The Florida Bar
Bar Issue Papers
Professional Liability Insurance Company
(Florida Lawyers Mutual Insurance Company)
On This Page
II. Bar Position
IV. Facts and Statistics
Professional liability insurance is intended to protect lawyers against any act, error or omission, which might give rise to a liability claim and result in the lawyer being held liable for damages.
From time to time, there have been dramatic increases in premiums for professional liability insurance for lawyers in Florida. Professional liability insurance carriers attribute increased costs primarily to a substantial increase in claims made against professionals and the corresponding increase in losses actually incurred by the insurance companies. Catastrophe losses suffered by re-insurers also result in higher premiums to insured lawyers. In addition, lower interest rates decrease the investment earnings of insurance companies and their ability to support insurance underwriting losses. Accordingly, it is conceivable that litigation arising out of alleged malpractice by lawyers might increase to such a level that professional liability insurance would not be available or insurance premiums could escalate to such an extent that coverage might not be affordable.
It is this situation, experienced by some Florida lawyers in the 1980s, which led to the creation of Florida Lawyers Mutual Insurance Company. During the 1980s, the market for professional liability insurance changed. The spread between investment income and underwriting losses narrowed; insurance companies increased their premiums, decreased coverage, tightened policy provisions, raised deductibles and reduced limits. Many excellent lawyers who practiced in what had been considered "high risk" areas such as real estate, plaintiffs' personal injury, securities law and others had difficulty in getting liability coverage at any price. Many lawyers who had claims made against them, but who had not had any claims paid on their behalf, also found it difficult to obtain continued coverage. Some lawyers who continued coverage with commercial companies, notwithstanding enormous premium increases, were suddenly advised that the company did not intend to continue to write professional liability coverage. Geographic considerations also caused lawyers to be denied coverage.
II. Bar Position
A. The Florida Bar's Position
The Bar studied the professional liability insurance situation in Florida for several years and was concerned with problems involving the availability of this type of insurance for Florida lawyers. It was believed to be in the public interest for Florida lawyers to carry professional liability insurance. To that end, The Florida Bar created Florida Lawyers Mutual Insurance Company.
The mutual form of organization was chosen for the company because the policyholders elect the board of directors. The Bar and the company believed that this form of organization would allow it to provide a stable source of professional liability insurance. It should be emphasized, however, that the underwriting standards for the company are consistent with sound insurance practices; that rates charged by the company are established to ensure the company's long-term viability; and that claims are administered in accordance with accepted insurance claims standards.
The company, now operating for almost 25 years, operates independently from The Florida Bar, and has achieved its goal of stabilizing the professional liability marketplace in Florida by providing an affordable and enduring source of coverage.
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The Bar investigated numerous alternatives for providing lawyers professional liability insurance in Florida. Based upon those investigations and its experience in unsuccessful attempts to arrange for private companies to write professional liability insurance on a consistent and cost effective basis, the Bar determined that the best alternative was to endorse and encourage a mutual insurance company owned and operated for the sole benefit of Florida lawyers. In 1985, the Bar approved the expenditure of up to $50,000 for the investigation and study of forming a captive lawyers professional liability insurance company. In addition, in October 1986, the Bar sought contributions from Florida lawyers of $75 each to provide sufficient funds to organize such a company. Florida lawyers contributed an aggregate of approximately $260,000 in response to the request.
The company's primary objective was, and remains, to provide a financially sound, stable long-term alternative to the commercial professional liability market for qualified Florida lawyers. The company is controlled by Florida lawyers. By limiting its business to the writing of professional liability insurance for Florida lawyers, only claims against such lawyers affect the company's loss experience. It should be recognized, however, that the company was not organized for the purpose of providing lower premiums than are available from commercial carriers. Although the company provides competitive rates, the premiums charged by the company are influenced by the company's actual claims experience and are established in accordance with sound insurance and underwriting practices.
On March 3, 1987, the company filed an Application for Permit to Organize a Domestic Insurance Company with the Department of Insurance of the State of Florida (the "department"). The Company was incorporated on May 27, 1987. The permit was issued on July 15, 1987. After receiving the department's permit, the company raised the needed amount of surplus and began operating on Jan. 1, 1989. By even the most critical review, the creation of Florida Lawyers Mutual Insurance Company is clearly addressing its objectives and is a benefit to all members of The Florida Bar. Florida Lawyers Mutual Insurance Company provides the following benefits to every member of The Florida Bar:
- Stability to the lawyers professional liability market. Many commercial carriers come and go from the market. Part of Florida Lawyers Mutual Company’s mission is to be the perpetual source of professional liability insurance.
- Coverage in all geographic areas of the state.
- Operation as a mutual insurance company. There are no stockholders. The owners of the company are the Florida lawyers who become policyholders. Control of the company remains vested in the elected board of directors.
- A board of directors comprised of individuals from all areas of Florida who bring knowledge of local issues that are of importance to insureds.
- Competitive premiums based on the company's actual loss experience.
- Direct services, eliminating agents' commissions, time and reducing expenses.
- Day-to-day administration by qualified insurance, accounting and investment professionals and firms.
- Risk management, claims administration and underwriting services.
In 1997, the company together with other state barrelated insurance companies formed Lawyers Reinsurance Company, a Vermont captive reinsurance company. Also, all original surplus certificates purchased during the capital raising phase of FLMIC’s history were redeemed thereby negating any future requirement that lawyers purchase surplus certificates as a condition of insurance.
IV. Facts and Statistics
- The Florida Bar voluntarily raised funds used to pay for the costs of formation of the company. Approximately 3,450 lawyers contributed to this fundraising effort.
- Since 1977, bar associations in other states have established, sponsored or helped organize lawyercontrolled professional liability insurance companies. Bar-affiliated or sponsored mutual insurance companies now operate in North Carolina (1977), California (1977), Minnesota (1981), Missouri (1985), Wisconsin (1986), Alabama (1989) and Kentucky (1989). Barrelated stock insurance companies have been established in Ohio (1978) and Oklahoma (1978). A reciprocal insurance exchange for lawyers was established in Texas (1978). Other reciprocal insurance funds include The Attorney Liability Protection Society Inc., which covers 13 states, and American National Lawyers Insurance Reciprocal was recently established by the Virginia State Bar. The only mandatory state bar insurance fund was established in Oregon (1978). All these companies are either the principal provider, or a major provider, of lawyers professional liability insurance in their respective states.
- Oregon is the only state bar that mandates liability insurance coverage for all attorneys.
- In 1981, the American Bar Association's Standing Committee on Lawyer's Professional Liability created the National Legal Malpractice Data Center. The Center releases data about legal malpractice claims based on nationwide claims experience and periodically publishes a report. A copy of the latest report can be obtained from the American Bar Association.
Prepared by The Florida Bar Department of Public Information and Bar Services with the assistance of the Florida Lawyers Mutual Insurance Company. For more information, visit Florida Lawyers Mutual Insurance Company website at www.flmic.com.