Sunday, August 15, 2004

Thoughts on declining architecture

Marginal Revolution digs into the question of the quality of architecture in the US, drawing inspiration from the NYTimes:
As more high-profile buildings by foreign architects rise in the United States, and as computers allow architects to strive for engineering, design and construction complexities never before imagined, a gathering rumble can be heard across the profession about the way America builds. The country has garnered a reputation for overlooking gaping joints, sloppy measurements and obvious blemishes, and refusing to deviate from even the most outmoded standardized practices. Having exported its expertise, in the 80's and early 90's, to destinations from Singapore to Dubai, it is now facing stiff competition from Europe and Asia, where the building traditions favor singularity, craftsmanship and durability over speed and cost.

Friday, August 13, 2004

Healthcare company accepts award, cautions about malpractice

"Forward-looking statements made in this release involve a number of risks and uncertainties, including but not limited to...the impact of under-insured professional liability claims"

Thursday, August 12, 2004

uncovered construction claim, waiver of subrogation

This article examines the possibility of an errors and omissions claim that arises out of work done at a construction site. Most of the scenarios will focus on the exposures created by the subrogation clauses that appear in every standard insurance contract.

Monday, August 09, 2004

Professional liability yields thriving insurance niche

"Professional liability insurance is the fastest growing segment of the market, Salter says, because of increasing litigation by shareholders, the scandals such as Enron and Martha Stewart, and employees that have exposed corporations and their officers to expensive lawsuits. "
"Companies are now aware that at the end of the day, it's too expensive to manage this exposure on their own," he says. "If there's no coverage and you get sued, where do you get the money to defend yourself? So, it's much more predictable to pay the premium than roll the dice."
there are only about 1,000 insurance people in the country working this sector.

Construction Defects Burning a Hole through the Residential Contractors Market

"Everybody who touched a project is getting named," Lucas said, "and that's unfortunate, because 90 percent of them wind up getting out of it because they had nothing to do with the construction defect claim."

Builders and contractors working with new start tract home construction, condominiums and townhomes have been among the hardest hit, partly due to the relative ease of initiating class-action lawsuits in those types of communities.

The act, which requires homebuilders to register with and be licensed by the commission, is "really a sea change as far as home building in Texas," Henry said. "Because for the first time homebuilders voluntarily agreed to be regulated."

With each player passing on to others as much liability as he can, the contractor has to be aware of what he is assuming and be careful "that he's not assuming too much liability in the indemnity agreement, especially liability that would not be covered in his insurance policy,"
The comments section follows up with some tasty opinions about contractors who force subs to sign contracts (knowing they can't comply) and then later withhold payment (for non-compliance). Unfortunately, the trend we've seen locally is for everyone to get named and everyone to contribute. All the more reason to be selective about clients and projects.

Friday, August 06, 2004

The origin of the problems with our tort system?

John Hawkins quotes from Thomas Sowell's 'The Vision Of The Anointed' with this interesting take on where our tort system began to go awry:
"'The vast penumbra of uncertainty around tort liability trials in the wake of the judicial revolution of the 1960s and 1970s, which jettisoned centuries-old laws and principles, leaving judges and juries to roam free and indulge their own inclinations, made it prudent for defendants to settle out of court, even if they had done nothing wrong. The uncertainty of outcomes was epitomized in two cases in which crane operators drove into high-tension electric power lines, leading to lawsuits against the manufacturer of the crane for failure to warn them--a claim dismissed without a trial in one state, on grounds that the danger was too obvious to require warning, and yet in another state leading to a damage award of more than $12 million against the manufacturer. In other words, there was no longer law in the real sense of the word, but only unpredictable edicts emanating from courtrooms.' -- P. 170 "

Thursday, August 05, 2004

Global Construction and Engineering Headlines

The July issue of Construction Headline News is up. It's got a ton of links of interest to design professionals. Of particular interest:

Govt to address unfair practices in building industry
"New laws now being shaped will ensure that sub-contractors are not left high and dry with unpaid bills, especially when a main contractor faces problems and passes the project to another contractor."

Price tag to widen I-10 rises to $2.2 billion
"…more than 50 percent higher than the 2001 estimate…"
"TxDOT's initial estimate was $1.4 billion in March 2001."
"'We will see an escalation in cost because there are factors today that are going to drive that…'"
I'm simultaneously amazed and discouraged by the progress on I-10. I don't mind checking out the progress on the weekends, but I'm moving pretty soon. Just can't endure it everyday.

Wednesday, August 04, 2004

Elder Care- what do you know about it?

Briggs & Veselka, a large local CPA and business consulting firm, is sponsoring a seminar on Elder Care in conjunction with the Houston CPA Society. Yours truly has been tapped to illuminate the liability issues CPAs need to consider when practicing in this area. More details should be forthcoming shortly, so put it on your calendar, and come on down.

And while you're at it, get some perspective on the issue over at the
Elder Law Blawg, and then drop a comment about what you'd like to see covered.

/shameless self promotion

Lawyer's professional liability insurance- Buyer's Guide by the ABA

The ABA offers an introduction to buying professional liability insurance (.doc second bullet):

"The first thing to do," says Reid Trautz, director of the D.C. Bar's Law Practice Assistance Program, "is to contact your former firm and see if it's going to provide what is known as tail coverage."

...coverage is provided for all claims made during a specified period, regardless of when the incidents that gave rise to the claims occurred. This coverage takes the opposite approach of an occurrence policy, which protects the policyholder for any loss from an event that occurs within the policy period, regardless of when the claim is made. Most auto insurance is of this type.

Actually, this shouldn't be much of a concern. Most policies automatically provide coverage for anyone performing services in the name of the insured company. Even if you've hung out your own shingle, as long as your old firm keeps its coverage in place, you still have coverage for the services you performed while employed there. If you could get your own tail policy, that may cause a conflict as now two policies could provide coverage for the same incident. The last thing you want is to have the insurance companies arguing who should bear financial responsibility for a claim.

The best place to begin looking for insurance is through your bar's endorsed program, says Trautz.

Association endorsed programs can often be quite competitive. They remain so only as long as they are discriminating about who they insure. A few bad apples quickly erodes the profitability of the program. When this happens, the rates increase for everyone. If your program has been stable, it's likely it's still a good deal. However, if rates have been going up, the program isn't going to find a better deal for you. I've seen association endorsed programs disintegrate as their losses developed, and one by one, the best run firms left for a much better deal.

This is particularly the case right now. Professional liability insurance is prone to cyclical swings. We are seeing new capital enter the market and apply price pressure on those carriers who are trying to recover from the losses of the last few years. But do your homework, professional liability claims take time to develop- it does you no good if the cheap price today has no assets to back it up in the future.

Other carriers, he says, are less selective about insureds in order to maximize premiums. If these carriers have any basis to turn down a claim, he says, they will.

Also beware of coverage conditions for these new carriers. They frequently introduce fringe exclusions that erode cover from an otherwise comparable policy.

Construction Law Blog

Don Hawbaker has a collection of very interesting recent construction related claims and incidents over at the Construction Law Blog.

Thanks to Houston's Clear Thinkers for the link to Don's site.

Tuesday, August 03, 2004

UK Office of Fair Trading: Caps on auditor liability would not have a pro-competitive effect

The Office of Fair Trading published a report today that examined – but did not find compelling – claims that a cap on auditor liability would:

The report cites reputation, rather than financial liabilities as the major risk of collapse of a major auditing firm. Right now, I think unlimited liability is a significant barrier of entry for smaller auditing firms. First hand experience tells me that it is extremely difficult for smaller auditing firms to get e&o cover- at any price. There just aren't many reinsurers who are willing to aggregate that risk right now. Some firms have chosen to go bare, relying upon that all-important relationship (and an LLP) to keep business and protect their assets.

UPDATE: Top accountants challenge OFT demanding they

"correct a report that has damaged their chances of securing protection against negligence claims."

The big four say one or more of them could be destroyed without a cap. Peter Wyman, UK head of regulatory matters at PwC, said the firm could not secure commercial insurance on audits, and its captive insurance vehicle could only provide limited cover.

MEANWHILE: Houston's Clear Thinkers: (via Lyle Roberts )reports that PricewaterhouseCoopers has just released its 2003 Securities Litigation Study.

"107 of the 175 securities class action filed in 2003 were accounting-related. In more than half of those cases, the primary allegation related to revenue recognition issues;

Average settlements for all cases was up 20% from 2002, and there were more large settlements, including six greater than than $100 million;"

Monday, August 02, 2004

The old switch-a-roo

This article from the ABA talks about the considerations in purchasing E&O insurance- other than price. They hit on the usual: limits, deductibles, right to select counsel, defense within limits, hammer clause, financial stability, etc.

I'd like to add one more: getting what you bought. It's unfortunate, but I have seen a few instances lately where insurance companies have attached exclusions that were not included in the quoted price. Work with your broker to compare the quote with the binder, and the binder with the actual policy. Or not, you'll find out eventually.

Contingent commissions: suit against Aon gets class action status

from BI Daily News:
"At issue are payments, known as contingent commissions, that insurers pay brokers to reward them for directing high-volume or profitable business their way. Critics of the payments say they are poorly disclosed, if at all, and undermine a broker's duty to get the best deal for its clients by giving brokers other incentives when deciding among insurers. Mr. Spitzer subpoenaed Aon and other large brokers over the issue earlier this year. "

The reports I've seen suggest that most commercial insurance buyers are not outraged by this arrangement. I think most industries find it reasonable that the bulk producers should be able to deliver product at a deeper discount relative to those who produce very little. In insurance, relationships and trust are very important, and I believe high-volume relationships lead to better trust. Although this may appear to introduce a conflict of interest, a good broker would never let this additional commission interfere in their clients' best interests.


The lawsuit alleges that Aon “devised, implemented, supervised and enforced” a scheme to conceal the commissions from its clients. The plaintiffs, led by two Aon clients, seek to collect any undisclosed commissions and profits Aon has received from the arrangements.

Monday, July 26, 2004

ADR in the construction industry

I was helping a client review a contract today. The subject of "Right to Repair" came up. Basically, it outlines an ADR for the construction. According to this write up, parties frequently prefer to opt-out of the state mandated process, but this can open a direct route to litigation if the replacement clause is invalidated:
These SB 800 procedures can be modified by contract. However, if the modified procedures are invalidated, the claimant may proceed directly into litigation and bypass the SB 800 procedures.
In my search I also came across another less-frequently used ADR- Judicial Reference.
Via Luce, Forward, Hamilton & Scripps LLP:
Judicial reference is a dispute resolution procedure that has elements of both a court trial and a contractual arbitration. Judicial reference is similar to a court trial because the parties are under the jurisdiction of a court and the decision maker (referred to as a special master or referee) is bound by all the rules of law and evidence that apply in a courtroom. The special master is essentially a trial court judge. Judicial reference is similar to arbitration because the hearings are held in a conference room outside of the courthouse, all decisions are made by the special master without a jury and the special master may be selected by the parties, subject to court approval. Many developers preferred judicial reference to jury trials and arbitrations.

Tuesday, July 20, 2004

Philadelphia Legal Malpractice Suit Yields $4.4 Mil. - Article:
"'It is the job of the lawyers in representing a client to protect the client, not to please the client,' Cohen said. 'It's a job of the lawyer to think about the worst thing that could possibly happen because it's almost standard in law that if it can't happen it will happen.'"

In a verdict delivered from the bench, Cohen said he was "particularly disturbed" that the firm had supplied the bank with an opinion letter that was "false at the time it was signed" and that the lawyers "knew it to be false."
From an insurance perspective, a malpractice policy will typically cover the firm's innocent parties even though some of the attorneys engaged in willful misconduct. I'd be interested to hear what course of action the insurance company would take to recoup damages from the faulty parties. Also not sure about the statutes in PA, but some companies will cover punitive damages where allowed by law. I suppose if they are covered, the firm is still punished over time, but many other parties are going to share in that judgment in the short term.

MDI Legal Malpractice Report

MDI Legal Malpractice Report: an interesting report on legal malpractice stats from the Missouri Department of Insurance (1993-2002). Over 2,600 claims- despite the fact that 74% closed without an indemnity payment, the average payment was $26,582 with an additional $10,345 in expenses.
The largest proportion of losses in 2002 – 91 percent – occurred among attorneys with more than 10 years in practice.

Monday, July 19, 2004

Baltimore Biz Journal takes a look at legal malpractice insurance

The Baltimore Biz Journal takes a look at legal malpractice. It hits some main points like how claims follow a downturn in the economy. The best line:

"You probably wouldn't let some guy in dirty Levis into your home to remodel your kitchen unless he was bonded and had adequate insurance."
You don't often hear lawyers compared with flooring contractors.

Wednesday, July 14, 2004

WTC site architect sues developer- no word yet on the counterclaim

BBC NEWS Americas WTC site architect sues developer

...seeking $850,000 he says he is owed in unpaid fees.

A spokesman for the leaseholder, Larry Silverstein, said Mr Libeskind has
been paid "many millions" of dollars and cannot justify his claim for any more.

The two men have been at loggerheads over the final design for the

Mr Silverstein has brought in his own architects, who have substantially
changed Mr Libeskind's design plans.

Something tells me this is going to be a professional liability case study for many years to come. There is a strong correlation between a suit for fees and a counterclaim for professional negligence. When you add other design professionals to the mix, the situation gets very blurry.

I recently met with a local engineering firm. They had several outstanding suits for fees- in some cases for very small amounts (they don't miss a dime). They had no idea that it could significantly increase the chances of their client filing a counterclaim.

Furthermore, this practice leads to higher rates on errors & omissions insurance. Underwriters know that a suit for fees more quickly opens the door to response litigation- and they charge you more if you engage in that practice. Some carriers offer a discount if you allow them to exclude coverage for claims where the insured sues to collect a fee.

Monday, July 12, 2004

Mandate disclosure of professional coverage

This article by Glenn Fischer in the latest LPL Advisory examines whether lawyers should be mandated to disclose their professional liability coverage.

He frames the issue well, highlighting the main issue which is that professional liability coverage (malpractice or e&o) is different. What good does it do to disclose information that other parties don't understand? Furthermore, just because the policy was in place at the time that the disclosure was made, doesn't mean that it will be there should an unfortunate incident arise later. It could take some time for a claim to develop (depending on the statute of limitations for bringing a legal malpractice claim in your jurisdiction).

Do clients typically ask this question of their attorney? I would think this would provide a unique opportunity for each party to find out more about the other and how prone they would be to needing that insurance later on.

Just released: the 2003-2004 AIA/NSPE/ACEC Professional Liability Survey Results

This survey provides some insight on most of the professional liability insurers (for design firms) from how they weigh relative underwriting criteria, to how much premium they wrote last year. There's a bunch of relatively new companies along with a few long-timers. It's also telling that certain companies only reveal certain amounts of information.

I'll be posting a more detailed analysis later.

Small Accounting Firms: Think Big!

Anita Dennis has an interesting piece on how Sarbanes-Oxley has created increased demand for services from large firms. This in turn will create a large opportunity for small firms. Firms that are well positioned to pursue such engagements with public companies, keep in mind that with opportunity comes risk. Via Gen Re since the AICPA statistics were published in 1998:

-10% of all public companies have restated their financials in the past five years (1998 to 2003)

-There was a 22% rise in restatements in 2002 (from 221 to 330 restatements)

-22% of restatements followed a change in accounting firms.

I recently worked with an accounting firm doing public audit work. Despite a near spotless history of performing services in this area, their insurance went up...400%. Caveat Auditor.

Will the FTC's decision on Graham-Leach-Bliley increase the standard of care for attorneys?

Not if the ABA has anything to say about it. This letter details the ABA's appeal of the FTC decision. It will be interesting to see how the appeal goes. Healthcare and financial institutions have to conform with such rules. From what I've seen, accountants are also being required to contractually comply with GLB.

Compare to the HIPAA legislation. According to an article by Patrick T. O’Rourke, Esq. in the Fall 2003 LPL Advisory Newsletter, a patient's entire medical file may be released if:

...the patient [is informed] that information disclosed to third-parties may be redisclosed and no longer be protected by HIPAA.

Wednesday, April 07, 2004

USI - one of the largest distributors of lawyers professional liability insurance

"On April 1, 2004, USI acquired Bertholon-Rowland Corporation ('BR') of New York, NY. Founded in 1944, BR was one of the first brokers to develop insurance programs for professional associations on behalf of their members. The addition of BR to USI's existing Affinity Group creates one of the largest distributors of lawyers' professional liability insurance in the U.S."

Thursday, April 01, 2004

About Us

Our goal is to run the most respected independent insurance program for professional service firms. That's a tough variable to measure, but it remains the guiding principle behind everything our team does.

A critic of the industry once said that insurance is a sign of an advanced economic society. He went on to suggest that it leaves something to be desired in the implementation. It's a game of asymmetrical information, and too often it's the insurance buyer in a vacuum- unable to determine a good decision from a bad one.

We started this website to educate professionals about the risk management issues that affect them. We believe in the products we sell. We believe that a well-organized insurance program is a valuable service that can help companies achieve their financial goals.

Background- Phil Roberts, Professional Agent
Phil was born in Salina, KS- a town famous for maintaining the fourth alternate landing site for the space shuttle. He got to Texas as fast as he could, settling down in Katy and eventually graduating from James E. Taylor High School. He attended Cornell University where he received a BS in Operations Research and Industrial Engineering. He was also a Distinguished Graduate from Air Force ROTC Field Training.

After commissioning, he was stationed at Los Angeles Air Force Base, a post more famous for surfboards than airplanes. There he helped secure the future of our country by working on the "Son of Star Wars" satellite missile defense system. Following his stint in the service, he migrated to Silicon Valley to ride the burgeoning technology bubble. He joined a promising start-up- pledging to revolutionize the world with an sophisticated $1M blow torch. It was there that he first made the transition to marketing as he helped deliver some of the company's first sales.

In 2002, he left technology's bleeding edge and returned home to Houston to join friends who were also planning to take a company public. That's where you'll find him today, at USI, an integrated insurance, risk management, employee benefits, and financial services firm. He is certified in contract review as well as presentation of risk management and loss prevention materials.

When he's not creating loyal clients, Phil volunteers his time with the local Cornell alumni club and the West Houston Leadership Institute.

You can reach Phil at:
1250 Woodbranch Park Drive, Suite 300
Houston, TX 77019
ph: 281.754.8037
fx: 281.899.5338
em: papa hotel india lima lima india papa dot romeo oscar bravo echo romeo tango sierra at uniform sierra india dot bravo india zulu.

Important Disclaimer: Although I work for USI, these views are my own, and not those of my employer. The purpose of this blog is to foster discussion about risk management techniques for the betterment of professional service firms. Every company is different though. For specific guidance, I recommend that you consult with an attorney competent in the jursidiction in which you are performing services. I've made every effort to give proper credit for any material that is linked to. Furthermore, I've made every effort to link only to material which is in the public domain. If I've linked to your material without proper credit or authority, please let me know. Finally, if you know me, you know that the last thing I would ever do is try to infringe on another's rights. If for any reason you feel that has happened, let me know. Other than that, all ramblings here should be considered copyright of Phil Roberts 2004. Feel free to link to me, just give me credit, add me to your blogroll, or let me know about an issue you'd like to see discussed. Thanks.

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