By Jack Compton, Advisor at SGP Advisors
With law firms in the collection and default space facing unprecedented levels of compliance demands from clients, coupled with what has become an almost insurmountable level of scrutiny within the industry, adhering to insurance requirements has become a major obstacle. Over the past six years, fueled by the legislative climate, the frequency of alleged professional liability claims has reached staggering levels. This, amplified by changes in the insurance marketplace, has skyrocketed premiums and made it challenging to find adequate coverage to meet the needs of law firms in this sector.
The professional liability policy (also known as errors & omissions) is typically the most significant cost of all policies, and can also potentially cause the most headaches for the firm. Making sure your policy provides specific language covering FDCPA and TCPA matters is crucial. It has been our experience that some basic, “off the shelf” policies are either silent or sometimes exclude these coverages altogether.
Another creative strategy for managing potential claims activity is through what is known as bordereau reporting. This specific endorsement is advantageous for managing frequency of nuisance claims without potentially violating the notice requirements built into most policies. This allows an insured to provide a summary of all potential matters in agreed upon time increments (usually every three or six months). It prevents firms in a practice area with a high frequency of claims from having to report matters on a constant basis, which bogs down attorneys and management. Along these same lines, some carriers will allow the firm to self-represent themselves in these nuisance matters. It can create a win-win for the insured and the insurance company, as firms can often times make these matters go away on summary judgement, at no cost to the insurance company. Another important consideration is controlling how your defense counsel is assigned to represent you should the need arise. Most carriers utilize a pre-determined group of law firms known as panel counsel. However, given the uniqueness of the default/collection practice, we have found that it takes practice area specific experience to navigate the proper defense as compared to a typical legal malpractice matter. It is important to negotiate that either mutual choice or selection of counsel be added to your policy.
Ultimately, the firm developing a positive, working relationship with the claims department before claims develop is always prudent. A specialist broker should know key members of the carrier’s claims team, and can facilitate an introduction once your firm becomes an insured, or possibly even during the due diligence and carrier selection process.
Switching gears, cyber liability policies are quickly becoming a must purchase for law firms. Many clients are requiring that firms purchase it, and even ones that are not required are beginning to understand the serious exposure that all firms face. These policies protect the firm in the event of a data breach, whether it be from an outside source, or someone within the firm. Much of the exposure that firms face is the notification costs required by law in most states if a data breach occurs. The policy will hire an outside vendor to handle all of the notification requirements and monitoring services. We typically recommend a Difference In Conditions (DIC) policy, which works in conjunction with the firm’s professional liability policy. The intent of a DIC policy is to prevent a potential gap in coverage, where both carriers point the finger at each other trying to deny coverage. The cost of cyber policies continues to decrease, as more carriers enter the market. As this is a relatively new product, there is very little claims data for underwriters and actuaries to fully assess the risk and exposure. We would expect the cost of cyber policies to increase as claims begin to emerge and be litigated.
A crime policy is an important and relatively inexpensive policy that collection firms should be carrying as well. Some of the key coverage provisions are employee theft, which would provide coverage for something as a rogue employee withdrawing funds from a firm account. The policy can also provide coverage for 3rd party theft, as well as social engineering. Social engineering is an ever increasing issue, where a hacker can manipulate an email to make it appear it came from a firm email account with instructions for wiring money to a fraudulent bank account. By the time the mistake is uncovered, the money is typically long gone. While the number of carriers writing crime coverage for law firms is relatively small when compared to professional liability, rates remain very stable and coverage is readily available for firms with a positive loss history.
SGP Advisors (SBG) is an industry leader in providing uniquely tailored professional liability insurance solutions to law firms nationally. Over the past 15 years, SBG has developed a unique niche focusing on collection and default law firms. SBG has worked in conjunction with its many global insurance underwriting relationships to implement a number of specialized products to meet these ever expanding demands. Today, our client experience incorporates both large and small firms in just about every jurisdiction in the country. www.sgpadv.com Jack Compton