The following article was published in The National List’s Quarterly eNewsletter on 1/18/2012. We continue to find that some of our member attorneys are unaware of the specific types of insurance that they need in order to safely and profitably do business in the debt collection industry. For their benefit and for other debt collection law firms, we are republishing an updated version of the article today, as the information is still relevant. We hope it will help readers evaluate their current insurance coverage.
Are You at Risk?
Clients are becoming more adamant that attorneys carry specific types of insurance policies. At the same time, the cost of insurance and other compliance issues is increasing. One of our attorney members said in 2012, “Compliance has become one of our fastest growing, non-direct income-producing expenses. On top of that, compliance costs and requirements just keep growing at exponential rates.”
Whether you are a new or an experienced attorney, you could benefit from a review of the specific types of insurance that you need to safely and profitably do business in the debt collection industry. This article contains general information that we hope will help all readers evaluate their current coverage. You also should review your coverage with an insurance expert to get definitive information.
The two major types of insurance policies that your clients may require you to have in order to do business with them are Legal Malpractice and Fidelity Insurance. The definitions and some of the following information about these policies is from http://legal-dictionary.thefreedictionary.com/malpractice and related searches.
Legal Malpractice Insurance (Professional Liability)
Malpractice insurance is purchased by lawyers and law firms to cover the cost of being sued for negligent errors, breach of fiduciary duty or breach of contract by an attorney. Such claims generally arise in the context of the professional relationship with the client, but they may also arise from fee disputes or claims filed by an adversary or non-client against a lawyer. In order to avoid malpractice liability, a lawyer has the duty, in all dealings and relations with a client, to act with honesty, good faith, fairness, integrity, and fidelity. A lawyer must possess the legal skill and knowledge that is ordinarily possessed by members of the profession.
A lawyer is liable for fraud and is generally liable for any damages resulting to the client by his negligence, with the possible exception of when the client caused the attorney to commit fraud. In addition, a lawyer is responsible for the acts of his associates, clerks, legal assistants, and partners and may be liable for their acts if they result in losses to the client.
Perhaps the most relevant area of malpractice to a lawyer who collects debt for a client is FDCPA violations. Many underwriters consider retail debt collection practice as a high liability. “Underwriters may insist on a relatively high deductible for law firms with a substantial collections practice. Thus, it falls to the firm itself to defend nuisance matters, reserving insurance for more significant claims. A few underwriters are even excluding coverage for FDCPA or FCRA violations. Your broker must be aware of all of the potential pitfalls, in order to design coverage that fits the highly specialized needs of your practice area.”
Fidelity Insurance (aka Crime, Employee Dishonesty, Embezzlement, Employee Theft, Internal Crime Policies)
Clients are particularly concerned that their lawyers or law firms are covered by a fidelity (crime) insurance policy that protects the claims entrusted to them for collection and ensures that the money collected is not at risk from any type of internal crime.
Your law firm needs to be insured against losses caused by the dishonest acts of its employees. As some policies do not, you should be certain that your policy covers all partners, principals and employees of the firm. The client will also want to be protected against losses resulting from the law firm’s failure to meet its obligations. Clients are hesitant to contract with law firms that cannot demonstrate their credibility and performance by having adequate insurance for the same.
Protection against wire transfers by hackers or other types of computer crime should also be included in a fidelity insurance policy.
Clients who place and properly register claims with NL member attorneys are insured for up to $3.5 million against theft of funds. The National List, Inc., does not, itself, insure any forwarded claim for any listed firm. The Policy is provided by a commercial insurer, The Great American Insurance Company, one of the top rated fidelity insurers in the country.
Being Fully-Insured Helps to Bring in Business
In addition to protecting yourself and your firm against loss, you can look at insurance as a way to bring in new business. The insurance that you carry and your willingness to comply with the requirements of forwarders will help to give prospective clients the confidence they need that their accounts and the money you collect are safe with you.
Prospective clients may ask to be:
- A Certificate Holder: A client may ask to be listed as a Certificate Holder on your malpractice insurance. The Certificate is a document verifying that a law firm has business insurance. It outlines the types of coverage and limits of liability that you have in force. Many clients or firms require that they receive a declaration page of your malpractice (professional liability) policy, with the client listed as certificate holder. When clients are listed on the certificate, they receive updated documents and notice of termination. They are kept informed as to your limits of liability.
- An Additional Insured: An Additional Insured is one or more individuals (in addition to the primary policyholder) who are protected under the terms of the same policy, usually a General Liability insurance policy. An Additional Insured is also called an Additional Interest. A NL client rarely requests to be an Additional Insured on a General Liability policy. Typically, it is a larger and more powerful business that will require smaller entities (desiring to do business) to have the larger business named as an Additional Insured. An Additional Insured is added either by endorsement or is referred to in the definition of “insured” in the policy itself. You and your clients should consult with an insurance professional to determine if it is in their best interest to be an Additional Insured, especially with matters related to debt collection.
- A Loss Payee: A Loss Payee is a third party that may be directly paid under a policy in the event of an insured loss (instead of the named beneficiary or policyholder). Creditors and forwarders often require that they also be listed as a Loss Payee on fidelity policies.
No additional fee
After consulting with an insurance broker, we learned that there should not be a fee to add a client as a Certificate Holder, Additional Insured or Loss Payee on an applicable insurance policy, unless the broker is adding on their own fee to handle the process for their client. The procedure for adding a client is different for different insurance carriers, but most just need something in writing from the firm. It should include the physical address they want on the policy. The firm will then be issued the documents and can make copies for their clients.
What The National List Does to Help You Meet Client Requirements
Credit grantors and other forwarders are assisted by The National List in finding quality legal representation for their specific collection, subrogation and bankruptcy needs, with no referral fee. We make it easy for prospective clients to do business with you. Before making a referral, The National List evaluates and narrows down the client’s choice of member attorneys to ensure there is no misunderstanding of their industry work standards, account placement volumes, technology, security (insurance), and financial requirements. Assistance is also given to ensure they have written contracts and agreements with you, the law firm, that spell out the details in fees, cost, reporting, billing, and remitting. Once a member attorney/client relationship is established, we follow up to ensure that both sides remain satisfied business partners.
Specifically with regards to insurance, The National List:
- Gathers insurance information and documentation, such as a Certificate Holder document, for clients who request it.
- Helps member law firms evaluate and acquire the insurance documentation they need to meet client requests.
- Gathers information related to compliance and insurance from member attorneys annually and provides it to clients so members don’t have to do it over and over again.
- Helps member attorneys to get more business, because it is much easier for clients to get the information they need to ensure a good attorney/client relationship and the desired results.
- Recommends the services of insurance broker, Gary Riek, who is experienced in providing industry-specific policies for the debt collection industry. Gary can be reached at 314-444-4993 or firstname.lastname@example.org.
For more information on insurance issues covered as part of the services of The National List, contact Leslie Herr at email@example.com, or call 1-800-227-1675.