Why Insurance Defense Firms Are Struggling to Secure Professional Liability Coverage

Understanding Why Coverage Placement Has Become More Difficult

If your firm handles cases for insureds on behalf of an insurance company, you may have noticed it has become increasingly difficult to place your firm’s professional liability coverage. Either your carrier has declined to renew your coverage, reduced the available limits, or significantly increased the premium. Understandably, you are questioning why this is happening. In this article, we will discuss the background behind what seems like a sudden change and provide examples of what carriers have experienced through policies issued to firms practicing insurance defense.

What “Insurance Defense” Means as an Area of Practice

Preliminarily, how is “insurance defense” defined? Although carriers may vary slightly in their definitions, the term generally refers to an attorney hired by an insurance carrier to defend a policyholder who has been sued.

Common examples include:

• An automobile carrier retaining counsel for its insured driver after an accident,

• Professional liability carriers hiring attorneys to defend medical, legal, accounting, engineering, or other professionals, and

• Carriers hiring attorneys to defend truck drivers and other commercial operators.

These attorneys are often referred to as “panel counsel” or simply “defense counsel.”

The Historical Relationship Between Carriers and Panel Counsel

Historically, panel counsel and insurance carriers maintained close working relationships. Minor errors by panel counsel, and even some not‑so‑minor errors, were often overlooked because carriers valued the relationship more than the potential recovery from a malpractice claim. A review of ALPS claims data reflects that although many potential claims were reported over the past 25 years, seldom were claims actually pursued.

Why the Landscape Has Changed

In recent years, this dynamic has shifted dramatically. Several factors appear to be driving the change, including:

• The rise of nuclear verdicts,

• A general loosening of privity laws, and

• Increased financial pressure on carriers to recoup losses.

As a result, insurance carriers have become significantly more likely to pursue claims against panel counsel.

Examples of Claims Brought Against Panel Counsel

Consider the following examples involving ALPS insureds who were serving as panel counsel:

• Auto accident defense: Insured advised the carrier to promptly attempt settlement due to case weaknesses. The carrier ignored the advice, the case went to trial, and an eight‑figure nuclear verdict followed. The carrier later alleged the insured did not communicate the urgency emphatically enough and demanded the insured’s policy limits.

• Time‑limited demand mishandled: Carrier received a time‑limited policy limits demand and retained the insured to accept it. The insured attempted to accept but failed to comply with strict terms and conditions, allowing the plaintiff to argue the demand had been rejected. After an adverse verdict, the carrier demanded the insured pay the excess amount.

• Premises liability defense: Insured underestimated the severity of the claim and believed it could be resolved for less than policy limits. The carrier declined several policy‑limits demands. At trial, the jury awarded an eight‑figure verdict. The carrier settled on appeal and demanded the insured’s policy limits.

• On‑ship injury case: Insured advised the carrier to accept the plaintiff’s demand due to an unfavorable venue and risk of a worse outcome at trial. The carrier failed to resolve the case, a jury awarded an eight‑figure verdict, and the carrier blamed the insured for not foreseeing a change in the plaintiff’s trial theory and for not recommending settlement forcefully enough.

• Medical malpractice defense: After an unfavorable seven‑figure verdict, the carrier sued the insured, alleging multiple errors during discovery and trial and claiming the matter could have been resolved for a reasonable settlement amount but for those errors.

Carriers Are Now More Willing to Blame Panel Counsel

More examples exist in the claim files but taken together they lead to a clear conclusion. Insurance carriers are now quick to blame their panel counsel when a case does not resolve to the carrier’s liking. This is true even when panel counsel recommended settlement and the carrier chose not to.

Several forces appear to be driving this shift:

• Verdicts have become increasingly large,

• Carriers could absorb “regular” adverse verdicts, but nuclear verdicts are different, and

• Carriers now view panel counsel as sharing some, if not all, responsibility for bad outcomes

This trend persists even in the absence of clear errors such as failing to disclose an expert, failing to file an Answer, missing an appeal deadline, or similar mistakes.

How This Trend Impacts Professional Liability Coverage

These claims are extremely expensive to defend due to the unique nature of legal malpractice litigation, which requires re‑litigating the underlying case through a “case‑within‑the‑case” analysis.

As a result:

• Professional liability carriers are less willing to insure panel counsel,

• When they do agree to insure them, premiums are significantly higher, and

• Available limits are often significantly lower than what firms previously carried.

This combination explains why insurance defense firms are now facing difficulty placing coverage, even when they have long‑standing relationships with the carriers they serve.