This past year, California saw the departure of nine insurance companies that provide professional liability insurance to attorneys.

This reduction of carriers -- combined with their unfavorable loss history, declining investment income and higher reinsurance pricing -- has created a "hard market" for California attorneys. For most firms in 2002, rates have increased from 40 percent to 100 percent.

In an effort to position your firm to secure the most favorable terms, consider the following:

• Start your renewal process early. Make sure to give your agent 30 to 45 days to negotiate your risk.

• Spend time on your application. Ensure your application and supplements are complete with a full description of any claims filed against you and/or your firm. Explain what your firm did to ensure these types of claims do not continue. If you or your firm practices in an area that is considered high risk, i.e., patent and copyright, but the work you and/or your firm does is litigation-based, make sure your application states such.

• Work with an agent who knows your business and specializes in professional liability insurance. This undoubtedly will save you and/or your firm time and frustration. Another suggestion is to ask how many carriers your insurance broker represents as well as how many firms she insures.

• Evaluate limits and deductibles, which means you need to evaluate your practice. Some questions to ask yourself are: What are your exposures in the event of a claim? Are your limits too low or too high? Can you take on a higher deductible to reduce your premium? A good rule of thumb for a deductible in a hard market is about $2,500 per lawyer.

• Become educated. Law firms should take the time to understand how they can better manage their firms against the threat of malpractice. For larger firms, consider a risk management audit to ensure proper procedures are in place. Make a point of noting in your application the steps and processes the firm has taken to make your firm a better risk.

• Take precautions in the event of a merger or lateral hire. Make sure to review the respective claim history of the firm or attorney before a decision is made. If the attorney and/or firm have past claims, understand how the association will affect your firm. Firms also need to find out how their practice areas will be perceived by their carrier.

• Do not sue for fees. Law firm suits for fees generate a large number of malpractice claims. The reason for this is that once the suit is filed, the answer most often will include a defense and an affirmative counterclaim stating that the fee was not paid solely because the attorney's performance was deficient. The counterclaim becomes for all practical purposes a malpractice claim against the law firm.

Sometimes the amount involved or the particular circumstances of representation may require a suit against a client for a fee. However, any decision to undertake any form of collection activity against a client is one which should only be taken after you understand its hazards. A strong recommendation is to gain the advice of independent counsel and launch a comprehensive review of the entire situation before collection activity is initiated.

It is estimated that about 10 percent of all malpractice claims originate as counterclaims to suits for fees, and about 50 percent of all suits for fees generate malpractice counterclaims. Pursuant to these statistics, carriers are now looking very closely at a firm's approach to this issue and in many cases are declining to provide terms for firms who sue for fees.

Although the outlook for the next 12 months appears to be bleak, it is inevitable that carriers that are on the sidelines now will find the increased rates very attractive. When this does happen, we will find ourselves back in a soft market, characterized by increased competition in which prices are depressed, and is usually attributed to excess capacity (more sellers than buyers) and/or high interest rates.

The soft market is estimated to occur in 2004. Until then we can expect price increases in 2003 to be between 20 percent and 50 percent.