How Errors & Omissions Lawsuits May Change
Plaintiff attorneys, at least the smart ones, must make sales decisions, too. Whereas a smart producer will create a pipeline that filters prospects by probability of a sale, plaintiff attorneys need to filter potential cases for their win-ability and then filter that probability by the cost of trying the case. A low probability case must have a huge payoff, especially if the cost of trying the case is high. On the other hand, a high probability win will likely cost less to try, and these are the cases that smart attorneys dream will come their way.
Law is not about justice but which side can make the best case, and the best case can often be made more easily with more money.
One filter the television attorneys use is they advise the first meeting is free. This creates more calls at the top of their sales funnel. They then identify the best cases to try through those first free meetings. Those meetings are meant to benefit the law firm’s sales volume with high hit ratio business post the first meeting. Then they build their brand by offering “free” legal services. It is a clever process.
New Developments
Two new developments will likely greatly affect their model and agents’ probability of being sued. The first is how artificial intelligence (AI) will decrease discovery costs significantly. Again, plaintiff attorneys (the good ones at least) look at a case like this: probability of winning X potential amount to win > cost.
If their cost can be significantly decreased, they can sue more people because their probability does not have to be as high, and the amount to be won does not have to be as large. This scenario is exactly the same for a manufacturer. If the cost of their raw materials decreases, then they can expand. Discovery is the cost of plaintiff attorneys’ raw material.
Artificial intelligence (AI) is already reducing their cost because it can search documents thousands of times faster than humans. AI probably can search voluminous documents more thoroughly, too.
This also means, if the court allows it, discovery can be expanded. The searches are also more exacting because AI does not get tired. I’ve done this work manually and after a few days, one’s eyes might glaze over. AI will also find little statements that when combined with other little statements, may identify problematic trends humans would have missed.
For example, the difference in the words an account manager uses to document one file versus another file may indicate some level of discrimination or at least unfairness, even if unintentional.
Combine more discovery volume with more hooks, and the probability of an increase in errors and omissions (E&O) suits is certain.
The second change that will likely increase the odds of pursuing more difficult cases that potentially have large payouts will more likely affect those writing large accounts and carriers. However, a small account with a big enough claim will be pursued more aggressively, too, all else being equal. This is the advent of private equity investing in lawsuits.
According to an article in The Economist (Aug. 18, 2018), at least 30 different funds were created in the past 18 months (as of August 2018). These funds have invested approximately $2 billion specific to lawsuits. They expect large payouts on their investments as well. In other words, they believe they are investing in expensive suits that can be won with enough capital to support the suit through the appellate courts.
Private equity changes the cost equation, too. Not only is more capital available, but now the risk is being shared beyond the law firm. This also enables the law firm to deploy its own capital on more suits. So often, law is not about justice, but instead about which side can make the best case, and the best case can often be made more easily with more money.
The Good News?
These developments are not all bad news. If plaintiff attorneys win more, insurance rates will increase.
Another positive possibility is that this means clients (and agencies) probably should consider carrying higher liability limits. Subsequently, agencies also need to do a better job offering higher limits.
In dozens and dozens of E&O audits I’ve conducted, agents stop offering commercial and umbrella limits higher than $1 million. That is poor practice because nothing exists suggesting clients should not be offered higher limits, and good E&O practice dictates offering clients higher limits. With these changes in the plaintiff bar world, $1 million may not be adequate more frequently than before.
A third effect is the need to practice better document management. I cannot believe, in 2019, agents still have any belief that some magic number (say seven years) is how long they should maintain their files. Moreover, I cannot fathom why some agents still think they only need to destroy their paper records. For some reason, many still think electronic records have a different requirement. To be fair, some of their misunderstanding was created by awful advice from E&O carriers and associations over the years.
Record retention is a complex aspect of the law, especially given privacy laws and new cybersecurity/privacy laws. The best advice I have is to keep records for as little time as you can and to engage a highly qualified attorney that specializes in record retention management for insurance entities to assist you developing a record retention policy.
The use of an attorney also helps in case something goes wrong, because then you can say you acted on the advice of your attorney. This is important for many reasons, including the conflict between state and federal record retention/privacy laws. The fewer records, the better when discovery is so cheap. The more records one has, the more likely AI can find a problem.
A fourth result, and opportunity, is the need to better train staff so they operate on a consistent (AI will find inconsistency more quickly) and professional level. This includes training them on how to document files in a professional manner, using professional language and never including unnecessary opinions.
Agencies that step up by improving their quality and management will reap the benefits of these changes in the plaintiffs bar. Their probability of being sued will decrease while reaping the benefits of higher rates because others did not improve their management.