Insurance for Law Firms - 5 to 19 Attorneys

As a firm grows to 5-19 attorneys, opportunities and flexibility grows with it . . . but challenges grow, as well!
For purposes of this discussion, we will consider firms of between 5 to 19 attorneys as small-to-midsize. Clearly, the Jones Day's and the Skadden's of the world would consider a 5, 10 or 20 attorney firm to be "very small." Everything's relative, I guess.
The insurance issues and challenges faced by a firm of this size are significant. While there are plenty of such firms with a broad, general practice, quite often it is this type of firm that becomes a highly specialized "boutique" practice, focusing all, or a substantial portion of its efforts in a single niche area of the law.
Sometimes, these specialties are considered by underwriters to be high-liability practice areas, such as Intellectual Property (including patent, trademark and copyright law), Securities (particularly dealing with IPO's or other similar offerings), Real Estate, or Personal Injury Plaintiff representation. In fact, claims statistics show that PI Plaintiff representation is the #1 basis for a malpractice claim; amounting to 25% of all such claims. It surprises some to hear that Real Estate is a close second. In fact, on our “home turf” of New York City, some folks would say that that commercial real estate is a contact sport!
We get some many questions about how and why underwriters view different practice areas in terms of pricing, we’ve put together a separate section to discuss this in greater detail. Click here and take a look.
We have noticed a couple of interesting dynamics with firms of this size. We’ll call these the “growth dynamic” and the “downsize dynamic”.
The Growth Dynamic:
The growth dynamic within a 5-19 attorney firm occurs when the firm has grown from being very small firm, whether organically or through the merging of two or more solo practices. In this case, it becomes easy to overlook the increased administrative requirements of the firm as it grows. Sometimes the partners resist hiring an administrator or appointing a managing partner, since it is felt that this will diminish the sense of camaraderie that brought the firm together in the first place.
While understandable, the fact is that we have dealt with a number of situations where no one has taken a serious look at the firm’s risk management issues. We say “risk management” here, because it’s much more than simply how much insurance to buy. Premises liability issues grow as the offices grow; off premises liability – such as non-owned auto - also grows, as well as mundane issues such as workers compensation and employee benefits.
Potential malpractice issues also grow as the firm gets larger. Client conflicts can present a special challenge, as the partners – some of whom have been used to knowing all of their clients personally – begin to deal with the fact that each and every new or existing client of each and every other partner is now a client of the firm.
It becomes less and less realistic to assume that everyone knows everyone else, and some sort of formalized client review/intake procedure must be implemented. In addition, regularly scheduled partner meetings must be held. Often this last step – while logical – is problematic, as many attorneys feel that partner meetings and other firm management issues take them away from doing what they like to do (and that which pays the bills) – practicing law.
In terms of the insurance issues, the firm might simply have “inherited” its coverage from a predecessor firm. The limits may be woefully inadequate or the coverage may not be optimal for the existing firm. We have even dealt with situations where a firm has been formed, but each attorney is operating with their own individual policy from their prior solo practice! No kidding, folks, this sort of thing could lead to a disaster in the event of a claim.
As the firm's size, both in terms of number of attorneys and its capital base, increases, it is important to review liability limits, retentions & deductibles, prior acts limitations for both the firm itself and the individual attorneys. How are Of Counsel relationships handled? Are contract attorneys utilized?
Are the offices leased from (or leased to) or shared with another firm? Either arrangement needs to be looked at from a risk management standpoint. I cannot begin to tell you how many poorly conceived office-sharing arrangements we have come across, simply because no one thought to ask a couple of questions.

The Downsize Dynamic:
The “downsize dynamic” seems to occur when a 5-19 firm is established by attorneys who are leaving a much larger firm. As you know, this can be the result of many factors, including the dissolution of the larger firm; a merger with another firm; the inevitable client conflicts that arise in a large firm – particularly in connection with a merger; and sometimes its nothing more than a desire on the part of the attorneys to experience the entrepreneurial challenge of running their own shop.
The risk management issues that we’ve seen in such a situation are generally a result of the fact that the members of the new firm are used to NOT having to deal with these very issues. Large firms maintain entire staffs devoted to dealing with these issues, be it insurance coverage, IT systems, or even whether the pantry is stocked with napkins, or whether there is milk for the coffee.
Now, all of a sudden, the reality is that unless “someone” does it – whatever “it” might be – it doesn’t get done. This is compounded by the fact that without the predictable draw or salary provided by the big firm, there is now the overwhelming urge to get out and generate business; bring in clients; make rain . . . practice law!
Anything that gets in the way – including bothersome issues like insurance – gets put off. We’ve seen many such situations, including highly skilled and respected attorneys practicing for months without ANY insurance in place, simply because no one is willing to take the time to deal with making these decisions.
We had one firm for whom we provided a comprehensive proposal, including professional liability, office package, workers compensation, etc. Despite repeated follow-ups, we simply could not get any of the partners to just say “yes” (we would have taken it from there). Six months later, the firm received a letter from the workers compensation board, fining them several hundred dollars because payroll was being reported, but no WC coverage was in place. That got someone’s attention, because we got a frantic call the next day (along with the “yes” that we had been waiting for).

As a firm grows to 5-19 attorneys, opportunities and flexibility grows with it . . . but challenges grow, as well!

The Growth Dynamic:

The Downsize Dynamic:

The Bottom Line?