LEGAL MALPRACTICE INSURERS PROBED

New York Asks if Class-Action Lawyers Are Targeted

By Siobhan Morrissey
December 17, 2004

It’s been a rumor circulating among some plaintiffs lawyers, and now New York state is investigating. The issue is whether insurance companies are refusing to provide malpractice coverage for class-action litigators because their lawsuits are forcing insurers and their clients to pay big awards and settlements.

"In a backdoor effort to cut off mass litigation at its knees, they are refusing to write the policies for the lawyers who are doing it," says Tim O’Brien, a Pensacola, Fla.-based attorney who practices in Florida, Georgia and Mississippi.

The insurance industry states it’s nothing personal; it’s just a business decision based on the cost of defending lawyers accused of malpractice.

New York State Attorney General Eliot Spitzer has launched an investigation into whether insurers are colluding with each other to freeze out the class-action bar. His office has subpoenaed a half-dozen insurers. Each of the companies—CNA Financial Corp., General Electric Co.’s Employers Reinsurance Corp., The Hartford Financial Services Group Inc., American Financial Group Inc., Arch Capital Group Ltd., and St. Paul Travelers Companies Inc.—confirmed receipt of the subpoenas either by telephone or in press releases posted on their Web sites. 

Robert Hartwig, chief economist for the Insurance Information Institute in New York, says the decision by some insurers to drop class-action attorneys is "simply a business decision" because the cost of professional liability insurance has risen dramatically in the past five years. Doctors, accountants, board directors and even attorneys are increasingly subject to malpractice lawsuits, Hartwig says.

"It should come as no surprise to attorneys that they themselves, as full-fledged participants in the litigation explosion, are going to be sued by people who are unhappy with the outcome of their cases and are then going to be sued by other attorneys," Hartwig says. "Lawyers suing lawyers. There is no segment of the consumer industry that has not seen the number of lawsuits skyrocket, attorneys included."

The National Association of Shareholder and Consumer Attorneys, which provides a forum for class-action attorneys, disagrees with Hartwig.

"They seem to be boycotting class-action firms," says the association’s Washington representative, Pamela Gilbert. "Nobody who is having difficulty getting legal malpractice insurance has had any increase in lawsuits against them. There’s not a malpractice lawsuit problem among the class-action bar."

Spitzer’s office won’t comment on the focus of the investigation other than to say it started in mid-October and there’s no end in sight.

"As Mr. Spitzer says, it will take as long as it takes because you don’t know at the outset what kind of information you are going to turn up," says Spitzer spokesman Marc Violette. He adds, "No criminal charges have been filed."

While Spitzer’s office won’t go into specifics, NASCAT President Fred Isquith says this is an antitrust investigation.

"What the attorney general is looking at is whether this is in violation of fair competition and anti-competitive procedures," says Isquith, a New York City-based class-action attorney. "[Some] things you can do alone you cannot do with friends."

According to Isquith, insurers nationwide are failing to write new policies and renew old ones.

"It first surfaced in our organization 2 to 2 ˝ years ago, and my sense from talking to people within the organization is that it is an expanding problem, especially as policies expire," Isquith says.

O’Brien says a couple of members from his firm will be meeting with Spitzer on Monday to discuss this issue, among others, because New York is the hub for several insurance companies. Also, apparently, Spitzer is the only attorney general actively investigating the insurers on this issue.

©2004 ABA Journal

 

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