January of this year marked the 30th anniversary of the Bar Board of Directors' decision to endorse the idea of a reciprocal or interinsurance exchange. In less than two years, TLIE will cross another significant milestone in its history. On May 1, 2009 we will celebrate the 30th anniversary of the first TLIE policy issued to a Texas attorney. We continue to believe that our most important function is to remain available during all types of market conditions. Financial stability and a commitment to quality service continue to be important considerations in the selection of an insurance carrier. Past experience clearly demonstrates the validity of this statement as we are all very much aware of carriers that are either no longer in existence due to insolvency or have simply withdrawn from the market and utilized their capital to pursue other lines of insurance. I suspect the future will be much the same as the past.
During my more than 50 years of practicing law which includes almost 30 years of experience in dealing with claims alleging attorney negligence, it is interesting to note how various forces impact both the practice of law and lawyer liability. Legislative initiates such as the Deceptive Trade Practices Act and the various components of Tort Reform have clearly altered how we practice law. In the 1980’s new and innovative theories of attorney liability surfaced during the Savings and Loan crisis. Lawyers along with Board of Directors, owners and officers became targets of the FSLIC, FDIC and the RTC. Several of these suits dragged on for years after the institution had closed and the crisis long forgotten. We discovered that there was a common link between many of these suits. In most instances attorneys were targeted because in addition to providing legal services to the institution they also served on Loan Committees, Board of Directors and often had ownership interests. Providers of professional liability insurance reacted by altering underwriting guidelines and policy provisions to exclude coverage for an attorney who not only acted as outside counsel but who also served on the Board or had ownership interests in the client. These coverage limitations were not only applied to financial institution clients but to any client where a potential conflict of interest might arise. We continue to emphasize in all of our risk management activities that conflicts, no matter how insignificant they may seem, should be avoided. Legal malpractice cases are usually quite complex and extremely difficult for lay juries to understand. However, our experience indicates that if a conflict exists, juries have a tendency to ignore other significant aspects of the case and focus exclusively on the conflict.
In recent months a new crisis has surfaced in an area that heretofore was not considered to be a high risk area of practice. There has always been some concern about attorneys involved in loan document preparation and the closing of residential real estate transactions but such activities were not perceived to carry the same degree of risk as those involving commercial real estate. The current financial crisis surrounding subprime mortgages could heighten the insurance industry’s perception of risk regarding residential real estate. Logically this crisis should never have occurred in the first place. Unfortunately, no one appears to know the full extent in terms of dollars of the problem.
However, the road to disaster was clearly visible with the advent of interest only loans, low initial rates of interest that would adjust in future years and in some cases little or no documentation regarding the credit quality of the borrower. At this point in time we are unable to effectively gauge the extent to which attorneys may get entangled in this mess but if history is any guide, theories of liability will surface that allege that the legal profession is responsible for the problem.
Once again the importance of professional liability insurance is demonstrated by several important numbers. During the period May 1, 1979 through June 30, 2007, TLIE has received notices of 6,792 claims and has paid a total of $495,751,532 in indemnity and defense costs. Claims still pending will, based on our evaluation, result in an additional $14,145,673 in costs.
We have greatly appreciated your loyalty and support during the past 28 years and we look forward to continuing our service to the attorneys of Texas.
James R. Lovell
Chairman of the Board
