Hard times expand malpractice suits

When times are tough, it is a good time for malpractice lawyers. Thanks to the current recession, the insurance industry is bracing itself for stepped-up malpractice liability suits.

Although no definitive industry or government statistics are available, some industry analysts believe malpractice suits -- in great part because of the economic slump -- may be at a record high as financially hard-pressed individuals seek to fatten their pocketbooks at the expense of well-off professionals.

Most important, even if the claims themselves, involving larger and larger cash settlements and jury awards, are not at a numerical high, there is little question that a broader range of professionals than ever is now being sued.

Malpractice suits are increasingly common to real estate people, architects, accountants, therapists, engineers, social workers, corporate officials, clergymen, and, most ironically, lawyers and insurance underwriters themselves, as well as those in medical fields.

* Last month the jury in a federal court in New York held hte prestigious law firm of Willkie, Farr & Gallagher liable for $34.8 million in a suite involving a defunct mutual fund once controlled by financier Bernard Cornfeld.

Willkie, Farr was the legal counsel to Mr. Cornfeld, and then to financier Robert Vesco, who subsequently took over control of the fund. The fund was allegedly drained of its assets.

* In several recent cases, therapists and clergymen have been sued for malpractice in marriage counseling cases.

* At the same time, the legal grounds for acton in the medical malpractice area continue to be broadened through court decisions.

In June, for example, in what is believed to be a potentially far-reaching decision that could affect other professionals working for state agencies, the Virginia State Supreme Court ruled that the doctrine of "sovereign immunity" did not preclude persons from suing physicians employed by the state.

There is "almost always an increase" in liability claims "during an economic downturn," notes Peter Foley, president of INA PRO, a wholly owned subsidiary of INA Corporation, a major insurance underwriter.

According to Mr. Foley, what may now be particularly unique is the broadening of malpractice suits against nonmedical professionals.

There are now some 30 or so insurance underwriters in the malpractice claims area.

In 1967, there was only one multimillion-dollar court award for malpractice. Now, by one informal count, there is such an award at least every week.

The National Association of Insurance Commissioners (NAIC) and the American Bar Association are jointly working on a project to study the growth in malpractice suits against lawyers.

In addition, the NAIC will be releasing a major study on medically related malpractice suits in late September or early October. But there is believed to be no study under way on malpractice suits in general.

"Based, however, on what we know," says James Olson, an official of the NAIC, "there seems little doubt but that such suits are increasingly common" among professionals.

For example, the soon-to-be-released NAIC study (which covers the period from July 1975 through December 1978) shows a sharp jump in medical-related suits. During that period the average indemnity jumped 58 percent -- from $17,000 to more than $27,000. All told, there were some 72,000 claims, embracing more than

In 1975 there were 5 medically related malpractice awards of $1 million or more. By 1978 there were 23 awards of $1 million or more.

For the insurance underwriters, malpractice insurance in the medical area has brought definite losses to some insurers. The nonmedical area has usually been profitable.

Studies by A.M. Best Company, which analyzes the financial position of insurance companies, show that recent years have not been kind of carriers offering medically related malpractice coverage.

The industry uses a formula called a "combined loss-expense ratio" to indicate whether any particular type of coverage has been profitable. When the percentage exceeds 100, the industry is assumed to be in a loss situation.

For medical malpractice coverage, the industry exceeded 100 percent for every year in the five-year period after 1975, except for 1977. For 1979, for example , the percentage on melpractice insurance was 122.65 percent.

Nonetheless, according to officials of the Insurance Information Institute, more and more underwriters continue to offer malpractice insurance packages.

Mr. Foley of INA PRO says malpractice premiums are running well below what they were several years abo, in part because of cut-rate scrambling for business by newer insurers.

But Mr. Foley expects many of the more marginal underwriters (who now write as much as 25 percent of total coverage) to drop out of the market eventually.

That means, he believes, that there will be an increase in rates later this year or in 1981.

Rates vary widely, depending on the profession, the locality, and the kind of coverage sought.