News Release
LAW FIRMS FACE UNRELENTING CHALLENGES OF LATERAL
MOVEMENT, CYBER THREATS, AI RISKS AND FRAUD
New Survey Finds Legal Malpractice Claim Severity at All-Time High
WASHINGTON, DC, May 15, 2024 – In their efforts to sustain and grow their business
while reducing risks and minimizing the potential for malpractice claims, law firms
throughout the U.S. must constantly navigate challenges of lateral movement, cyber threats,
artificial intelligence (AI) risks and fraud, according to a new study by insurance broker Ames
& Gough.
In its 14th annual survey of lawyers’ professional liability claims, Ames & Gough examined
key trends driving law firm malpractice exposures and claims by polling 13 leading lawyers’
professional liability insurance companies that on a combined basis provide insurance to more
than 80 percent of the Am Law 250 firms.
Large losses and social inflation. With close to 10 claim settlements exceeding nine figures
between 2020 and 2024, nine of the 13 insurers surveyed pointed to social inflation as
contributing to the risk of large claim payouts. Four insurers cited growing awards from
sympathetic juries as the main driver of social inflation, two cited the fear of trial leading to
larger settlements and three saw social inflation being driven primarily by an aggressive
plaintiffs’ bar, third-party litigation funding, or corporate clients shifting the blame for bad
decisions to their lawyers.
Notably, 11 of the 13 insurers polled have participated in a claim payout in excess of $100
million in the past two years and the same number has paid two claims of that size.
Meanwhile, five insurers surveyed paid a claim between $150 million and $300 million and
four paid a claim over $300 million.
Conflicts of interest remain the single largest cause of legal malpractice claims with nine of
the insurers polled ranking it first or second most common error. Next was scrivener or
clerical errors, which ranked first or second by four of the insurers.
“What’s most troubling about conflicts is that nearly all law firms are well aware of their
potential risks and now have procedures and practices in place to avoid them,” said Eileen
Garczynski, senior vice president and partner, Ames & Gough. “Yet, many attorneys still
don’t consider conflicts an issue for their practices or simply ignore their firm’s protocols to
avoid them – and, unfortunately, the consequences can be catastrophic for the firm.”
For multiple years, the survey has found the same three practice areas generating the largest
number of legal malpractice claims. Among insurers polled this year, 62 percent identified
Trust & Estate, while Business Transactions was identified by the same percentage, followed
by Corporate & Securities (46 percent). In the current survey, however, two additional
practice areas – Insurance Defense and Personal Injury Plaintiff’s work – saw continued
growth in claims activity.
Top concerns for malpractice insurers. When asked about specific issues keeping them up at
night, the malpractice insurers listed several recurring themes, including cyber and AI risks,
fraud, lateral hiring and mergers, and attorney well-being.
“As attorneys increase their use of generative AI tools, such as to help answer a specific legal
question or draft a document specific to a case, they need to remain vigilant about privacy
breaches and confidentiality, just as they are with respect to cyber issues,” Garczynski said. “At the same time, when entering data into machine learning systems it might be prudent to
consider only providing anonymous or redacted documents.”
Meanwhile, the cost of defending malpractice claims continues to increase year over year.
Among the 13 insurers surveyed, 12 indicated defense costs increased in 2023 over the prior
year. In terms of actual costs, 23 percent indicated the average cost to defend a claim
exceeded $500,000 and 38 percent said the average cost was between $100,000 and $500,000.
The cost to hire defense counsel rose as well. Nine of the 13 insurers surveyed reporting the
rates they pay defense counsel increased last year. Among them, one saw rates increase by
more than 10 percent; two, by 5 – 10 percent; two, by 2 – 5 percent; and four, by 2 percent or
less.
The insurers participating in the Ames & Gough survey were ARGO, Ascot, AXA XL,
Berkley Select, BRIT, CNA, Crum & Forster, Liberty, Markel, QBE, Sompo, Swiss Re
Corporate Solutions, and Travelers. Copies of the survey – Law Firms Navigate Unrelenting
Challenges of Lateral Movement, Cyber Threats, AI Risks and Fraud – may be obtained free
of charge by emailing requests to: info@amesgough.com. Those requesting the survey should
include their name, title, affiliation, and phone number, and state “LPL Claims Survey 2024”
in the subject line.