Spitzer's Office Issues Round Of Subpoenas

Insurance Day
December 15, 2004

The Office of New York Attorney General Eliot Spitzer has issued another round of subpoenas against several US insurers, this time investigating whether they improperly dropped professional liability cover for lawyers.

Among those firms understood to have received the subpoenas are St Paul Travelers, CNA Financial, GE's Employers Re, Hartford Financial, American Financial and Arch Insurance. The issuing of these latest subpoenas marks the opening of another approach in Mr Spitzer's inquiries, which have so far taken in broker commissions and allegations of bid-rigging by some brokers, as well as the use of financial reinsurance to "smooth" financial results. In the case of St Paul Travelers, the latest approach by Mr Spitzer is the fourth that the firm has received since late October. Analysts said the subpoenas reflect complaints received by the attorney-general's office from a number of lawyers that several large insurers have placed limits on professional liability cover to cut their likely exposure to class-action malpractice lawsuits.

Beyond confirming that they will continue to fully co-operate with Mr Spitzer and any other regulatory or state authorities making similar approaches, none of the insurers has passed comment. Mr Spitzer's office itself has not given details of the subpoenas, though it is believed to have interviewed members of the National Association of Shareholder & Consumer Attorneys in Washington, which represents about 100 law firms that file class actions.

"More laywers are suing lawyers (and) it is not as if attorneys have been singled out," said Robert Hartwig, chief economist at the industry-sponsored Insurance Information Institute. "The fact is, attorneys have been caught up in the same explosion of litigation that has affected other professional services firms." US insurers have been increasingly burdened of late by the domestic tort system, and some in the industry have hit out at the country's growing litigiousness as something that discourages risk-taking and leads to higher rates.

Lloyd's has estimated the cost of the US tort system grew 100-fold over the past 50 years, three times greater than the growth in GDP, and that US tort costs amounted to a 5% tax on wages. In view of such figures, the latest direction taken by Mr Spitzer's inquiries may come as little surprise to US insurers looking as far as possible to limit their exposure to escalating legal payouts.

Copyright 2004 Informa Publishing Group Ltd.

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