Law firms are loading up on insurance against expensive liability claims as they increasingly find themselves on the wrong end of lawsuits.
Getting blamed for poor results is nothing new for law firms, but they say clients have become more willing to sue in recent years. Claims of employment discrimination and firm mismanagement also are popping up more often as postrecession, law firms cull their ranks and sideline some partners in an attempt to boost profits for those who remain.
Some clients are even using the threat of litigation as a way to negotiate their bills. Martin S. Checov, general counsel with O’Melveny & Myers LLP, says there has been “a disheartening increase” in such tactics since the economy tanked in 2008. There is “a lot more friction out there” with clients, he says. Mr. Checov declines to discuss clients with whom his firm has tussled.
Beefing Up Coverage
Professional-liability insurance typically has been among the top operating costs for law firms, after compensation and real estate. Most firms, particularly those with 50 or more lawyers, buy malpractice insurance, says Anne Marie Davine, who leads the U.S. law-firm practice at insurance broker Marsh. The biggest firms are taking out multimillion-dollar policies, and midsize partnerships that may have been underinsured are increasing their coverage, insurance brokers say.
Claims aren’t tracked across the industry but several insurers say they have seen increases in the last year. A poll of six leading insurers last year found that four of them reported increases of 6% to 20% in malpractice claims, according to Ames & Gough Insurance and Risk Management, a specialty-insurance brokerage.
“Insurers are telling us that not only is frequency up, but so is claim severity. It’s just costing more to defend and litigate a claim,” Ms. Davine says.