Looking Ahead at the Future of Lawyers’ Professional Liability Coverage
Originally written and published by USI Affinity Professional Liability Practice Leader Mike Mooney.
The current COVID-19 pandemic has shaken how, when and even where lawyers do business. With that said, we need to look forward and prepare for the reality of a post-COVID world. Solo practitioners and firm owners alike will need to take a harder look at their coverage options to ensure that their firm is protected as incidents leading to malpractice claims become more frequent.
The Current State of LPL During COVID-19
To date, the number of reported LPL claims remain below normal levels. This is good and benefits potential insureds as a whole. Why does the number of claims matter? An increase in claims will drive up the cost of claims to the carrier, which will increase the percentage of those reinsured. These two events will shrink the carrier’s loss of interest income and profit, which will conversely drive premium rates upward.
The low number of claims during this already difficult time, is a positive. There has, however, also been a sharp increase in the severity of LPL claims and a significant increase in the reporting of incidents. Of the types of activities most likely to generate claims, these were at the top of the list: preparation, filing, and transmittal documents. Not only did transmittal documents retain its historical position as the number one activity to generate claims, but it also increased its share of all claims by almost 5% among all practice areas. It is also worth noting that several claims have arisen from cyber or network security events, which were a combination of a hacker, an employee error, and/or a disgruntled employee.
What can cause a ‘hard market’ for LPL?
Given the widespread impact of the global pandemic on many aspects of society, from business to finances, it is important for carriers and insureds alike to understand and prepare for a hard insurance market. A “hard insurance market” is characterized by a high demand for insurance coverage yet a reduced supply. During these times, insurers tend to impose strict underwriting standards and issue a limited number of policies. Premiums are unusually high, and insurers are disinclined to negotiate coverage terms.
The top causes of a hard market for LPL include:
- economic recession;
- poor investment returns for the Carrier (stock market);
- increase in frequency and severity in claims;
- carriers exiting the marketplace, new carriers entering the marketplace and carriers seeing significant P&C losses (such as those associated with COVID-19).
The direct impact on the insured or those seeking coverage will be higher premium amounts, a tighter underwriting process, fewer carrier options, and less room for negotiation on terms and price.
Potential Claims in a Post-COVID-19 World
Even as we collectively come up for air from a COVID-19 world, there will be challenges ahead. Potential issues forecasted to lead to higher claims include missing the statute of limitations and/or a multitude of pending litigation issues, such as:
- motion deadlines;
- discovery deadlines;
- access to files in your office;
- ability to meet/confer with client; and,
- taking/defending video/telephone depositions.
Another potential claim generator we should expect to see involves dabbling. These claims can include a lack of business or an attempt to capitalize on COVID-19 work. This scenario is not unlike every other economic downturn.
These are challenging times in more ways than one. But, it is important to keep looking forward. As always, we at USI Affinity are here to support our current and potential clients. If you have any questions about LPL coverage and/or Cyber Liability Insurance, please contact me directly at [email protected].
This material is for informational purposes only. It is not intended to be exhaustive nor should any discussions or opinions be constructed as legal advice. The insurance policy language will determine the actual coverage afforded to an insured. Contact USI Affinity for any insurance questions you may have regarding your particular situation. USI Affinity is not responsible for the content of the information provided or for the consequences of any legal actions taken on the basis of the information provided.