Legal malpractice claim costs up despite frequency remaining flat
In the past two years, the legal professional liability market has seen at least five claim settlements exceed $1B.
Although the frequency of legal malpractice claims remained relatively static from 2020-2021, after spiking in 2019, the amount paid per claim continued an upward trend as mistakes became more costly, according to a survey of insurers that write legal professional liability coverage by Ames & Gough.
Ames & Gough reports the past few years have been among the worst on record for legal malpractice claim payouts. In the last two years alone, the market has seen at least five settlements in excess of $1 billion.
A vast majority (90%) of insurers surveyed had participated in a claim payout over $50 million in the past two years, according to Ames & Gough. Further, 36% of respondents had been part of a settlement of more than $300 million.
The 11 survey participants included ARGO, Everest, QBE and Swiss Re Corporate Solutions, which combined cover approximately 80% of the AM Law 100 firms.
Insurance defense lawyers see claims jump
A relatively new trend, Ames & Gough reported insurance defense lawyers are seeing an increase in malpractice claims. However, an insurer’s ability to sue defense counsel varies by state. In some states, the law is unclear, while in others it is permitted under several legal theories of liability outlined in Ames & Gough report.
Eileen Garczynski, senior vice president and partner at Ames & Gough, tells PropertyCasualty360.com that some state laws have created an opening to sue hired defense counsel.
“Coupled with a more litigious society where everyone gets sued, no one is off limits anymore,” she cautions.
Risks from lateral hiring
Additionally, the survey reveals that the trend of lateral hiring and attorney migration is creating more risk. As law firms fight it out of top talent, more are turning to “inorganic growth” and lateral hiring. Lateral hires have increased 45% since 2019, according to Decipher Investigative Intelligence.
Law firms are also making hiring decisions on truncated timelines, as Ames & Gough reported: “attorney candidates that previously took four to six months to hire are now being hired in four to six weeks.”
Decipher Investigative’s CEO and founder Michael Ellenhorn reported that among the more than 5,000 lateral partner moves in 2021, nearly half fail. Further, 35% of law firms see a malpractice issue from a lateral partner, while the average cost in paid claims is eight times more for a lateral hire than an incumbent attorney.
“Conflicts of interest are likely the number one concern,” Garczynski says. “A firm may want to get a third party involved to uncover any conflicts with the lateral hire and his/her prior firm. This is because once the lawyer arrives at a new firm, the migrating lawyer’s conflicts are imputed to the new firm under ABA Model Rules.”
A common example, she says, is when the migrating lawyer leaves a client behind, but the new firm is adverse to that client.
“The new firm has to assess whether the matter on which the migrating attorney worked for the adversary is substantially related to the matter being handled by the new firm,” Garczynski explains. “This can create difficult confidentiality issues. Therefore, the new firm really needs a good; clear; and true assessment of any potential conflicts before bringing over a lateral hire.”
Further, law firms should be diligent in reviewing any potential legal constraints related to the partnership agreement the lawyer had with their old firm, such as restrictive covenant provisions, she says.
“And issues with client contacts are another red flag because many laterals don’t bring over the work they think they can,” Garczynski says. “Generally speaking, a lawyer cannot contact clients in advance of informing the current firm of the departure but can contact clients once the firm has been notified.”
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