Insurance? Why? What do I insure?

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1 Jack Kukowski, Regional Sales Executive USI Affinity November 28, 2012 Insurance? Why? What do I insure? 1

2 Lawyers Professional Liability (LPL) Business Owners (BOP) Workers Compensation (WC) Health Disability Life LPL Why do I need Professional Liability? 2

3 LPL Different entities bodies insist or suggest insurance be carried Courts Banks and Title Companies Mistakes Happen Not even necessary to make a mistake Client perception or expectation of a result often drives the claim process Financial burden to defend one s actions can be devastating LPL Insurance Requirements Examples of Various Insurance Requirements MA (State), 211 CMR LLC and LLP Minimum $100,000 Per Claim Per Licensee/ $250,000 Aggregate Per Licensee or $500,000 Per Claim/ $1,000,000 Aggregate Lawyers Referral Service(s) $250,000 Each Claim/$500,000 Aggregate Rule 4:02, Subsection 2A Advise the BBO whether or not you carry insurance Banks and Title Companies Usually $1,000,000 3

4 LPL American Bar Association has been compiling insurance statistics since % of lawyers have a claim in any given year Most never have a claim 65% of all claims come from firm size of 1-5 lawyers Percent Of Claims By Firm Size % % % % % % DATA COLLECTED FROM THE ABA PROFILE OF LEGAL MALPRACTICE CLAIMS 4

5 Claims Questions Insurance- Claims Made Nature of Claims Made The only type of professional policy available Not like your automobile where the policy in force at the time of the accident defends you Generally the Policy in Force at the Time the Claim is made against you is the one that responds. Policies must be continuously renewed or coverage ceases Think RAM on your computer- as long as the computer is on, you have memory. When you shut it off, RAM is lost 5

6 Insurance Limits What Limit of Liability to Buy? Eroding Limits Policy Costs to Defend- the Defense Attorney is Always Paid First. Costs of Settlements or Damages Will There be Enough Left? Exposures GROW Over Time. Is Your Limits Choice Sufficient?» For Today» For tomorrow Insurance Limits- How Much is Not Enough? Consider the Dollar Value of Cases Handled What is the potential for the largest case handled? Do You Specialize in Areas With Higher Valued Claims? See the charts attached AOPs with frequent claims: Personal Injury (expectations?) Real Estate (robo signing? A Bad market?) Ask your friends and mentor Do You Have Personal Assets to Protect? Consider the number of attorneys in the firm. Do You Have Active Risk Management Program? Are You Confident in Your Internal Systems- Calendar, Conflicts Check, Files, client retainer and engagement procedures? 6

7 Percent Of Claims By Total Dollars Paid To Claimant $1-$10, % $10,001-$50, % $50,001-$100, % $100,001-$250, % OVER $250, % $0 52.6% DATA COLLECTED FROM THE ABA PROFILE OF LEGAL MALPRACTICE CLAIMS Policy Types Professional Liability for Lawyers Limits to $5,000,000 ($10,000,000 for larger firms) Deductibles from $0.00 to $10,000 All Classes of law Premium Function of # of years insured, with rising costs over 5-8 years Limit of Liability and deductible Areas of practice, some areas more prone to loss Internal Control Systems» Calendar and Conflict Systems Minimum Premium starts at approx. $500 7

8 Policy Types Professional Liability for Lawyers- Part Time Assumes a practice of < 25 Hours per week Solo Firms Only Limits to $2,000,000 Deductibles from $0 to $5,000 Limited Area of Practice Classes of law. Limitations: Patent Work Entertainment Class Action/Mass Tort Securities Law Tax Shelters Collections Copyright or Trademark Personal Injury Plaintiff of 25% or more Medical Malpractice (Plaintiff or Defense) Policy Types Professional Liability for Lawyers- Part Time Must have 2 independent calendar/docket control systems Computerized docket control software is preferred Such as Practice Master for litigation firms Engagement/Retainer/Non-Engagement Letters Including declination letters Premium Same criteria as regular except the rate is reduced by 25-50%, depending on hours worked Subject to minimum policy premiums of about $500, annual 8

9 Policy Types Professional Liability for Lawyers- Moonlighting Same as Part Time Program EXCEPT the carrier will exclude the employer PERCENT OF CLAIMS BY AREA OF LAW ALL OTHER 13.5% REAL ESTATE 20.1% ESTATE, TRUST, PROBATE 9.7% CORP/BUSINESS ORGANIZATION 4.9% BUS TRANSACTION COMMERCIAL LAW 4.7% PERSONAL INJURY- DEFENSE 2.9% FAMILY LAW 10.3% COLLECTION AND BANKRUPTCY 7.3% CRIMINAL 5.1% PERSONAL INJ- PLAINTIFF 21.6% DATA COLLECTED FROM THE ABA PROFILE OF LEGAL MALPRACTICE CLAIMS 9

10 Areas of Practice Internal Controls- Risk Management Do You Have Active Risk Management Program? Are You Confident in Your Internal Systems- Calendar, Conflicts Check Files and mail handling Client retainer and engagement procedures Don t forget disengagement procedures Consider Statutes of Limitations Is it short or long? When does it trip? 10

11 Internal Controls- Risk Management Internal Controls- Risk Management 11

12 12% The Most Common Alleged Errors 11% 9% 8% 7% Failure to Know/Properly Apply Law Failure to File Doc- No Deadline Planning Error- Porcedure Choice Inadequate Discovery/Investigation Failure to Calendar Properly DATA COLLECTED FROM THE ABA PROFILE OF LEGAL MALPRACTICE CLAIMS Other Professions What does a dentist pay for his/her insurance annually? 12

13 Other Professions Approximately $2,000 What does an Internist Pay? Other Professions Approximately $5-6,000 FIRST YEAR $15,400 at maturity. What do you think a typical Insurance Agent pays? 13

14 Other Professions $3,500 first year. 4 th year- $8,300 Mature - in excess of $10,000 per year. Additional Insurance Considerations Workers Compensation Mass. Requires You Insure Employees for Workplace Accidents Even for 1 Employee If a PC or LLC, You are an Employee, by Definition Disability Income If You are Sick or Injured, How Do You Pay the Rent? Life Insurance 14

15 Additional Insurance Considerations Business Owners Policy? Do You Have a Lease? What Does Your Landlord Require? Do you work at home? How Do You Insure Your Stuff? Your Tables, Desks and Chairs; your Computers, Servers, Facsimile and Phones The Leased Copier What if Your Building is Closed and You Can Not Get in to do Work? 15