than in the mid-1960s. American Home's current rates bear witness to that fact. American Home's premiums have risen 338 percent since 1973. American Home does feel that it is just now at a premium level sufficient to make a profit, unlike previous year premium levels. A recent survey conducted by the Insurance Committee of the Colorado Bar Association, in response to the grave concern of many Bar members with regard to the Colorado malpractice crisis, revealed that 93 percent of the attorneys responding were interested in a Captive Insurance Company Program because of American Home's rates. Fully 97 percent of the lawyers responding to the survey endorsed a strong professional liability program, including peer review and mandatory CLE in the hope of decreasing current malpractice insurance rates.
Appendix "A" shows the annual premium charge for new attorneys or attorneys just beginning claims made coverage with American Home. American Home projects a 20 percent increase per annum above the rate in the base year for five years beginning your first year of claims made coverage, which, American Home claims, will be sufficient time for American Home to evaluate the profitability of its current premium structure. American Home considers the sixth year of its claims made policies to be the mature year (no further automatic increases, only those generated by loss experience).
For example, if you paid $451 for your first year of claims made coverage, you will pay $902 for your fifth year of coverage. If you paid $113 for the first year of coverage for legal assistant or paralegals, your fifth year coverage will cost you $226. American Home does not have a separate charge for secretaries, and it does not differentiate between partners and associates as to the annual premium charge per attorney in a law firm comprised of partners or shareholders and associates.
The annual premium charge per law clerk and per paralegal is shown in Appendix "A" under the premium charge per attorney. While paralegals and law clerks, in all probability, will not be sued individually for their mistakes, American Home justifies premiums for these individuals by claiming that their use by attorneys increases the potentiality for malpractice claims. Another reason may be that an attorney can generate more work, and thus more potential for a claim, with the use of paralegals than he could on his own.
A review of your American Home policy reveals the following information. American Home, the sponsoring company for thirty-six states, has no SEC exclusion in its basic policy in Colorado. Other insurance companies not offering SEC coverage in their basic policies may permit policyholders to purchase SEC coverage for additional premiums.
American Home entered the Colorado market in November of 1973 with an "occurrence" policy. Since January 1977, it has sold legal malpractice insurance on a "claims made" basis rather than on an "occurrence" basis. Under a "claims made" policy, a company will defend an insured on all claims that arise in a given policy period. As long as you have coverage with the company, it doesn't matter if the negligence arose in 1975 but the claim didn't surface until 1978. However, if you discontinued your coverage in 1978, the negligence arose in
A "claims made" policy creates the problem: "How does an attorney protect himself or herself from loss and/or attorneys fees expense stemming from a malpractice claim after retiring from the profession and ceasing to pay legal malpractice premiums?" American Home has furnished an answer. It will permit an insured, for 225 percent of his or her last annual premium, to "buy out the tail." This assures the attorney that if any claim arises after retirement, he or she will have coverage under American Home's base policy to the extent of the coverage afforded during the last premium year. This 225 percent payment may be made over a three-year period.
Parenthetically, it may be asked why the insurance companies have almost universally abandoned "occurrence" policies for "claims made" policies. The insurance companies have justified the switch to "claims made" policies because of the increasing length of time between the occurrence of malpractice and discovery of the same by claimants. The companies have also justified the switch to "claims made" policies because of the ever-increasing size of legal malpractice verdicts. Currently, it takes eight years for 97 percent of legal malpractice claims to be reported, compared to five years for medical malpractice claims.
The American Home policy does not apply to...
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