US – The recent case bought against a consultant-owned insurer in the US has highlighted the increasing problems firms face in securing insurance coverage.

The US Department of Justice’s Antitrust Division had bought the action against Professional Consultants Insurance Co. This is a so-called captive malpractice insurance carrier that was set up in 1987 in Vermont by a group of US-based consultants to provide professional liability insurance.

The case, which centred around information sharing between the shareholders with regard to limitations on liabilities, was eventually settled out of court this summer.

PCIC’s lawyers said they settled in order to put the “costly and distracting” probe behind them – adding the move did not constitute an admission of any issue of fact or law. But PCIC was forced to enact various measures, including setting up an antitrust compliance office.

In a Securities and Exchange Commission filing yesterday, Watson Wyatt – which has 34% of PCIC - noted the hardening of the insurance market conditions for the industry.

“As a result we continue to assess our ability to secure future insurance coverage,” the firm stated. It said that it and the other firms that own PCIC increased the insurer’s capital by €4.6m in cash and a letter of credit last month.

Watson – “in light of increasing worldwide litigation” – now requires that all client relationships be documented by letters containing specific risk mitigation clauses. These are over and above the original contracts. Almost 100% of US corporate clients have signed such letters, it said.

“Initiatives to maintain that process both in the US and complete it elsewhere are underway,” the firm added. It disclosed that it has “disengaged” from certain clients where it couldn’t get satisfactory engagement terms.

Watson’s acquisition of Europe-based Watson Wyatt LLP could potentially expose “to a greater number of claims arising from its expanded operations”.

“In the future there can be no assurance that Watson Wyatt will continue to be able to obtain insurance on comparable terms to what it has obtained in the past,” it said.

Watson has outstanding professional liability claims totalling $112.7m, according to the filing.