Sometimes the best indicator of future risks is past data. By looking at claims that law firms have received in the past, and the outcome of those claims, attorneys and firms can glean insight and even, potentially, tips about how to manage their practices.
Broker Ames & Gough recently released data summarizing legal malpractice claims reviewed or insured by nine major malpractice insurers. These nine insurers collectively insure about 80 percent of the top 200 U.S. law firms by size, as well as many other mid-size and smaller firms. Attorneys and firms can draw on this data to learn about ways to prevent or minimize legal malpractice claims.
It’s Getting More Expensive
The data is consistent with other studies in this arena confirming that the number of claims is rather flat. The number of legal malpractice claims year to year seems relatively constant. However, the amounts paid to settle claims or in judgment are increasing year to year. According to the Ames & Gough study, five major insurers made payouts in 2017 that exceeded $50 million, while three paid a claim between $50 and $100 million, and one paid out in excess of $150 million.
Defense expenses for legal malpractice claims also are increasing. There are many reasons legal malpractice claims are becoming more expensive to defend and resolve. Legal malpractice cases are highly complex and often involve the “case-within-a-case” review, by which attorneys not only review the elements of legal malpractice but also the elements of the underlying case (in which the attorney purportedly made an error). Attorneys who specialize in legal malpractice defense can warrant higher rates than general commercial litigators, given their expertise. These cases also often require the use of expert testimony, which can be quite expensive.
Thus, even though the number of claims is generally stagnant, claims are becoming more expensive year to year.
Watch Out for Conflicts and Missed Deadlines
Seven out of the nine insurers surveyed cited conflicts of interest as the biggest or second-biggest basis for claims. There’s a reason law firms take conflict identification and resolution so seriously. A case that involves a conflict of interest—by which a plaintiff argues that a law firm put another client’s interests ahead of the plaintiff’s—can be quite expensive and can be a narrative that a jury easily understands. In some states, an allegation of a conflict of interest can lead to potential punitive damages.
Many law firms have dedicated systems to conflict identification and resolution, as well as a defined set of protocols. Of course, a firm’s ability to resolve conflicts may depend on the systems it has in place and the information that is provided. For most firms, conflict resolution involves two steps: identifying conflicts and resolving potential conflicts.
The first step typically involves the attorneys opening the new matter identifying the correct entities and people for the conflicts check. Many firms will instruct their attorneys to gather the potential entities involved (including parent organizations), with their addresses, and to identify whether those entities are adverse, potentially adverse or not adverse, based on the facts currently known. The attorneys may also identify important witnesses or co-parties. Then, a conflicts system—typically an electronic database—will review the information to identify whether there are any potential issues. Attorneys can also update this information during the life of a representation if there are new parties or changes in corporate status.
The second step involves how to resolve any issues identified by the system. This typically needs a human element to review the issues and to make sure the conflicts are appropriately documented and resolved (if they are able to be resolved).
Another big subject of claims is missing deadlines. One insurer said that a missed deadline was their No. 1 basis for a claim, while three other insurers had it at No. 2. A missed deadline is one of the most preventable errors that can give rise to a legal malpractice claim and, again, is an error that a jury can easily understand (making it particularly dangerous).
To that end, many law firms will invest in docketing software or docketing clerks to help reduce the likelihood of such an error. These can help reduce the likelihood that a deadline goes completely unheeded. And, even if such an error occurs, in spite of the attorney’s best efforts to monitor, a firm’s investment in the technology to reduce the likelihood of such errors may help show that the firm treats such matters seriously. Indeed, the investment in technology may indicate that the missed filing was a one-time error and not reflective of the firm’s overall practices.
Data Security May Be Improving
According to the latest data, fewer insurers are seeing an increase in claims against a law firm arising out of a data security breach (i.e., hacking or employee error). This may mean that law firms are doing better about training their employees and partners about how to recognize a scam or how to treat a potential breach in security. The investment may be paying off.
Nonetheless, data security is still a real concern for most law firms. Firms can consider whether obtaining an insurance policy specifically dedicated to cybersecurity fits their needs, as data breach claims may not always be covered by a traditional malpractice policy.
By being aware of the risks and trends of legal malpractice cases, firms can stay ahead of the curve and take steps to help prevent or mitigate future claims.
Shari L. Klevens is a partner at Dentons US in Atlanta and Washington and serves on the firm’s U.S. board of directors. She represents and advises lawyers and insurers on complex claims and is co-chair of Dentons’ global insurance sector team.
Alanna Clair is a partner at Dentons US in Washington and focuses on professional liability and insurance defense. Shari and Alanna are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance” and the upcoming 2019 edition of “Georgia Legal Malpractice Law.”