Sagging economies tend to have insurance implications. When businesses slow or close and workers fear they will lose their jobs, there is typically a spike in workers' comp claims.
I'm not saying the claims are false, but I know that many people will work with aching backs caused by work-related injuries when it means a regular paycheck. But when the prospect of a paycheck begins to dim, those same people may be more willing to file for workers' comp indemnity payments.
We're seeing a new twist with the current economic woes, though, one that will undoubtedly also have insurance ramifications. Groups of law school graduates and students are filing class-action lawsuits against their law schools, claiming the schools inflated the employment statistics and expected salaries of graduates.
The law schools, of course, say the claims are baseless, but several suits are out there, alleging misleading enticements and even fraud. Some may see these as personifying the basis of all the jokes about their being too many lawyers—in this case, lawyers suing the very institutions that enabled them to become lawyers.
The allegations reportedly center on alleged false promises of not only employment but good salaries being used to lure law students to take massive loans in order to gain a degree. The bad economy, however, appears to be wreaking havoc with those supposed promises. These students and graduates are stuck with mounds of debt and low-paying job—or none at all.
The suits against Manhattan's New York Law School and Thomas M. Cooley in Michigan seem to be getting the most press. But there are others and likely will be more if the current suits gain traction.
The insurance implication? The personal and advertising injury coverage grants on the policy probably will not respond due to the very definition of “personal and advertising injury.” The definition does not seem to fit these suits. There also are exclusions for the failure of goods, products, or services to conform with statements of quality or performance made in advertising and for criminal activities (fraud).
This leaves the law schools' directors and officers (D&O) policies or educators' legal liability (ELL) policies. Although these types of policies differ from insurer to insurer, they typically exclude fraud, at least after it has been adjudicated as fraud. But they probably will be called upon to fund defenses until and if the actions are adjudicated as fraud. If settlements or judgments are awarded, those same policies may be on the hook to pay out even more, unless fraud or some other exclusion applies.
I've seen a number of claims alleging failure to educate, and it's probable that suits alleging false advertising or even fraudulent advertising probably have occurred. But it seems to me that the publicity that these cases are getting will lead to more such suits being filed.
If that happens, do you think D&O and ELL rates will rise? Or will underwriting standards tighten up? Will new exclusions be added to these forms? No one knows for sure, but I think there may well be changes if, again, these suits gain traction and multiply.
How do you think the insurers will respond?
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