For now, Mr. Smith believes problems will be contained to those who have provided some type of service in the credit markets. He doesn't see the damage spreading beyond there, but cautioned that the issues in the credit market only started last summer, thus it is too early to say for sure how far it will spread.

Even just looking at those connected to the credit markets, it is still difficult to say who exactly could face lawsuits. Mr. Smith said service providers that would not typically be associated with the real estate market could get swept into the crisis if they developed products or services used by professionals within the real estate market, such as software providers.

Michael Adler, head of Ironshore's claims department, said the first wave of E&O and directors and officers claims are already coming in for mortgage brokers and bankers. For E&O, he noted, the claims involve consumers contending that they were sold mortgages when the sellers knew the buyers were not qualified.

The insurance market has already responded, and mortgage brokers and bankers are now finding trouble securing E&O coverage, according to Jonathan Legge, managing director of Mercator's New York office, who said the mortgage E&O market began to harden about a year ago when trouble first hit the sector.

He likened the current market for mortgage brokers and bankers to the E&O market for the investment banking sector in 2002 and 2003. Following lawsuits and scandals arising out of initial public offerings, the E&O market dried up–and to this day, investment banking remains a sector that insurers avoid, he said.

Mr. Smith agreed with the comparison, but said that in the long run mortgage brokers may benefit from being smaller operations than investment bankers. Because they are smaller, he noted, they require lower limits and are not at risk for as many class-action suits as are investment bankers.

AIG has restricted coverage for mortgage brokers, Mr. Smith said, adding that the company needs to understand the risk better.

Claims against hedge funds and other investment vehicles are also beginning to emerge, Mr. Adler said, stemming from the failed theory that bad mortgages could be packaged and sold because the real estate market would continue to go up.

Looking forward, Mr. Adler said rating agencies may face E&O claims before the market sorts itself out.

Andrew K. Stutzman, chair of the Mortgage and Lending Litigation Practice Group at Stradley Ronon, said two cases filed recently by the New Jersey Carpenters Vacation Fund already attempt to bring in the rating firms.

Essentially, Mr. Stutzman said, plaintiffs have invested in bonds, and the rating agencies assigned credit ratings to different tranches of those bonds. The lawsuits claim the rating agencies assigned those ratings improperly. He explained that plaintiffs use a provision under the Securities Act to claim the rating agencies served as appraisers.

He said there are a number of defenses available to the rating agencies largely based on First Amendment free speech protections.

Mr. Smith said real estate appraisers could see lawsuits questioning whether they truly did the job they said they were doing. He also said real estate agents may face suits from purchasers looking to pin blame for the loss of value in their homes.

Mr. Legge added wealth managers and investment advisers to the list, while Mr. Adler noted that all types of miscellaneous professionals may be touched as the credit situation spreads to the larger economy.

As this happens, claims may arise that go beyond the negligence of the loan issuer, Mr. Adler warned. “Who are the brokers that arranged credit default swaps? Did they properly describe risks being underwritten? Those guys can get sued,” he noted.

He also gave an example illustrating how a professional firm can be exposed to liability by activities of an acquired company. The insured in this case–a bank–did not issue any of the bad loans fueling the current crisis, but did buy an investment house that had interest in those loans.

“So they managed to avoid the trouble upfront, and then bought it on the back end,” he said, noting that the bank faced over 50 E&O suits in addition to D&O suits stemming from those investments.

The experts agreed that a greater portion of the E&O market will experience some form of hardening due to the credit crunch, but that the effect could still be limited only to certain segments.

Mr. Legge said the market has been generally soft–even into this year. Looking ahead, much may depend on what large-market players such as AIG and XL do, he added, noting that if those companies reduce writing to a significant degree, or if clients want out of those carriers, the market may harden because other insurers are not changing their underwriting standards or jumping in to write E&O business.

Speaking from the perspective of a claims professional, Mr. Adler said he expects to see increased claims activity going forward, and does not understand why rates have not firmed more than they have.

Mr. Smith said he believes the market will sort itself out. Larger losses will drive a hardening of the market, but it is unclear over what period of time that hardening will last, he added.

As for the exposures themselves, Mr. Smith said those that did not have effective risk management in place will have a difficult time securing coverage.