Camerons´ insurance switch: timely change or risky business?

Camerons´ insurance switch: timely change or risky business?CMS Cameron McKenna has taken a leap of faith in its decision to relaunch its insurance practice with a focus on ­contentious work, as revealed by The Lawyer last week (3 November).

Most insurance practices are broadening their platforms to capture a more significant proportion of work because the pressure on profit margins and the demand for quality is high.

But Camerons is banking on the ­credit crisis creating a wave of insurance ­litigation.

“Camerons and ourselves will invariably see more contentious work ­coming through,” says Addleshaw Goddard insurance partner Ivor Edwards.

But, he adds, there are no certainties, as insurers will face new legal challenges over the next two years and many in-house counsel will look to review what they outsource in a bid to save on costs.

Norton Rose contentious insurance partner Michael Mendelowitz says: “It would be very surprising if there was not a rise in litigation,” adding that the firm is already beginning to see an increase in instructions.

Most disputes have arisen out of “financial services generally”, he explains. This includes disputes over financial ­liability, professional indemnity, ­directors and officers (D&O) and errors and ­omissions (E&O) insurance ­

“I know of a number of notifications and requests for advice relating to the collapse of financial institutions,” says Mendelowitz. “I’ve no doubt it’s being replicated in other firms.”

Insurers have, during the economic boom, built up a surplus of capital. Now that there is an economic slump rates are beginning to harden, capital is starting to dry up and the frequency and value of claims are on the increase.

“There’s a period of change about to begin,” says Edwards. “With an increase in claims, lower levels of capital and high costs, work given to outside lawyers will change.”

Kennedys has spent the past year broadening its practice areas. In June, the firm acquired personal injury (PI) ­boutique Davies Lavery (The Lawyer, 19 June).

As well as giving it a regional base, the move gave Kennedys a ­burgeoning ­PI practice from which to grow a volume insurance arm.

It also highlighted that insurers were changing the way they worked with ­outside counsel. Kennedys senior ­partner Nick Thomas says insurers ­conventionally keep volume claims work in-house and manage outside counsel working on larger disputes.

But he adds that “some insurers are ­turning that on its head and saying that we’ll give someone else the job of doing volume and multitrack in-house”.

Mendelowitz believes the opposite is true. “My perception is that insurers will keep volume work in-house and try not to ­litigate,” he says, “although there could be a ­conscious decision to outsource to a niche firm.”

Camerons could expect a rise in instructions for mid-value claims between £100,000 and £2m. “It’s ­significant, but it’s not going to set the world on fire,” one insider comments.

Currently Camerons is perceived as the firm most likely to be instructed
to represent brokers in insurers’ ­contractual disputes with reinsurers. Although this is valuable work, it is less frequent and highly specialised.

If Camerons’ move is to pay off, it will need to expand its expertise rapidly. But insurance litigation lawyers are scarce on the ground and most insurers like to keep them in-house.

Mendelowitz says he has been trying to grow the Norton Rose insurance ­practice for a year, but it is difficult to recruit.

Equally, Camerons could risk losing some lawyers. An inside source says: “A couple of insurance partners might be saying goodbye because of this change of emphasis.”

There definitely will be more ­insurance litigation work to be had
– the challenge for Camerons is in ­winning it.

Camerons declined to comment as it sorts out the restructuring.