Lawyers Professional Liability Claims in the United States

Professional Liability Insurance and Lawyers Liability Claims in 2013-2014 in California

by Karmah Elmusa

When it comes to the relationship between lawyers’ liability claims and the economy, the trend is fairly predictable. A rough financial period usually breeds a multiyear spike in professional liability claims, and the 2008 financial crisis and resulting dismal economy are no exception. In 2011 the number of claims increased 6 to 10 percent from the previous year, and in 2012 they jumped another 10 to 20 percent, according to a survey by risk management consulting firm Ames & Gough. But as the economy slowly stabilizes, 2013 seemed to be the first year indicative of a true leveling off.

One obvious reason for more claims during an economic dip is that when things go wrong financially, people look to find fault. For example, real estate malpractice claims have been off the charts in California (and nationwide) which is easily traceable to the collapse of the market over the past five or six years, according to Randall A. Miller, a legal malpractice attorney and founding partner of Miller LLP in Los Angeles. “Obviously, the housing market generated a lot of claims against lawyers for errors committed during the course of those ill-fated transactions,” he says. “In fact, I’m impressed by the resiliency of this trend. Most of the legal work that resulted in malpractice claims would have been undertaken by 2007 or 2008. And yet, this work is continuing to generate lawsuits, which is emblematic of the depth of the real estate market fallout in California.”

Another unusual trend Miller has noticed of late is the emergence of very-high-dollar claims – some estimated at more than $50 million. Although he thinks this may be an aberration in the long term, it also highlights how intricate and high-stakes today’s transactions are, even compared to just ten years ago. “IP protection, for example, can be very expensive,” says Miller. “If a lawyer commits an error in an IP deal, he or she incurs a high amount of risk. It can be devastating for an insurance company.”

More generally, though, Miller expects that as the economy gets back on track, the number of claims will return to prerecession levels. One of the reasons for this evening out is a noticeable return to normalcy for many attorneys regarding their practice areas. Recession-time claims are often the result of what Mitchell & Mitchell professional liability program manager Dan McKenna calls “dabbling” – lawyers venturing outside of their usual practices.

“Now that the economy is more stable, my staff and I have seen less ‘dabbling’ ” says McKenna. “During the recession years, a lot of attorneys were forced to start taking any work that would walk in the door. For example, an attorney who does estate planning but whose work is slow would take on a personal injury case, which he might not know much about. Now we’re back to people showing more focus in their specialized practice areas, which is a really good thing for the legal profession.

Professional Liability Insurance and Lawyers Liability Claims in 2012-2013 in California

by California Lawyer

In 2011 the legal market saw a dramatic 10 percent rise in the number of malpractice claims brought nationwide, according to broker and risk management consulting firm Ames & Gough. The rise in claims reported in its annual survey was also reported in a recent study by the American Bar Association covering 2008 through 2011, and both organizations blame the recession. In 2012, though, that trend seems to have leveled off, Ames & Gough reports.
Despite this news of a slowdown, lawyers’ professional liability program manager Dan McKenna says he still sees the claims rolling in.

“I get the sense [in California] that more claims are being filed against attorneys,” says McKenna of the Mitchell & Mitchell Insurance Agency. “At least a couple of carriers have stopped writing lawyers’ professional liability here, and another carrier has reduced limits being offered by firms in the southern part of our state while also increasing rates. [Some carriers] have had to add staff to their claims departments.”

Another portion of the latest Ames & Gough report states that regardless of overall claim volume, the number of high-dollar claims has increased markedly, which could pose a potentially costly challenge for law firms. Specifically, the insurers surveyed saw more claims with a reserve (including loss and expenses) of more than $500,000 in 2012. Two of the insurers polled estimated an increase of more than 20 percent in claims of this size.
At Long & Levit in San Francisco, professional liability lawyers Kathleen Ewins and Jessica MacGregor say they’ve noticed a similar trend in claims they’ve handled recently – most of which are related to real estate, failed investments, or patent issues. “We’re seeing an increase in the higher value cases because they typically emanate from business deals or litigation gone bad,” says Ewins. “Those suing are trying to recoup money lost in a poor economy, and their lawyers get swept up in it.”

MacGregor adds that for lawyers presently looking to obtain or switch insurance, the ability to select defense counsel is an important consideration. “If an attorney or a firm is able to negotiate or obtain in their policy a right to select counsel, that’s something that we would advocate,” she says. “It’s worth asking for.”

Underwriters, for their part, expect potential rate increases this year, but say first-rate insurance remains a must. “There is still a large amount of capacity in the market making rates affordable, even if they are increasing some,” McKenna says. “It’s hard enough for an attorney to run a profitable firm these days. Better to pay the premium for coverage than to incur a malpractice claim without an insurance company to stand behind you.”

Professional Liability Insurance and Lawyers Liability Claims in 2011-2012 in California

by Rene Ciria-Cruz

Legal malpractice claims rose by as much as 10 percent last year at some of the country’s leading insurers, according to a survey by broker and risk management consulting firm Ames & Gough. Real estate practice generated the biggest increases, but claims in corporate and securities as well as in trusts and estates practice areas also showed spikes. The data came from senior insurance claims examiners at insurance firms that collectively cover three-quarters of U.S. law firms with at least 35 attorneys.

This trend mirrors a rise in claims in California “due to the state’s poor economy,” says Dan McKenna, lawyers’ professional liability program manager for the Mitchell & Mitchell Insurance Agency. A sluggish economy generally gives rise to more malpractice claims as floundering investors and businesses seek to recover financial losses and blame their lawyers.

In the case of real estate claims, the soaring number of transactions just prior to the start of the recession in 2008 meant more closings with a quicker turnaround – and more opportunities for mistakes. After the bubble burst, many lenders and buyers reviewed their transactions and turned on the counsel who handled them to recoup losses. Likewise, corporate and securities claims rose when more deals went bad. Many beneficiaries of trusts and estates hit hard by slumping values also pursued claims against their managers and advisors. Conflict of interest was the largest cause of claims, followed by failure to meet filing deadlines, Ames & Gough reported.

Nationally, the number of claims with reserves of over $500,000 (amounts representing actual or potential liabilities kept by an insurer to cover debts to policyholders) increased markedly – by at least 11 percent. Multimillion-dollar claims also increased; most of the insurers surveyed said they’d paid out a claim of more than $50 million.

Rising along with the size of claims was the cost of malpractice defense. Some experts attribute this to higher attorneys fees, e-discovery expenses, and more aggressive tactics by plaintiffs counsel.

“In California, carriers are recognizing the need to increase rates relative to the rest of the country,” reports Tim Barrett, assistant vice president for lawyers’ professional liability at Monitor Liability Managers.

“In order to ensure compliance” with the terms of their liability coverage, says McKenna, “attorneys should educate themselves on the reporting requirements of their policy.” Experts also warn lawyers to overcome the fear that reporting a potential claim will affect the pricing or availability of their malpractice insurance. Insurers, they advise, need to know of any potential or actual claims in order to provide timely counsel that can help prevent a small problem from becoming a bigger one.

Professional Liability Insurance and Lawyers Liability Claims in 2010-2011 in California

by California Lawyer

Ever since California’s mandatory malpractice insurance disclosure requirement took effect last year (rule 3-410 of the Rules of Professional Conduct), the estimated 30,000 or so lawyers who carry no professional liability policy have had to do some serious thinking about whether to stay uninsured.

“We’ve experienced a noticeable spike in demand for coverage, especially from smaller firms, ever since the disclosure-of-coverage requirement went into effect,” reports Brian Ahern, president and CEO of Ahern Insurance Brokerage.

But Ed Poll, a Venice-based law-management expert and author, says many attorneys are just sitting it out. “Lawyers,” says Poll, “are very clever in finding loopholes,” managing “either to bury the notice so it’s never brought up in conversation, or pass it off as an unnecessary requirement foisted on them by the State Bar.” Poll adds that many lawyers don’t earn much more than $50,000 a year, and find the cost of malpractice insurance prohibitive. (The CALIFORNIA BAR JOURNAL figures that a basic policy costs $4,000 to $7,000 a year.)

Sole practitioners and small-firm attorneys may be the most vulnerable to complaints. The State Bar has no recent data, but its 2001 “Investigation and Prosecution of Disciplinary Complaints Against Attorneys in Solo Practice, Small Size Law Firms, and Large Size Law Firms” showed that more than three-quarters of the 3,255 disciplinary cases it completed the prior year involved solos, and one-fifth involved attorneys in firms with just two to ten lawyers.

Attorneys have many carriers to choose from. And although some established carriers are tightening their guidelines, Ahern says, “a lot new of ones are trying to undercut them.” He cautions, however, that new carriers may lack experience and the commitment to stay in the market for the long term.

According to Dirk Kruidenier, executive vice president of BCS Insurance, law firms’ increasing sophistication in avoiding malpractice liability has brought a downward trend in claim frequency. Pricing, he says, has bottomed out. “Some of our lower-priced competitors are now making price increases,” he says. “But each underwriter has a different appetite for risk.”

All in all, Ahern says, it’s still a good market for acquiring coverage.

Professional Liability Insurance and Lawyers Liability Claims in 2009-2010 in California

by California Lawyer

A new mandatory disclosure requirement adopted by the California Supreme Court puts the heat on practicing attorneys who don’t carry professional liability insurance.

As of January, uninsured lawyers must now directly inform their clients— in writing, at the time of hiring—of their lack of coverage if the representation will amount to more than four hours.

In addition, the new Rule 3-410 of the Rules of Professional Conduct requires lawyers who lose their malpractice insurance while representing a client to inform the client within 30 days
of the expiration of their coverage.

Exempt from the rule are attorneys directly employed as government lawyers or in-house counsel who don’t provide legal advice or represent clients outside that capacity.

The requirement will directly affect up to 30,000 lawyers practicing in the state—the approximate number of uninsured attorneys reported by the California Bar Journal.

Many of the State Bar’s 170,000 active members loudly opposed Rule 3-410, arguing that it placed an unfair burden on sole practitioners (who accounted for 40 percent of active bar members in 2006) and on small firms of two to five lawyers (22 percent in the same year). “The law is a very contentious and adversarial environment, and this rule is a virtual invitation for clients to sue their lawyers, especially those that inadvertently signal, by not offering a disclosure statement, that they’re insured,” says Ed Poll, a Venice-based author and law management consultant. To Poll, the high court addressed “a problem that doesn’t exist
with a solution that’s not appropriate.”

Others questioned why the legal profession needed mandatory disclosure when other professions don’t impose a similar requirement. Meanwhile, the State Bar has declared its intention to look for ways to make professional liability insurance affordable for all members. (The Bar Journal estimates that such policies generally cost a lawyer $4,000 to $7,000 annually.)

“The new disclosure requirement should be good consumer protection and good for the legal profession,” says Dan McKenna, program manager of CNA (Continental Casualty Company).

Keltie McCloskey, president of Cooper & McCloskey (CMI), which administers Federal Insurance Co.’s program in California, predicts, “It will result in an increase of first-time buyers of malpractice insurance, but the increased demand won’t raise the price of premiums.” The reason prices will hold steady: “There has been a glut of carriers and a leveling off in the price of premiums,” he explains. McKenna concurs. “New insurance carriers coming into California are forced to offer extremely low premiums as their only means of gaining any market share,” he says. “Several of the well established carriers like CNA are now offering extremely low-priced premiums along with the new players.”

Comprehensive statewide statistics on legal malpractice aren’t available, but the American Bar Association’s latest “Profile of Legal Malpractice Claims: 2004–2007” may suggest how malpractice trends are affecting lawyers in California as well.

According to the ABA, up to 44,000 claims were lodged against insured lawyers nationally within the study’s three year period. Solos and smaller firms were sued the most: 70 percent of all insurance claims were brought against lawyers in firms with one to five attorneys.

Nearly 22 percent of claims involved case management problems, including missed deadlines and failure to calendar properly. This is why insurance carriers usually offer substantial discounts to practitioners with computerized calendaring systems.

Claims against plaintiffs personal injury lawyers still topped all claims at 22 percent. But real estate transaction claims rose from 16 percent in 2003 to 20 percent in 2007 as the real estate
market slumped.

While more than three in four claims ended with no indemnity payments to claimants, about 15 percent of reported claims resulted in indemnity payments of $50,000 or less and 6.5 percent led to payments of more than $50,000. In the latter group, the number of claim payments over $2 million more than doubled from the previous ABA survey, totaling 44 for the three-year period.