Heller’s Attempts At Securing Malpractice Insurance

If you haven’t yet seen the article in The National Law Journal entitled Attorneys for Heller Seek Approval of $3.48M for Legal Malpractice Insurance then you should take a moment to read it. 

It appears that Heller is attempting to secure what is normally called “tail coverage” for malpractice claims that may arise during the last few months of Heller’s existence when it was in the business of practicing law.

As a former employee of Heller I am concerned that Heller is asking for $3.8M in insurance premiums payments and this takes that $3.8M out of the pool of available monies to pay creditors including its former employees.

Even the court seems to think that the amount of coverage (up to $20M is excessive) according to this note in the docket dated January 18, 2009:

DOCKET TEXT ORDER: The court has reviewed the motion to
purchase tail malpractice coverage and desires more information from
the debtor. The following questions should be answered by way of a
supplement to the motion no later than January 23. First, will the
debtor pay the three remaining payments to AFCO? If so, why is this
necessary if debtor is no longer rendering legal services? Second, the
$3.5MM debtor wishes to pay AISLIC/Valiant will cover prepetition
claims (ignoring the time between December 28, 2008 and January 1,
2009) estimated to be $7.5MM. Why is it necessary to obtain $20MM
coverage rather than 7.5MM or perhaps $10MM? Third, how is
advancing nearly 50% of projected exposure in order to have the
insurer pay 100% of prepetition malpractice claims fair to creditors
who may not be paid in full? Stated otherwise, why not save approx.
$3.5MM and let uninsured malpractice claims be treated the same as
other general unsecured claims. Fourth,how will the $2MM selfinsured
retention be handled if and when a claim arises after
expiration of the current insurance? Is debtor asking permission to
pay claims from that retention prior to confirming plan that classifies
malpractice claims separately? Finally, what is the estimated amount
of taxes that must be paid in addition to the $3.5MM cost of
coverage?.. (Montali, Dennis) Modified on 1/20/2009 (Lucero,
Elizabeth). (Entered: 01/18/2009)

Also, I may need some help from our very competent observers and commenters here, but didn’t the shareholders at Heller each carry individual malpractice insurance?  Not only does the amount of coverage seem execessive but is it necessary?  Or is there some anticipated malpractice claim in the works that we don’t know about?



5 Responses to “Heller’s Attempts At Securing Malpractice Insurance”

  1. 1 Observer 22 January 2009 at 4:51 pm

    1. Malpractice insurance was not (at least typically) carried by the shareholders individually. They relied (as we associates did) on the firm’s mnalpractice coverage. I don’t see any indication that there is some unexpectedly large malpractice claim in the works.

    2. The tail coverage the firm is proposing to buy would benefit former associates (such as myself) as well, in case of any claim being asserted later against work that we did while still at the firm.

    3. Judge Montali clearly thinks there is a risk-reward problem with the proposed tail coverage and premium. What he sees is an estimated $7.5 million in claims per year, vs. a proposed premium of $3.4 million. Read the docket note that Tom included above for the math.

  2. 2 anon2 22 January 2009 at 10:49 pm

    Heller covered all their attorneys with an all inclusive malpractice insurance policy that was renewed every year. That’s what the yearly questionnaire was for – each attorney was supposed to submit their survey to the firm GC by the end of the calendar year. The firm held a U.S. policy and a separate foreign policy for non-U.S. offices. It provided 1 million $ of coverage for any malpractice suit-per lawyer-per occurrence.

  3. 3 My Guess 23 January 2009 at 11:43 am

    Don’t you limit claims by NOT purchasing tail insurance? In other words, if potential litigants know there is an insurance pot of money exclusive of the general pot to distribute to creditors they may be more likely to sue. If they know there is no insurance and that they will have to get in line with the other creditors they may be less inclinde to sue?.

  4. 4 My Guess 23 January 2009 at 11:48 am

    Though now I think more about it, if there is no insurance and I have a valid claim, I am going to sue the shareholder personally, right?

    So is this merely a further attempt to spend money which would ordinarily go to pay wage claims for the SOLE benefit and personal protection of shareholders?

  5. 5 Jayne Loughry 24 January 2009 at 12:52 am

    I’d be struck down with surprise if protecting former associates played any part in the DC’s wanting to buy tail coverage. Rather, I’m pretty sure tail coverage is all about trying to protect the former shareholders’ tails, and possibly those of the firms to which the Heller shareholders took cases & clients.

    Looks like a dubious Judge Montali is asking the right questions. I especially like his implied suggestion that it makes more sense to let a future malpractice claimant — if indeed any ever shows up — stand in line with the other unsecured creditors than to burn $3.5 million on a premium for coverage which might well never be needed.

    I imagine the DC and the former shareholders aren’t keen on that idea because a disgruntled former client might rather sue the shareholder(s) individually than stand in line with all of you.

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