I was speaking today to a Chicago IP attorney, Jim Faier, who was telling me of the problems faced by a local colleague who was seeking to renew his PI insurance. The colleague in question derived a steady volume of work from a single large corporate client in the healthcare sector which had followed him when he left a bigger firm. The insurance company apparently said that, unless he substantially diversified his sources of income and made himself less dependent on a single client, his insurance premium would be sharply increased.I thought this strange, since prima facie there appears to be no connection between the number of clients from whom work is received and the likelihood of an insured risk becoming the subject of a claim. Jim agreed with me that there was no obvious actuarial basis for such a premium hike to be levied. I write therefore to ask readers whether this is a feature of PI insurance elsewhere than in the state of Illinois.
Yes this is a well known feature of PI insurance everywhere. The rationale behind it is that if you are reliant for more than 25% of your income on any one source, then you may lose your ability to act independently, and stand up to the client if needs be. Apparently even large firms fall fowl of this because they tend to rely heavily on a few clients for their income. The name of the game in business is to ensure you have plenty of clients so that the loss of any one of them would not be a devastating blow to your business. So far I have managed to achieve this, but then get penalised for being a sole practitioner. Actually I find less justification for this, as in many businesses you are not judged by how many people own the business so why does the legal profession discriminate so much against sole practitioners?
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A large part of the problem is that there is so little real competition for what we call "malpractice insurance" over on this side of the Pond, and especially here in Illinois. It's even worse if one does IP litigation; the premiums I was quoted in 2004, as a solo practitioner with a mixed transactional and litigation practice, would have purchased a pretty decent used car. There wasn't much alternative... because I found only two firms that would even consider covering someone with that practice profile.
I must say, I was quite surprised when I started inquiring about PI here in the UK. Compared to my home jurisdiction Germany (where usually things tend to be more bureaucratic and complicated), obtaining PI in the UK seems to be quite a challenge, especially for small firms and Registered European Lawyers (to be). And it is quite pricey. A solo in Germany in his/ her first year can get the legal minimum cover (250k) for as little as 100 to 200 EUR. Not even a business plan is required. @Shireen: you wouldn't get penalised for being a solo. Instead you even might get a small firm discount.
ReplyDeleteMaybe I should add that the small firm discount is usually granted to firms being really "small" revenue wise. However, still, solos usually don´t pay an extra premium for the fact that they are solos.
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