John is a third-generation member of his family’s law firm. His grandfather opened up a now-prestigious, nationally-recognized Washington D.C. firm many years ago. It’s New Year’s Eve Day and as usual, John is excited about the prospect of the coming year — another banner year. Life is great!
About 9:30 a courier package arrives from another firm — an almost daily event and more good news, no doubt. Many of John’s professional peers refer work to him and his firm. He opens the letter while sipping his coffee and glances at the first page. He frowns. Ruff & Oldmen are suing John’s firm for a contractual error and omission. Then he chuckles. He’s instituted strict workflows and guidelines for every single aspect of this file. Still …
The Research Begins
John calls in the two lawyers who worked on this case along with the paralegal who assisted them. He asks for copies of the file. What happened? Who did what and when? He calls in his two partners as this last day of the year is a “half day blow-off day.” They normally have a quick sandwich and even an adult beverage to celebrate another successful year gone by. Now they compare notes and scour the file. The room goes quiet. It seems that there has indeed been an error on the part of the two lawyers who worked on this case. The scary part is that it’s a technical error to do with a statute of limitations on filings, an error frequently committed by lawyers without consequence. But Ruff & Oldmen are demanding $2,000,000. John sends the other lawyers out and turns his chair to look out the window at the city. “At least I’m covered by my insurance,” he thinks. “At least I think I’m covered. I’d better be covered.” He sits up. “I sure hope I’m covered,” he says out loud.
John places a call to his insurance broker Lee, who of course is off until after the New Year and as luck would have it, New Year’s Eve is on a weekend. He fumbles for ten minutes to contact the insurance company’s 24-hour claims office. He finally gets hold of an adjuster who tells him to just “do your best” and “I’ll call you on Monday.” It will be three full days before John can talk to someone qualified.
The New Year. After three days of suspense, John finally talks to the adjuster who calmly informs him that he is, in fact, not covered for this particular incident. His lawyers’ professional liability policy has a lot of fine print — lawyers are supposed to know about fine print — which is full of exclusions. He had no idea that 99 per cent of all such insurance policies have this particular exclusion. He and his two partners will now have to defend this case and face the possibility of having to pay the full demand of $2,000,000 on a technicality.
The sad ending is that they settled out of court for $1,200,000 with $400,000 having to come out of each partner’s own pocket. Happy New Year! It didn’t have to be that way.
You have an insurance policy. Now ask yourself: Would you have known about this stated exclusion? Sure?
Growing the Practice
Evan owned a small firm with his brother Kenneth in Miami. They had a secretary/paralegal who was dynamite. Both brothers were well respected in the legal community for the way they practiced law. When a rival lawyer lost a case to them, the rival generally still felt good because both Evan and Kenneth were just plain nice gentlemen and fair and well-prepared lawyers.
Because they were so well liked, Evan and Kenneth were always being approached by peers wanting to join their firm. Somehow the timing never seemed right. But one day, they were approached by Jack Ratzer, one of the area’s top lawyers in their field of expertise. Jack wanted to retire early as he had made it big in real estate outside of his practice. The proposed merger made great sense because and Jack’s specialized skills were well matched to their own and the timing was right.
A deal was made. As a part of the deal, Jack was made a partner in Evan’s and Kenneth’s firm for one year during the transition period. The idea was to ease his clients acceptance that the brothers were indeed at Jack’s level and would offer representation that was in every way as satisfactory.
And what a year it was. Business was better than ever as the newly configured law firm doubled revenues. Life was indeed sweet. The brothers worked their tails off and earned every bit of their success Then, just shy of the one year mark, they received a certified letter that they were being sued for $500,000 for a client of Jack’s who was being sued on a land deal where he felt Jack made an error in his advise of this client.
Like John, the brothers’ thoughts turned to their insurance policy. Their lawyers professional liability insurance would cover this type of risk, right? They contacted the claims adjuster. To their shock and dismay, they learned that they had no coverage for this type. The exclusion that applied, known as “tail coverage” meant that although they had doubled their revenues, if judged against, they faced a substantial loss. In the end they settled at $350,000, of which they paid half up front. They subsequently got a bank loan to keep their cash flow in the black and ultimately their doors open.
Most lawyers and law firms are completely unaware that one hundred per cent of all insurance policies do not have coverage in cases such as John’s and the brothers’ disasters. A generalist insurance broker may have no awareness of such things, and anyway, a generalist can only offer policy holders what his or her company offers.
The thinking may be that such losses are unlikely to happen to ourselves or if they did, they’re sort of inevitable. In other words, there’s nothing you can do — just roll with the punches and take the hit. Neither thing is true.
The Specialist Knows the Insurance Companies
The legal insurance specialist knows and understands about such things, and not only is aware of how to add on such coverage so the client firm will be completely protected, but also knows exactly which insurance companies offers such add-ons.
Back to our medical comparisons. Again, heart surgeons. There may be hundreds of heart surgeons around the country, but the top surgeons work out of about five primary hospitals known for their premier heart surgeons. In the same way, as a law-firm insurance specialist, I’m aware of each of the top insurance companies and the specialties that each one offers.
The surprise for most lawyers is that this kind of coverage is extremely affordable. The problem is not that such coverage is cost prohibitive; the problem is lack of knowledge and lack of awareness.
If you find you do not have this coverage, you are well within your rights to fire your generalist insurance broker. It’s your livelihood at stake.
Leverage and Respect
When I become aware of these kinds of coverage needs, I go to the top insurance companies and bring it to their attention. Working as a liaison between insurers and customers, I suggest how they can better serve their policy holders. Top specialists have the leverage and the respect of the insurance companies who can then write specific add-on products for that are tailored to lawyers and law firms. You will never have this kind of specialized service from an insurance generalist. Can you afford that kind of risk?