Liability insurance plan debated.

A proposal to endorse a new liability insurance provider has been rejected by the Board of Governors after they were told it could eventually harm the statewide market.

The Member Benefits Committee recommended to the board at its recent meeting in Melbourne that it endorse a malpractice insurance program marketed by Seabury & Smith and underwritten by Chicago Insurance Co.

But by an overwhelming vote, the board appeared to agree with former Bar President Ray Ferrero that such an action would undermine rate stability brought by Florida Lawyers Mutual Insurance Co., which was founded by the Bar more than a decade ago. Even though it has not been formally endorsed by the Bar, Ferrero said it is listed as a member benefit and was created by the Bar.

Bruce Glassman, of the Member Benefits Committee, said a subcommittee that he chaired reviewed proposals from several companies before settling on one offered by Seabury & Smith and Chicago Insurance Co.

The criteria used, he said, was to find a solid, highly-rated company offering the best combination of rates, coverages and incentives. "We're here to present what is perceived as a major, major benefit to members of the Bar," Glassman said.

Incentives include coverage for part-time lawyers, up to $10,000 paid for loss of income caused by a liability case that goes to court, provision of low-cost CLE for Bar members, and a continued coverage for lawyers who retire, become disabled or die.

In addition, the Bar would be paid a two percent fee that would yield $100,000 if the company, as expected, writes $5 million of insurance by its third year, Glassman said.

He also noted that Seabury & Smith and Chicago Insurance have set up similar programs in five other states, including California, and they have not pulled out of any of those states.

But Ferrero, who spearheaded the creation of FLMIC when he was president in 1988-89 and still chairs the FLMIC board, said the Bar endorsing a different carrier could eventually lead to destabilization of the lawyer liability insurance market and higher rates.

He recalled that in the early to mid-1980s several insurance companies first offered cut rate premiums to attract business and then rapidly raised rates, with several carriers leaving the state. At one point, there were three rate increases in one year, including one where rates doubled and another where rates rose 40 percent, Ferrero said.

FLMIC has brought stability to the market and helped hold down rates, even for lawyers to buy policies from other companies, he said. And the company is controlled and run by Florida lawyers, Ferrero said, adding that accepting the committee's recommendation would give more control of the Florida legal insurance market to out-of-state corporations.

It would be also unfair to lawyers who have invested in or purchased policies from FLMIC, he said.

"I'm here to tell you and our board is here to tell you the endorsement will be misleading and confusing to the lawyers of this state and will be detrimental to the lawyers who invested in FLMIC," Ferrero said. "The lasting legacy of this generation of lawyers to future generations is the formation of a liability company by lawyers for lawyers."

Board member Arthur Rice asked Ferrero why FLMIC couldn't offer policies at rates competitive to Seabury & Smith and Chicago Insurance. Ferrero, who noted that FLMIC has many incentives similar to the new proposal, said rate wars won't necessarily help the long-term market.

"We're not going to chase rates, we're concerned with actuarial soundness," he said. "That's what happened in the 1980s, there was a spiral down [of rates] and a quicker spiral up."

Noting that accepting the Member Benefits Committee's recommendation would mean the first Bar endorsement of a liability carrier, board member David Bianchi said, "I think it would be a horrible mistake for us to do this. I was on the board [as YLD president and president-elect] when this was done [FLMIC created]. ... I think everyone needs to remember we cannot judge what we need to do based on a snapshot in time. We would be biting the hand that feeds us to endorse a commercial carrier when we've got a Bar-created company."

Board member Henry Latimer agreed. "The Bar has never officially endorsed a malpractice carrier and I would urge that it not do so," he said.

The board rejected the committee's recommendation overwhelmingly by a voice vote.