Podcast #135: How to Shop for Malpractice Insurance, with JoAnn Hathaway

In this episode Legal Malpractice Insurance in One Hour for Lawyers author JoAnn Hathaway explains why you need malpractice insurance and how to shop for it.

You can get a discount on the Clio Cloud Conference by using this link to register.

JoAnn Hathaway

JoAnn L. Hathaway is a practice management advisor for the State Bar of Michigan. She previously worked as a legal liability claims director and risk manager, paralegal, and legal administrator.

You can follow JoAnn on Twitter and LinkedIn.

Thanks to Ruby Receptionists and Clio for sponsoring this episode!

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This transcript was prepared by Rev.com.

Introduction: Welcome to The Lawyerist podcast, with Sam Glover and Aaron Street. Each week, Lawyerist brings you advice and interviews to help you build a more successful law practice in today’s challenging and constantly changing legal market. And now, here are Sam and Aaron.

Sam Glover: Hi, I’m Sam Glover.

Aaron Street: And I’m Aaron Street, and this is episode 135 of the Lawyerist podcast, part of the Legal Talk Network. Today we’re talking with JoAnn Hathaway about everything you need to know about malpractice insurance.

Sam Glover: Today’s podcast is sponsored by Ruby Receptionists and its smart, charming receptionists who are perfect for small firms. Visit callruby.com/lawyerist to get a risk-free trial with Ruby.

Aaron Street: Today’s podcast is sponsored by Clio legal practice management software. Clio makes running your law firm easier. Try it today for free at Clio.com. And speaking of Clio, today we are experimenting with a new segment, where Sam is gonna do a sponsored interview with Jack Newton, the CEO of Clio to discuss the upcoming Clio Cloud Conference, which will be in New Orleans in the middle of September. We’re really excited to attend the conference again, and we hope you enjoy this conversation with Jack.

Jack Newton: Hi, I’m Jack Newton and I’m the founder and CEO of Clio.

Sam Glover: Hi Jack, Thanks for being with us today and just in case any of our listeners have not gotten curious or listened to the segment about Clio every week, what is it?

Jack Newton: Clio is a cloud-based practice management platform.

Sam Glover: You’ve left out the part where it actually was one of the first cloud-based practice management software platforms.

Jack Newton: That’s right, depending on how you count the first cloud-based practice management platform, we launched back in October of 2008, and launched our beta ABA Techshow 2008. So, that’s along with Rocket Matter, who I think had a photo finish start if you want to think of it that way, have been around for almost a decade now.

Sam Glover: That’s amazing. I remember finding it when I was getting frustrated with other practice management software and I was like, “Why isn’t there just an easy thing I can use in my browser?” And then I came across it. And I think you’ll see Clio is some of the first posts on our site. It’s been really cool and we’ve been grateful for your support over the years.

But we were gonna talk about the Clio cloud conference for 2017, which is the fifth or sixth cloud conference?

Jack Newton: This is the fifth edition this year.

Sam Glover: That’s amazing. So I’ve been going for all five, this will be my fifth one. You’ve been gracious enough to bring me along to all of them and they’ve been a lot of fun. But tell me Jack, what is your favorite thing about Clio Con?

Jack Newton: I think the favorite thing for me is the energy level that the conference is able to create. You need to be there to witness it yourself and to believe it, but if you got to most legal conferences, especially most CLEs, high energy is not one of the words you’d use to describe them. And, you’ve been there Sam. The place is electric. There’s spirit of invention and innovation that just permeates every aspect of the conference. And I just find that infectious. I’m walking on cloud nine for months after the conference wraps up, and I see that energy level in both the attendees and our team, the Clio team that’s on the ground there. So I think we’ve done a great job of bringing some of the energy of a Silicon Valley conference to the legal sphere and really focusing on innovation, what’s next for legal, and getting a bunch of like-minded lawyers and support staff and thought leaders into a room together with the Clio team to think about what the future of practice management and what the future of the practice of law looks like, is my favorite part of the conference.

Sam Glover: So mine, in addition to those things, which you’re right, it’s unlike any other legal tech conference anyone will have been to. You guys come bounding in to rock music and dancing and that’s not just an act because it’s reflected in the audience. But my favorite part is actually, because I’m a design nerd and a software nerd, is your design team, and you have an actual design team, it’s not just a person doing it, but your design team spends time watching people use Clio. And as somebody who builds websites and things, that has got to be the hardest most painful experience. Because people do all kinds of silly things with your software after you put it out in the world.

But your team sits there and watches, listens to people’s feedback, listens to people tear it apart, and then, and this is the part that I love the best, is on the end of day one and at the end of the conference, you announce changes to the software that you’re making or have in some cases already made in answer to those people’s suggestions or complaints or bug reports. And I think, that just blows me away. The fact that people at Clio are actively developing the product over that 48 hours based on the feedback from the people there. I think that’s the neatest thing.

Jack Newton: Yah. I find that to be one of my favorite parts of the conference. And it hearkens back to the very early days of Clio, and I remember the kind of connection I created with some of our early customers when I was actually coding the first versions of Clio, and I would get off a support call, and email that person later in the day saying, “Hey I fixed that bug” or “I made an improvement that you requested.” And they fell off their chair when they saw how fast you could do things. Especially in the world of the cloud. They’re used to making a suggestion with some of the on-premise vendors and waiting a year, if not longer for an update. And that tight feedback cycle is something we view as a real competitive advantage. And that design thinking that you’re thinking about is something where we’re doubling down on this year. And Clio Con, with the release of Apollo this year will be a more important aspect of the conference than it’s ever been. Collecting feedback and iterating on that feedback.

Sam Glover: That’s exciting. I can’t wait to see that. So you are have yet to announce some of your speakers at the time that we’re recording this. But you are pretty excited about your speaker lineup this year. So who’s gonna be headlining?

Jack Newton: So we’ve got an amazing speaker lineup. I’ll be opening up the conference with big product announcements and the legal trends report 2017, where we’ll have a bunch of new interesting data-driven insights to share with the audience. We’ve got Haben Girma joining us to talk about accessibility for both lawyers and clients. She’s a deafblind Harvard grad with an amazing life story. We’ve got astronaut Colonel Chris Hadfield joining us, who is just an unbelievable speaker who is gonna give us an inspirational talk about planning your career and dealing with the surprises that life throws you as you’re trying to build your career.

And finally, and Sam you’re the first person outside of Clio to hear this announcement, the final keynote speaker we’ve announced is Preet Bharara, who was the former US Attorney for the southern district of New York. He’s on the cover of Time Magazine, named one of the hundred most influential people in the world, and campaigned against corruption, especially corruption on Wall Street over his career. And I think it’s fair to characterize him as a lawyer’s lawyer that will share some very interesting personal anecdotes about his life journey and what maintaining really high standards of personal and professional integrity look like. So really looking forward to seeing Preet speak, and I think we’ve got the best lineup of keynote speakers we’ve ever had at this year’s Clio Cloud Conference.

Sam Glover: That sounds super interesting. And wow, what a lineup. So every time Clio Cloud Conference comes up, people who don’t use Clio want to know if they aught to go. And I usually say if you do use Clio it’s a no-brainer. You should go at least once in your life, because the experience of meeting the people who build the software that you rely on every day, and having a chance to influence its direction, which you do anyway, but greater at the conference, is really pretty hard to pass up. But if you’re not a Clio user, I kind of wonder what’s your pitch to non-Clio users?

Jack Newton: So over the course of the five years we’ve been doing the conference, I think it’s evolved into something that is much bigger than just Clio. And in many ways that was what we hoped would happen from the beginning. I looked to the Salesforce Dreamforce conference actually as a model for Clio Con when we launched it five years ago. And as you may know, Dreamforce has turned into the biggest conference in the world with over 100,000 attendees and is much, much bigger than just Salesforce. It’s about building a business, about marketing, about being customer-centric. It’s much bigger. And there’s a lot of non-Salesforce users that attend Dreamforce.

And we want Clio Con to be exactly that same thing for legal. We want it to be a conference about inventing what the future of the practice of law looks like, and we believe that technology will be a really integral part of that future of law. And we’re inviting both our customers and what I hope will be our future customers and thought leaders in general in the industry to coalesce in New Orleans and build that future of law with us. I think we succeed in that in many ways. Every year we’ve held Clio Con, the number of non-Clio using attendees has gone up steadily. The overall number of attendees has gone from 200 in the first year, which you’ll remember our humble beginnings in the Hotel Sax in Chicago, to over 1000 attendees at this year’s conference with a significant portion of those being non-Clio users that just want to find out about what’s going on at the bleeding edge of technology. We’ve also got over 30 cloud vendors joining us and putting on this conference. And I think that’s also evidence that you can come to the conference and not just speak to Clio, you can speak to 30 other technology companies that, in many cases, integrate to the Clio platform, or integrate with the Clio platform, and hear their story about how they might be able to help your practice get better or more efficient, or help you deliver better customer experiences.

So I think if you’re not a Clio customer, you would be doing yourself a disservice if you didn’t attend. We have a few tickets left. I’d encourage anyone listening to think about attending. September 25 to 26 at the Hyatt Regency Hotel in New Orleans.

Sam Glover: Well and I’ll say, here’s my warning, is if you aren’t a Clio user before you go, I think it’d be hard for you to not be a Clio user after you leave. So most non-Clio users-

Jack Newton: That’s certainly what we’re aiming to do.

Sam Glover: Yeah. And not because you’re getting sold to, but just because watching Clio show you who they are and what they do is pretty impressive. So Jack, thanks so much. We will make sure to include a link to go to the Clio Cloud Conference. And I think we have a coupon code we can share with you that will be in the show notes for this show. Thanks so much, Jack.

Jack Newton: Absolutely. Thanks so much for having me, Sam.

Sam Glover: And now here’s my conversation with JoAnn.

JoAnn Hathaway: Hello, this is JoAnn Hathaway, I’m a practice management advisor for State Bar of Michigan. Previously I worked in the world of professional liability insurance for lawyers as a claims director and risk manager.

Sam Glover: Hi JoAnn, thanks so much for being on the podcast today.

JoAnn Hathaway: Well thanks for that, Sam, and it’s a pleasure to be on the Lawyerist today.

Sam Glover: Cool, so malpractice insurance isn’t the sexiest topic, but I remember when I started my firm, I had so many questions and I didn’t really know where to get them. So, I think it’s awesome to sit down and talk about it today. And maybe the place to start is talking about your background. So you used to work doing malpractice claims? Is that right?

JoAnn Hathaway: I did. I started for the carrier in medical malpractice. So we actually gravitated to a book of legal malpractice. And I had the opportunity to chair the taskforce for that, which is really exciting. And we’re staring a new policy it actually gave me the opportunity to work with agents and underwriters I had already worked in claims, I’d worked for a law firm previously, so it really gave me quite a diverse background, and I really developed a love for legal malpractice. So, yeah, I like to talk about it. So I’m here to answer any questions you have.

Sam Glover: JoAnn, how do insurance providers think about malpractice insurance differently from practicing lawyers, from bar associations? They’re on the risk side of it, and we’re just on the “covering my butt” side of it, I think, right? But is there more to the difference in the way people think about it?

JoAnn Hathaway: Well, certainly there’s the running the insurance carrier and you have multiple insurers over different jurisdictions, of course, to ensure that you’re financially stable. So you certainly look at it from a totally different perspective. But I think one of the main areas that I have found is that lawyers tend to often think they might not need it or they’re never gonna have a claim filed against them.

Sam Glover: Yeah.

JoAnn Hathaway: And they sometimes just don’t understand the necessity of actually having it. And unfortunately, when a claim is filed against them, then it’s too little too late. And they realize how much it can cost to defend a claim, even if it does not have any merit, just to get it to a motion for summary disposition. So I think that’s one aspect that I could point out.

Sam Glover: So if somebody calls you up to try and figure this out, and I think you told me that it’s one of the top five questions you get as a PMA, how do you start talking about why they probably need malpractice insurance?

JoAnn Hathaway: One of the examples I just gave you is that, unlike many other professions, say for medical malpractice claims in Michigan, there are a lot of hoops that plaintiffs have to jump through before they can file a claim or a lawsuit. But in most jurisdictions, a disgruntled client just needs the filing fee and the ability to file the complaint. So it doesn’t necessarily have to have any merit. And your insurance carrier, nine times out of ten, if not ten times out of ten, is not gonna let you defend that claim. They’re going to want to assign defense counsel for you. So if you had to go out and do this yourself and if you had to incur costs and lost available time, it can just be very costly to defend even a claim that does not have any merit.

Sam Glover: I think billing disputes are one of the main reasons that malpractice cases and claims arise, is that right? Am I right about that?

JoAnn Hathaway: I’m going to say approximately, and this is kind of a moving target, but about 40% of collection actions result in counterclaims. It’s a large percentage. And that’s why it’s so important to have paying clients and to collect those fees hopefully before the matter has concluded, because what I see typically happens is … So a lawyer will file a collection action and will get counsel to handle that matter for him or her. And so what happens, that complaint is served, and a client goes to lawyer to get an answer filed, and maybe there’s a suggestion or a “Gee, let’s look at the way the matter was handled, and shall we file a counterclaim?” And then that happens. So then what happens next, then the insured has to put their carrier on notice and carrier’s going to again, to find defense counsel, because there would be a conflict with collection counsel, of course.

Sam Glover: And let’s be clear, the lawsuit is not about billing at that point. The lawsuit is a much bigger, more complicated deal that is not gonna go away by the client just giving you some money.

JoAnn Hathaway: Well, and unfortunately there’s not much merit and the end goal is to hopefully just say, “Gee if you dismiss yours, I’ll dismiss mine.” And so then not only has the insured, the attorney who has filed the collection action, not only have they incurred cost for the lawyer that they retained and the collection action, they may have a deductible on their policy that they’re paying for defense counsel assigned for the counterclaim, they may be losing lost billable hours. And so many times they end up losing money.

Sam Glover: I suppose when people ask if they should file a collection action against their clients, maybe the first question should be, does the client owe you more or less than your deductible?

JoAnn Hathaway: And there’s the way to think of it. And maybe wait ’til the statute of limitations has run in the legal malpractice case too. So, that’s another recommendation.

Sam Glover: Is it possible to … ‘Cause my number one question was perhaps, predictably, how much is this gonna cost? And I’m wondering if, is there any way we can ballpark that? I mean, I know what I ended up paying, but I’m curious to know if there’s sort of a rule of thumb for that.

JoAnn Hathaway: You know, Sam, there is not, and I am so hesitant when people ask me, and it’s right up there among the number one question. Because it is a big deal. Of course. People think that it’s gonna be very costly. But there are so many variables that go into the blending mix for the underwriters of, for instance, practice areas. That’s what areas do you practice? And plaintiff personal injury has historically been the number one riskiest area, the highest risk area for a carrier to insure.

Sam Glover: Followed by like, family law, right?

JoAnn Hathaway: Well family law is right up there. Family law is always up there. ‘Cause no one’s ever happy in family law, right? Everybody should have gotten the [vase 00:18:13] or the kids, or something. But unfortunately, I would like to say before delving into that a little bit more, it’s so important, and I see what people, what many lawyers do, is they choose a carrier based upon the lowest quoted premium. And there really are so many other factors I know you’ll want to get into. But the coverage limits that they choose, the value of the matters they were handling, the number of attorneys in the firm, if they have prior acts coverage, geographic location, their claims history. There are so many variables that those are just a few.

Sam Glover: You raise such an important point. Obviously cheap is great if you never have to use it. But if you ever have to use it, then you want them to be reliable and you want them to actually go to bat for you. Maybe this is an even more important question than price is, how do you even know who’s reliable and how do you vet the malpractice insurance providers and how do you compare quotes?

JoAnn Hathaway: Well, again there’s a lot going in to that. Let me just name a few and I’ll be happy to delve into any of these as much or as little as you would like to. First of all, there’s financial security, or security/stability of the carrier. You want to make sure that you are dealing with someone who’s not gonna go into receivership next week. And so you can look through rating agencies such as AM Best, and they do require a subscription, but talk to your agent. Your agent should be able to tell you what their financials look like, what their reserves look like. And also, on the carriers’ websites, they often have specimen policies, but they also have their financials and their AM Best ratings.

Another area to think about is, and it’s so important and near and dear to my heart because I started out in claims, and I loved to handle claims, but is the claim [inaudible 00:20:16] process or practices? I mean, what is the culture of the carrier? Some carriers want to defend everything, and send a message to the plaintiffs’ bar and “Look, we’re gonna try every case.” Others tend to take more of a position on, “Gee. If we can get rid of this claim for nuisance value, let’s go ahead and do it, get it off the books, close this file.” So really, where do you stand, and you had asked-

Sam Glover: How do you find out though about culture?

JoAnn Hathaway: Well you can ask your peers, but one of the things I want to be careful about, to caution everyone about when doing that, is … Your lawyer friend down the street may not want to tell you if they’ve had a claim filed against them. They may be embarrassed about it, so they might not want to disclose that information. However, one of the best ways to find out is to ask your insurance agent. Hopefully you’re dealing with an insurance agent who has a lot of familiarity with the carriers that they’re working with. They should be able to tell you what their stance is and what they have found as far as claims handling practices. And you also need to ask questions such as, are they local? Am I gonna have a local claims consultant who’s gonna work with me in a face-to-face basis, or am I gonna be working with a call center? Those types of questions.

Sam Glover: On the cost, because people obviously want … Is there anything we can say about how much it is likely to cost? Other than it’s probably worth it? Is there anything actually helpful we can say, I guess, is maybe a better way of phrasing that.

JoAnn Hathaway:
What I feel comfortable in saying is this: for a solo practitioner, probably for the first year without prior acts, I’m gonna give a range. And again, I’m gonna say there are so may variables going into this. But between $1500 and $2000 would be … However, what happens for a new lawyer getting-

Sam Glover: And that’s a year? The yearly premium?

JoAnn Hathaway: That’s, yes, a yearly premium. What is going to happen now, is, with the claims made policies, which is how the lawyers professional liability policies are written, they’re written on a step basis. So say for instance the first year that, say if someone graduates from law school, and they get a policy that insures from June 1, 2017, to next June. There’s no prior acts there, right? So the carrier only has one year of risk for them. However, they’re going to have what’s considered a retroactive date, which, if they maintain continuous coverage, they are going to maintain that June 1, 2017, retroactive date. So each year they renew that policy of insurance, the carrier has an additional year of prior acts coverage. And so there’s gonna be a step rate increase each year.

Sam Glover: Up to, I imagine, about the statute of limitations, right?

JoAnn Hathaway: It varies by carrier, say maybe an average is for about the first six years, and then it should level out.

Sam Glover: Gotcha. I will say, my first year of malpractice insurance was less than I thought it was going to be, and one, two, three hundred bucks a month for the kind of piece of mind that I experienced seemed well worth it to me. I was super happy that I had it. I was in a relatively low risk practice area for what that’s worth.

I need to take a quick break to hear from our sponsors and when we come back, I want to talk about the significance of the claims made basis for the way malpractice insurance policies are written.

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Aaron Street: Imagine what you could do with an extra eight hours per week. You could invest in marketing your firm, you could spend more time helping clients in need, or you could catch your daughter’s soccer game. That’s how much time legal professionals save with Clio, the world’s leading practice management software. With Clio, tracking time, billing, and matter management are fast and easy, giving you more time to focus on what really matters. And Clio is a complete practice management platform with plenty of tools and over 50 integrations to help you automate daily tasks such as document generation and court calendaring. See how the right software can make it easier to manage your practice. Try Clio for free today at Clio.com.

Sam Glover: Okay, we’re back. And JoAnn, you briefly alluded to the claims made basis. Can you say more about what that means and why it matters?

JoAnn Hathaway: Yes, definitely. As I mentioned, lawyers’ professional liability insurance policies are almost always written on a claims made form of coverage. So that means that the claim has to be made during the policy period. And that may sound a little bit confusing.

Sam Glover: So this isn’t about your … Your price doesn’t depend on how many people have made a claim against you, it’s more about when those claims are made.

JoAnn Hathaway: Well the price … Yes. Your claims certainly can have an impact on the price. However, for a claim to even be considered for coverage, it has to be made during the policy period.

Sam Glover: I see.

JoAnn Hathaway: And on or before the retroactive date. And again I know that can sound a little bit confusing. So let me just expound upon that a little bit more there. Actually there are two types. There’s a pure claims made policy, and then there’s a claims made to reported policy. And the latter is really the more common of the two. So going back to that example I gave about the new lawyer who … Let’s talk about the second year when he renewed his policy. The claim, if he renewed the policy, from June of 2018 through May of 2019, and he had a claim asserted against him during that policy period. Then if he reported it, it should be covered as long as it was the date of loss, the act, error, or omission that gave rise to that claim occurred on or after that retroactive date. And he had that continuous coverage back to 2017, so he should have coverage. If he didn’t renew the last policy period and he reported it to the carrier, say a month after he non-renewed that policy, then even though he had coverage for it during the policy period, there would no longer be insurance coverage because he didn’t report it during the policy period.

And I know there’s a lot to absorb there.

Sam Glover: Yeah. Well I guess where I thought I was going with it was the significance of the fact that if you are the kind of lawyer that has a practice, or just the way you practice encourages people to make claims against you, you’re gonna be wracking up higher insurance bills even if you’re innocent in every single one of them, I think. Is that right?

JoAnn Hathaway: You definitely are. There are a couple of different things to think about though. And carriers will vary. There is some subjectivity as far as the underwriter’s decision about a premium. Let’s say for instance if you’re working in a very high … There’s severity in claims and there’s frequency in claims. So for instance, criminal is very high frequency. Everybody has, they’re not happy with, they got the jail term they did … Something is wrong. And they have a lot of time on their hands.

Sam Glover: Right, I suppose so.

JoAnn Hathaway: A lot of frequency in criminal matters. However, a lot of those are dismissed. A lot of them, a very high percentage rate. So underwriters will take that into consideration. So yes, the premium may go up, but not as much as say if it’s a very high indemnity payment. And another [inaudible 00:29:32] like to point out, Sam, is this also too. Underwriters are very good at looking at the claim. If they see a non meritorious claim, they will look to the practice or habits of the lawyer. And if there’s something that they were egregious, they have poor practice habits, if it’s suggestive of a pattern that they think, “Oh boy, this is a high risk person. We’re gonna see this again. They don’t have practice management software, they don’t have help, they have way too many cases.” That’s going to impact the premium.

Sam Glover: I suppose every time you get a claim against you, it kind of allows the people who care to peel back the curtain and look at your whole practice and see what’s going on there.

JoAnn Hathaway: I like that, yes. Peel back the curtain, that’s true. And there’s a lot of communication in most insurance companies between the claims department and underwriting.

Sam Glover: You talked briefly about coverage limits, or alluded to it a moment ago. And let’s talk about how do we decide what we should have and what are the different types, and how do they work?

JoAnn Hathaway: So, that is, again, one of the top ten questions and understandably so. People are always asking what limit should I obtain? And again [inaudible 00:30:52] is gonna be that depends because there are numerous factors. So a lot of it depends on the type of matters that you’re handling. So say for instance if you’re handling bad baby cases or wrongful death or something that tends to have really high damages associated with them, then the event that a legal malpractice action is filed against you in one of those, then the carrier may very well likely have a high indemnity payment or a jury verdict. So big things to really look at, the practice areas, the frequency of claims filed in those practice areas, and again the types of matters and the value of the types that you’re handling.

Sam Glover: So I know that … I think we had a minimum … Well I guess my insurance provider had a minimum policy that they would write. And I think mine was, if I recall correctly, I called it a 300 600 policy or something like that. And I felt comfortable with that because most of the cases I had were well under $100,000 in likely value. Was does 300 600 mean if somebody says that at me? What does that convey to you?

JoAnn Hathaway: So, a policy limit typically, and I always like to couch my answers, and typically or almost always because you’ll always get that one off carrier out there that may start doing [inaudible 00:32:26] differently. But typically, a policy limit has two components. There’s the per claim limit of a policy, so that’s the most a carrier will pay for a single claim made during a policy period. So with your 300/600,000, if you had a claim asserted against you, the most they would pay would be $300,000.

Sam Glover: Gotcha.

JoAnn Hathaway: One important thing I’m just gonna go off on a side bar here for a minute, it’s important to refer to the policy language to determine how a carrier defines a single limit or related claims. Typically, they will define a per claim limit as the most that they will pay for all claims arising out of the same act, error, or omission.

Sam Glover: So if there’s five defendants, that’s all you get most of the time.

JoAnn Hathaway: Most of the time. So it’s important to look to that, how they define their per claim limit. And then the second number is the aggregate limit of a policy, and it’s the most a carrier will pay for all claims made during the single policy period.

Sam Glover: So a year.

JoAnn Hathaway: A year.

Sam Glover: Yeah.

JoAnn Hathaway: Once in a while, and carriers are really getting away from this, you don’t find this very often anymore, but sometimes carriers will write like a three year policy or a two year policy. They want to keep an insurer, they’re trying to foster goodwill, and it helps with underwriting, it helps-

Sam Glover: With the idea that I get a predictable premium for the next three years as opposed to the next one year.

JoAnn Hathaway: Exactly. Exactly.

Sam Glover: Gotcha.

JoAnn Hathaway: But again, that’s a rarity anymore. So again you need to look at not only the types of matters that you’re handling, but also the number of bodies in the firm. Because the first named insured is going to be the firm, but then, gee if you have 20 lawyers in a firm, the likelihood that you’re gonna have more than just a couple claims in the year, that’s obviously much greater than a smaller firm. So typically what you’re gonna find in larger law firms, they generally have an aggregate limit that’s equal to several multiples, if you will, of a per claim limit.

Sam Glover: Interesting. Okay, so to wrap up on what you want for a coverage limit, basically just look at what your cases are. And if all of a sudden somebody walks in the door with a $1,000,000 case, maybe it’s time to give your insurance provider a call and talk about raising your limits. Is that a realistic option?

JoAnn Hathaway: Well … it is, but they may or may not do that mid term. But definitely it’s something to look at. One of the things-

Sam Glover: It’s at least something to think about, right? Do I really want to take this case?

JoAnn Hathaway: Definitely. And sometimes you’re gonna find too when matters have that much value, you might have a client that’s requiring that you show them or her or him the deck sheet and say “What kind of coverage do you have? I’m not gonna [inaudible 00:35:45] you unless I know what coverage you have.” One of the things in connection with that to think about that though is when you are completing the application for lawyers’ professional liability insurance, and I’m sure you remember this Sam, you have this big grid of every potential practice area that is, no matter how remote it might be, that there might be a matter arising from that. But then you have to put down typically a percentage. Okay, so I work 50% of the time in plaintiff personal injury, I do 20% family law, 2% bankruptcy, but it’s asking you to basically look at your practice through the lens of a crystal ball. What if you get that case that walks in the door that you didn’t anticipate, and you were just talking about the dollar value, but what if it’s in a practice area that you didn’t check off on that application?

Sam Glover: So what does that do?

JoAnn Hathaway: Well, you have to be really careful about that because policy is, your premium is based a lot upon that area of the application or your practice areas, and also, a carrier can come back and say, “Hey we didn’t underwrite you for this. You didn’t tell us you were gonna be doing IP work. We had no idea.” And sometimes they could even say, “We wouldn’t have even written you had we known you were gonna be providing or posing this type of work to us.” So they could either deny the claim, or they could non-renew you. Not saying they would, but they could under the terms of the policy, because the application actually becomes incorporated into and a part of the policy. So it’s really important that you keep that front and center, and say, “Gee, if I’m gonna take something that’s not on here, I better be letting my carrier know.” And put it in writing so they know.

Sam Glover: I have a vague recollection of doing that and ending up getting a new policy mid-term or something like that.

JoAnn Hathaway: Okay.

Sam Glover: Does that sound realistic?

JoAnn Hathaway: That sounds … Carriers will do it differently but yeah, and they probably loved it that you put them on notice, because a lot of people don’t. And where it can become especially problematic is when again, you’re dealing with a larger law firm, because sometimes the administrator, or the one person from that firm who is handling the insurance for the firm doesn’t necessarily know that in litigation they took on this new matter that for whatever reason it wasn’t underwritten at the time the policy was issued. It can be a problem.

Sam Glover: So you need to … Insurance is something that we should be thinking about more often.

JoAnn Hathaway: Definitely.

Sam Glover: I do remember also though, that every year when I renewed my policy, I had to go back to that grid of practice areas, and I must have changed … I’m sure I tweaked it and adjusted it just about every other year as the emphasis of my firm shifted and things like that. So you’ll be reminded of it periodically, but especially if you have a few lawyers or more lawyers and you aren’t aware of every case on the firm’s docket, yeah, some of that stuff might fly under the radar.

JoAnn Hathaway: Definitely. And it’s more problematic to you, I find … And I talked about an issue with a larger firm and it definitely is an issue, however, many times on those larger firms’ applications, they check so many boxes on that grid, because they’re doing a lot of … they’re working in a lot of different practice areas. However one of the issues tends to be, and even with a solo practitioner who tends to what we call in the insurance industry, “dabble”, so they’re basic [inaudible 00:39:38] anything that comes in the door. I don’t say that with any disrespect at all, I’m just saying they’re dabbling.

Sam Glover: Yeah. Is there a box for “everything”?

JoAnn Hathaway: You might have kind of a high premium if you do that. But anyway. One of the things, if I may, to just stay on the [inaudible 00:40:04] that I didn’t cover that I think is extremely important when we talk about what type of limit or how high of a limit do you need is the fact that typically, lawyers’ professional liability insurance limits are written so you have a per claim limit.

So again going back to your example of the 300,000, remember though that there are two types of payments that are gonna come out of that. They’re going to be either the indemnity payment or the jury verdict or settlement or whatever for the damages. However, there are also what we call loss adjustment expenses. So that’s the defense counsel, the expert, getting the records, anything you need to defend that claim. And so those claims expenses are typically taken out of that, again, in your instance, $300,000. It can be nerve wracking because you’re sitting there thinking, “Gee. The claim is for $300,000. Okay, I’ve got adequate coverage.” Well as defense counsel is zealously representing you, what happens, defense counsel is sending the insured quarterly billing statements. And say if it’s $25,000 suddenly you only have $275,000 left.

Sam Glover: Right.

JoAnn Hathaway: So it keeps going down and down. And so what the good news is, there is an endorsement that many carriers offer, not all of them, but it’s called claims expenses outside the limit. CEOL is the acronym. So for an additional premium, an insured can purchase CEOL and there will be, if you will, a different bucket for the defense cost. So-

Sam Glover: What’s the advantage of doing that as opposed to just increasing your coverage limits?

JoAnn Hathaway: Well … Because you never know how much the defense costs are going to be. So this way you know, no matter what they are, that you’re always going to have that limit in place.

Sam Glover: Interesting. So we talked a little bit about coverage issues, but when we talk about what’s covered, malpractice is a thing we all think we know what it is, but what is covered? Are complaints to the bar covered? And how do we decide if it’s actually malpractice or not?

JoAnn Hathaway: Well, your carrier will tell you if it’s malpractice or not-

Sam Glover: I suppose.

JoAnn Hathaway: … because they’ll deny [inaudible 00:42:47] it. They’ll send you a reservation of rights letter. And sometimes they don’t know. They can just look at the facts and circumstances presented to them at the time the claim is reported, or the potential claim. Hopefully they will allow you to report a potential claim or an incident. And they will assess what they have. If they feel there is potentially an exclusion that applies to those facts and circumstances, then they will just put you on notice.

Sam Glover: What’s an example of an exclusion that might get them out of it?

JoAnn Hathaway: An example of an exclusion might be if they thought there was some fraud associated with it.

Sam Glover: Gotcha.

JoAnn Hathaway: So what happens though, it’s very common for there to be some ambiguity there. Because sometimes you’ll look at a claim and say, “Okay, well this is definitely covered, but there might be this aspect of it or component or allegation”-

Sam Glover: A fact may come out alter. Yeah.

JoAnn Hathaway: Exactly, exactly.

Sam Glover: And so they’ll always send that letter up front that says, “We’re gonna defend you. But if we find out any of these things, then you pay us back.” Basically.

JoAnn Hathaway: And they also will almost always give you the opportunity to retain your own counsel at your own expense in connection with your reservation of rights. Or even in defending the claim, in addition to their defense counsel. Getting back to your question about coverage, I did want to mention people are never happy when I suggest this, but read the policy. Especially if you can’t sleep at night, right? That’ll put you to sleep. But it’s not just what is covered, it’s who is covered because you want to look to the definitions and named insureds. What about predecessor insureds? What is the definition of professional services? And fortunately, it’s amazing to me that a lot of the policies are very similar in the definitions of professional services of course because they’re in competition, so they need to be. But they’ll refer to services rendered in a lawyer-client relationship but then go on to expound that there are other professional services such as activities as a mediator, arbitrator notary public, receiver. And a lot of those don’t even arise from a lawyer-client relationship. But that’s good news for the insured, right?

So read the policy and read the exclusions. That can be extremely helpful.

Sam Glover: We’ve been mostly talking about how to select an insurance policy and what sorts of things to think about. But you mentioned right before I hit record that there are a bunch of questions, or some questions that you say lawyers might never think to ask on their own. And I’m just wondering if there are any of those questions that we haven’t already covered.

JoAnn Hathaway: There are. We talked about the financial stability, we talked about claims handling. One of the things I think that is huge is the handling of deductibles. Almost all policies will be written with a deductible. And what I find is lawyers again tend to think, “Gee, I’m never gonna have claim asserted against me. So I am gonna take a really high deductible because I’ll pay a lower premium.” Don’t recommend that, but one of the things is to ask or find out regardless with the number associated with the deductible, if the carrier offers first dollar defense. So what that is, is, I gave the example of defending a claim that, even if doesn’t have merit, defense counsel’s gonna have to go out there and file a motion for summary disposition, and engage in some discovery, and there will be costs. And if you have a deductible, you are going to have to pay the deductible.

If you can get, and if they offer, what is endorsed on a first dollar defense, that means that the deductible does not apply to defending the claim, which can be huge. Especially again, I mentioned the criminal law area where it’s a high frequency. So you won’t have to pay that.

Also, people think a deductible is a deductible is a deductible. Well I call it the [inaudible 00:47:30] world of deductibles because carriers are getting extremely creative. So insureds should ask either the carrier that they’re working with or their agent, what deductible options are there? And let me just read a few of them to you here, what I have found is these are wonderful. So these are what various carriers are offering. A deductible that applies to the total of all claim, applies to the payment of damages only, a deductible that is waived if there is a ruling of no liability. And then there’s the standard deductible that applies to each claim made during the policy period, that’s not real creative but it obviously is still out there. A deductible that is not applied to the first $5000 of claims expenses. A deductible that is reduced by 50% if a claim is resolved by way of formal mediation within six months. You can see there, a lot of different deductible options that people never in the whole world would they think to inquire about them.

Sam Glover: It sounds like most of these are attempts to lower the deductible so that it seems more attractive, but really we’re just moving numbers around on a spreadsheet on the adjuster’s computer, right? What if we excluded this, and so we automatically get $1000 from everybody, or this deductible, but we don’t have to give them any change if the claim is ultimately under $5000, something like that. It sounds like that’s basically what’s going on here. They’re just trying to make it more attractive by changing the terms.

JoAnn Hathaway: Right, and getting more options, and also you’ll see there’s kind of a theme going on here to try and get the claim resolved, so there’s no liability. Get it settled within six months …

Sam Glover: We’re all trying to align incentives here.

JoAnn Hathaway: Exactly.

Sam Glover: Although it does sound a lot like trying to finance a car by talking about the amount that you want your monthly payment to be. Then you’ve given the dealer license to do all kinds of moving numbers around just to make it sound like you wanted.

JoAnn Hathaway: Well just like, and they tell you, you’re never supposed to tell. The first thing they ask you is how much do you want for your used car? And you’re never supposed to tell them that because then they don’t [inaudible 00:49:57] with you. But some of the other interesting provisions that carriers are offering are coverage options too. And people would never think to look under their policy for this, and a lot of them are doing it, because one starts to offer something and then somebody else thinks, “Oh, I have to jump on that bandwagon.” For instance, loss of earnings. For loss of earnings for each day someone is at a trial or a hearing or alternative dispute resolution.

Sam Glover: This is sort of like the luxury trim pieces.

JoAnn Hathaway: Yes. Disciplinary proceedings. So get defense counsel to assist someone in disciplinary proceedings or grievance. Employment practices defense, you actually see that. Subpoena assistance. And a lot of them are offering some assistance or coverage, certainly for the most part not real comprehensive, but cyber liability coverage. So there’s really a lot of creativity that you can find in some of these insurance policies.

Sam Glover: I suppose this is also a good reason to know what you’ve paid for. I know that one of the same insurance provider that I had covered the first $500 or $1000 of attorney’s fees to consult with an ethics counsel in light of a claim that you were worried about. So before anything has arisen, they would actually pay for you to consult with ethics counsel. I assume they figured it was good preventative maintenance. But a lot of lawyers didn’t know that they had that ability and taking advantage of that I don’t think impacted your premiums in any way. So you should know what you’re entitled to and what you’re paying for, for sure.

JoAnn Hathaway: Exactly. Exactly. And that’s why I encourage, even if there are two lawyers in a firm, or five lawyers, to even though there’s maybe one person, and I do encourage one person to be the go-to person for the agent or the carrier so that they know everything that’s going on with that policy. But just sit down and have a meeting or even quarterly meetings, to sit down and say, “Does anybody know of any claims? These are the requirements for reporting. This is our coverage. This is what we have available under the policy.” Educate everyone, because particularly with the claims process, a lawyer might know something out there that, “Oh, no. I missed a deadline, I have this default.” And they don’t want to disclose it to anyone else in the firm. And that can be a huge mistake because they can risk losing coverage for that, even though there might otherwise have been coverage under the terms of their policy.

Sam Glover: Any other questions that we wouldn’t think to ask that we probably should?

JoAnn Hathaway: No, I think we covered a lot of them, Sam.

Sam Glover: So when you get to the end of the conversation with the lawyer who’s calling you to talk about malpractice insurance or who’s come to your office to talk about it, what do you tell them to go do next? What’s the next step they should take?

JoAnn Hathaway: As far as getting an agent, or-

Sam Glover: What do you send them off with? Do you tell them to apply to five different policies? Or should the start reading up on insurers? What should they do next in their search to figure this out?

JoAnn Hathaway: I recommend, there are actually a couple of different resources, one in particular that I refer people to, and it’s put out by the ABA Standing Committee in Lawyers’ Professional Liability. And it’s actually a map and it’s a grid of all the different insurance carriers in the United States. So you can pick your state, for instance I would go to Michigan and I would click on the map on Michigan, and it’s going to list all of the different carriers that write in my state. But not only just the carrier name, because that’s not going to tell you much. But they are going to provide all of the information or a lot of the information that we just discussed. So they’re gonna say, “What’s the minimum deductible? Do you offer first dollar defense? What’s the highest limit?” So just to have that resource at hand. That would be one recommendation I would make.

The next would be is to find a knowledgeable agent who writes or works in the world of professional liability insurance. Can any agent probably go out and get coverage? Yes, they can. But it really is quite a specialized area. And if you can find an agent, and there are many of them, that maybe work with five or six or seven different carriers, they can get several quotes and say, “This carrier offers this. This carrier offers something different.” I think that is the best advice I could give.

Sam Glover: And you didn’t menton the one that I think we should. And we probably should’ve mentioned upfront, but you have literally written the book on malpractice insurance for the ABA. The book is called “Legal Malpractice Insurance in One Hour for Lawyers”. Does that mean we can read everything we need to know about malpractice insurance in one hour?

JoAnn Hathaway: I think you should be able to get through it in one hour or maybe a little bit more. But what is not contained in the book, I have provided a chapter on additional resources that people can go to if they would like to actual do a deeper dive into legal malpractice insurance. So hopefully it provides a lot of good information.

Sam Glover: So maybe that should be step one in doing your due diligence, is grabbing the book and doing your research and then getting the chart, and off you go.

JoAnn Hathaway: Now I do hope … I enjoyed writing the book, and I do hope that it’s a helpful resource for the lawyers and law firms who happen to take a look at it.

Sam Glover: Well JoAnn, thank you so much for being with us today. Lots of information there, and I really appreciate it.

JoAnn Hathaway: Well thank you Sam, it’s been my pleasure.

Aaron Street: Make sure to catch next week’s episode of the Lawyerist podcast. If you’d like more information about today’s show, please visit lawyerist.com/podcast or legaltalknetwork.com. You can subscribe via iTunes or anywhere podcasts are found. Both Lawyerist and The Legal Talk Network can be found on Twitter, Facebook, and LinkedIn, and you can download the free app from Legal Talk Network in Google Play or iTunes.

Sam Glover: The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by Legal Talk Network. Nothing said during this podcast is legal advice.

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