Professional Liability Insurance and the Bar Sponsored Program
| Publication year | 1985 |
| Pages | 1621 |
| Citation | Vol. 14 No. 9 Pg. 1621 |
1985, September, Pg. 1621. Professional Liability Insurance and the Bar Sponsored Program
In approximately 1973, the Colorado Bar Association ("Bar") sponsored American Home Assurance Company ("American Home") as the carrier offering the most favorable coverage at the most favorable rates to Bar members. By the late 1970s, many insurance carriers had entered the marketplace and were willing to negotiate favorable policy terms with state bars. American Home was approached concerning lowering its rates to Bar members and expanding the nature and extent of coverage accorded under its policy. American Home refused to consider either.
The Bar's Professional Liability Insurance Committee ("Committee") solicited proposals from about six insurers, and proposals were received at approximately 33 percent below American Home's rates with more favorable policy provisions. Therefore, the Board of Governors voted to stop sponsorship of American Home and to sponsor North-brook (of the Shand group of insurance companies). American Home quickly reduced its rates and began to offer more favorable coverage.
Over the ensuing years, approximately five additional rate cuts occurred as the breadth of coverage continued to expand. Interest rates were high and the insurance companies were making substantial profits on the investment income gleaned from premium dollars. Also, 67 percent of all claims against lawyers were dismissed by the courts or were voluntarily withdrawn without payment. Of the remaining 33 percent of the claims, 70 percent were settled (or judgment entered) for $25,000 or less. Thus, insurance carrier losses were at an acceptable level. However, over the last twenty-four months, interest rates have fallen so dramatically that the carriers have been unable to earn the substantial returns on investment dollars. Concomitantly, the number of claims against attorneys began to increase dramatically, as did the verdicts. The number of claims dismissed or voluntarily withdrawn without payment being made dropped from 67 percent to 50 percent of all claims. As a result, the carriers began to set aside substantial reserves for legal malpractice claims.
The carriers began to trumpet to the public that a "legal malpractice insurance crisis" had occurred. In truth and fact, the "losses" claimed by the carriers have been dramatically inflated because of the significant reserves for each claim which the carriers have counted in their losses. As is known by lawyers with...
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