LAW FIRMS SEE U.S. LEGAL MALPRACTICE CLAIMS COSTS SOAR
AS THEY RUSH TO COPE WITH RAPID CHANGE
Lawyers’ Professional Liability Insurers Face
Growing Numbers of Multimillion-Dollar Claims
WASHINGTON, DC, May 23, 2022 – As law firms throughout the U.S. try to navigate an intensely competitive and rapidly changing operating environment, the costs of their legal malpractice claims are reaching troubling new heights, according to a new study by insurance broker Ames & Gough.
In its 12th annual survey of lawyers’ professional liability claims, Ames & Gough examined the trend by polling 11 leading lawyers’ professional liability insurance companies that on a combined basis provide insurance to approximately 80 percent of the Am Law 100 firms.
The survey traced rising claim costs to such factors as: higher legal defense costs due to court delays arising from the impact of COVID-19; aggressive tactics deployed by plantiffs’ counsel, and the greater complexity of cases.
Even though legal malpractice claims frequency remained relatively flat – only four insurers surveyed saw an increase in the number of claims last year while the rest had no change from the prior year – the size of the claims tells a completely different story. Most insurers reported significant claims volume last year with substantial reserves and large payouts.
Ten of the 11 insurers surveyed had participated in a claim payout of more than $50 million in the past two years; three paid a claim between $150 million – $300 million and four paid a claim over $300 million.
“The experience of the insurers surveyed only tells part of the story,” said Eileen Garczynski, senior vice president and partner, Ames & Gough. “Anecdotally, we know of five claims that settled north of nine figures, including one over $400 million.”
For the second consecutive year, insurers surveyed saw the largest numbers of malpractice claims related to three practice areas: Trust & Estates; Business Transactions, and Corporate & Securities. In addition, a growing number of insurers cited increasing cases arising from Insurance Defense and Tax work/matters.
Even though suits brought by insurers against law firms providing their defense are relatively new, if insurers feel malpractice occurred due to the defense counsel’s mishandling of a claim, they can bring a suit in many jurisdictions.
Meanwhile, many of the actions brought against tax attorneys arose from changes to the tax laws during the COVID-19 pandemic, especially the Families First Act; The Covid Tax Relief Act; The America Cares Act; and the Child Tax Credit.
“Given the rapid change in laws, some attorneys who lacked experience to handle these matters dabbled in them while other lawyers failed to effectively communicate changes with their clients,” said Garczynski. “On the surface, there appears to be simple remedies for these issues. Attorneys should avoid taking on matters outside the scope of their expertise and they need to raise their game in terms of communicating with clients throughout the course of any engagement.”
Among the most common legal malpractice errors, conflicts of interest remained the perennial leading cause of malpractice claims; seven of the 11 insurers surveyed ranked it the first or second cause. Next is clerical/scrivener’s errors, ranked either first or second by four insurers.
“As the matters they handle become increasingly complex, even an otherwise small error can result in a big loss,” Garczynski noted. “Nonetheless, many scrivener’s errors might be avoided by having the right protocols in place for reviewing documents.”
Not surprisingly, as malpractice claims have become increasingly complex, the survey found the cost of defending them continues to increase. Among the 11 insurers surveyed, nine indicated defense costs increased in 2021 over the prior year. At the same time, the rates insurers pay defense counsel are also climbing; 81 percent of the insurers reported an increase in rates paid to defense counsel during the past year.
When asked what issues were keeping them up at night, their responses included a number of recurring themes, especially lateral hires and attorney migration risk.
Yet, Garczynski noted: “The risk of a malpractice claim; of losing a client; and the incalculable cost of bringing in a culturally incompatible attorney often might be avoided with a minimum amount of due diligence.”
The insurers participating in the Ames & Gough survey were ARGO, BRIT, Crum & Forster, Everest, Ironshore, Markel, ProSight Specialty, QBE, Sompo, Swiss Re Corporate Solutions, and Travelers. Copies of the survey, Malpractice Claim Severity Hits All-Time High as Law Firms Face Rapid Change, may be obtained free of charge by emailing requests to: firstname.lastname@example.org. Those requesting the survey should include their name, title, affiliation, and phone number, and state “LPL Claims Survey 2022” in the subject line.