Legal Malpractice: an Overview-part I
| Publication year | 1984 |
| Pages | 1819 |
| Citation | Vol. 13 No. 9 Pg. 1819 |
1984, October, Pg. 1819. Legal Malpractice: An Overview-Part I
Over the last decade, the availability and pricing of lawyers professional liability insurance has followed the same pendulum extremes that occurred in most casualty lines. A look at the history of the market, an examination of the claims that have been brought against lawyers, a study of the type of insurance currently available, and consideration of the underwriting problems might provide a better insight into this line of coverage.
The first lawyers professional liability insurance was written by underwriters at Lloyd's, London. In the 1960s, several large domestic property and casualty carriers entered the marketplace. Though Lloyd's offered this coverage on a "claims-made" basis, American carriers preferred the "occurrence" form.
It was during the early 1970s that the insurance cycle began its pendulum swing, having a disproportionate effect upon lawyers professional liability coverage. Perhaps a personal experience will best illustrate what happened. Its ring will be all too familiar to those who experienced the various "crises" of the early and mid-1970s.
In 1972, a major carrier that the author represented issued a memo to all of its producers stating that it would no longer offer one-year professional liability policies to attorneys. The carrier had determined that the $35 annual premium charged for $100,000/300,000 occurrence coverage, with no deductible, was no longer economically feasible. As a result, all future policies would have to be written on a three-year prepaid basis at 2.7 times the annual rate, or about $95. Several of the author's insureds were outraged.
Imagine the clients' surprise three years later at the expiration of their policies. Their carrier had not only increased premiums several times during that period, but also had subsequently withdrawn from the market. The best deal the author could put together for them was a "claims-made" policy with a $1,000 deductible that applied to both indemnity and defense. The annual premium was around $450.
In the mid-1970s, loss experience was deteriorating and several large claims involving SEC matters had been filed against attorneys. This, coupled with the "capacity crunch," caused many carriers to withdraw from the lawyers professional liability market, and premiums for this protection were forced upward. To help fill the void, several specialty carriers entered the marketplace, and, like Lloyd's, began to offer the coverage on a "claims-made" basis. Gradually, the "claims-made" form came to be accepted both by insureds and insurers, and has come to be the prevailing form of coverage today.
By the late 1970s, after most property and casualty carriers experienced more profitable results and investment returns began to increase, several new insurers entered the lawyers professional liability marketplace, including several alternative insurance mechanisms. The early 1980s have witnessed intense competition in the commercial insurance marketplace, as reflected by the availability and the downward pricing of all professional liability coverages. Lawyers professional liability insurance is no exception. At present, this coverage is available from a relatively large number of sources, and policy forms and rates reflect the competitive nature of today's marketplace.
At the time of this writing, however, the pendulum appears to be swinging upward again. Already there are signs of a "hardening" market, as several of the larger markets for lawyers professional liability insurance have just announced
Studies by the Society of Chartered Property and Casualty Underwriters ("CPCU") demonstrate that one first must identify the problem in order to understand and manage the situation. In terms of lawyers professional liability, an understanding of the claims situation is an appropriate way to start that process. Claims frequency will be examined first.
According to one authority on lawyers professional liability:
Malpractice decisions between 1970 and 1980 quadrupled over those reported in the prior decade. In fact, in the last ten years there were almost as many reported legal malpractice decisions as in the previous history of American jurisprudence.(fn1)
Why has the frequency of claims against attorneys increased so dramatically? Perhaps a list of social and economic factors at...
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