New Approach to Law Firm Risk Management Focuses on Total Cost of Malpractice Suits

Chicago, February 27 2008

Beazley Group plc, a leading underwriter of liability insurance for major US law firms, has unveiled a new approach to law firm risk management.  Looking beyond insurable losses, Beazley is partnering with a range of specialist advisors to help law firms address the total economic cost deriving from malpractice lawsuits.

“A major professional liability claim for a large law firm could cost between $5 million and $50 million,” said Lloyd Fielder, head of Beazley’s lawyers’ professional liability (LPL) team.  “But the total economic cost will invariably be higher, and can sometimes be a multiple of the insured portion of the firm’s losses.”

Mr. Fielder listed four components of the total economic cost of malpractice claims that are not covered by insurance:

1.         The law firm’s self insured deductible and any losses that exceed the firm’s limit of indemnity from its insurer. 

2.         The opportunity cost in billable hours deriving from the diversion of firm resources to resolve the lawsuit.

3.         The loss of existing and prospective clients deterred from the firm by unwelcome publicity relating to the lawsuit.

4.         The loss of talented staff from the firm and the deterrent posed to prospective recruits caused by an embarrassing and well-publicized malpractice lawsuit.

“Insurance is typically the third largest item of expenditure at a law firm,” said Mr. Fielder.  “But it has historically been powerless to address the above costs, which – although sometimes hard to quantify – we and our clients know to be very real.”

A common causal factor in many of these uninsured losses is the damage to a firm’s reputation that a high profile malpractice suit can generate.  As part of its law firm risk management offering, Beazley is partnering with strategic communications experts Kekst and Company to offer law firm clients reputation management advice in the event of a claim.

“We know that negative publicity can increase the cost of a claim,” said Mr. Fielder.  “But it can also transform a manageable problem into a crisis that profoundly affects the law firm’s current and future business.  Some of our clients already work with Kekst and Company and the depth of their experience in crisis and reputation management is unrivalled.”

Reputation management is one of a variety of risk management and loss control services that Beazley clients will be able to access.  Key areas of firm vulnerability include: conflicts management; data management (aggravated by the proliferation of electronically stored information); fraud or the actions of so-called rogue partners; and risks deriving from strategic or operational changes such as mergers, overseas expansion or significant lateral hires.  In the coming months, Beazley will be announcing further relationships with selected service providers to meet these and other client needs.