Legal malpractice claim costs up, despite frequency stabilizing
Ames & Gough reported 70% of the surveyed insurers had a claim payout of more than $50M in the past two years.
Legal malpractice claims frequency has remained relatively flat in recent years. However, claims severity has continued to be a challenge for legal professional liability carriers, according to Ames & Gough, which reported most insurers had large payouts during 2022.
These market trends were pulled from a survey by Ames & Gough of the top 10 legal professional liability carriers. Combined, the 10 insurers cover 80% of the Am Law 100, a ranking of the 100 largest law firms in the U.S. that is compiled by PropertyCasualty360.com’s sister site Law.com.
Ames & Gough reported that 70% of the surveyed insurers had a claim payout of more than $50 million in the past two years, while three paid a claim in excess of $100 million and two saw claims of $150 million-$300 million.
While a majority of legal professional liability carriers paid claims above $50 million, only two saw an increase in the number of claims this past year. Ames & Gough reported two carriers saw claims frequency decline and six saw frequency remain flat year-on-year.
Conflict of interests claims
Conflicts of interest assertions are the biggest driver of legal malpractice claims, Ames & Gough found, with 90% of surveyed insurers ranking it as the first or second most common type of malpractice allegation.
Of particular concern are conflicts of interest arising from law firms growing through lateral hires and M&A activity. Ames & Gough reported the conflicts of interest from these expansion activities are often not addressed early enough in the process. When they are discovered, they are frequently overlooked or ignored.
Eileen Garczynski, senior vice president and partner at Ames & Gough, noted there are no shortcuts for addressing conflicts of interest.
“Firms should be proactive in their efforts to anticipate, avoid and manage potential conflicts, including implementing sound procedures for recruiting, interviewing, engaging, and training lateral hires; flagging any issues, and communicating effectively — both internally and with clients,” Garczynski said in a release.
For the third year running, the practice areas of trust & estate, business transactions, and corporate & securities saw the largest number of malpractice claims.
Given that we are living through the largest generational transfer of wealth in history, it is not surprising that trust & estate practices are seeing an influx of lawsuits, according to Garczynski.
“Among a lengthy list of best practices for managing potential exposures, law firms need to be diligent in documenting their communication with clients, adhere to confidentiality requirements, and make absolutely clear whom they’re representing in family matters and who is not their client,” she said.
Looking toward future areas of potential consternation in this sector, Ames & Gough noted carriers foresee a potential flood of immigration cases.
“Given rapidly changing laws and high stakes associated with immigration cases where an error might result in deportation, law firms need to appreciate the complexity involved along with the specialized knowledge required to handle these matters,” Garczynski said. “In their quest for growth, there’s a risk some law firms might try expanding into immigration law without acquiring the requisite expertise, which could spell disaster.”
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