The latest data is out regarding the frequency and severity of legal malpractice claims data between 2008 and 2011, and the news is generally good.
Notwithstanding a slowed economy and a rapidly changing law practice, both the frequency and severity of legal malpractice claims have remained relatively constant during the last three years. The newest data for the years 2008 through 2011 was released at the National Legal Malpractice Conference sponsored by the ABA Standing Committee on Lawyers’ Professional Liability.
For plaintiffs personal injury attorneys, the news is good. There was a significant decline (around 5 percent) in the number of claims against plaintiffs personal injury attorneys during the three-year period. This is a significant change.
For years, plaintiffs personal injury attorneys and real estate attorneys have battled for the top spot as the practice areas with the highest frequency of claims, with plaintiffs personal injury attorneys typically occupying the top spot. Based on the new data, the top spot now rests solely with real estate. More than one out of every four legal malpractice claims are against real estate attorneys. There are a number of factors that likely contribute to this change.
Plaintiffs personal injury attorneys have made good use of technology to focus on their most significant risk: missing a deadline — including, specifically, the statute of limitations. In addition, many plaintiffs attorneys have implemented meaningful standard operating procedures for file openings. These procedures permit them to better screen clients, identify conflicts and confirm fee arrangements in writing. The combination has resulted in a notable decline in the frequency of malpractice claims, moving plaintiffs personal injury attorneys from the unenviable top spot to a solid second.
Real estate attorneys’ risks remain high. Like plaintiffs personal injury attorneys, real estate attorneys’ mistakes can rarely be remedied without a contribution from the attorney. Compounding this inherent risk, the collapse of the real estate market has created dynamics that increase the risks for real estate attorneys.
First, rather than current mortgages, real estate attorneys are now dealing with distressed mortgage situations that often highlight any mistakes in the closing process. Property owners and lenders who have been paid are generally more amenable to solutions to problems that occurred during the representation. On the other hand, property owners and lenders who are dealing with a default are much less willing to do so.
Similarly, the timeline from the closing to the discovery of a mistake has gotten compressed by early defaults, because errors are discovered long before the resale or refinance of the property. Finally, with the number of transactions down (as a result of the weakened real estate market), many real estate practitioners go outside of their comfort zone when it comes to the type of legal services that they are providing. Rather than dealing exclusively with closings, many find themselves in the litigation context in foreclosures, collections or related civil litigation. The net result is a higher risk for legal malpractice claims.
After the real estate and plaintiffs personal injury practice areas, the remainder of the top five practice areas with the highest frequency of legal malpractice claims remains the same. They are family law; estates, trusts and probate; and collection and bankruptcy.
All of these areas are showing the impact of declining asset values following the rendition of legal services. When property values and other assets were increasing in value, attorney mistakes were often overcome by higher valuations. Now, mistakes made yesterday translate into quantifiable losses today as the property values and asset portfolios decline.
As a result — although not yet at the levels of real estate and plaintiffs personal injury — both family law and collection/bankruptcy practice areas have experienced a significant increase in the frequency of legal malpractice claims. One of the most significant areas of increase has been claims arising from collections matters where the expanding exposure under various federal and state debt collection practices statutes is having a direct impact.
On the other hand, intentional tort claims against attorneys generally declined in all categories during the latest three-year period. Fraud claims against attorneys were down from 6 percent of all malpractice claims to 5 percent; malicious prosecution/abuse of process claims were down from 4 percent to 3 percent; libel and slander claims were down from 2 percent to 1 percent; and alleged civil rights violations were down from 2 percent to 1 percent. While seemingly statistically insignificant, the combination of all of these declines signal a notable decline in exposure for intentional tort claims against attorneys.
Most claims are still made against smaller firms. Two out of every three claims (66 percent) were made against practices involving one to five attorneys, with 34 percent of claims made against solo practitioners (down slightly by 3 percent), and 32 percent of claims made against law firms of two to five attorneys (down by 1 percent). The need for standard file opening procedures — including file opening memoranda, engagement letters and file closing letters — among these firms has never been greater.
Midsized firms saw a slight increase in the frequency of claims, with firms of six to 10 attorneys up slightly to 10 percent of all claims, and firms of 11 to 39 attorneys up slightly to 11 percent. The frequency of claims against larger firms remained relatively constant with firms of 40-99 attorneys at 4 percent of all claims, and firms with over 100 attorneys steady at 8 percent of all claims.
Based on the data, the use of better practice management tools utilizing technology appears to be paying some significant dividends. Overall, administrative errors as a basis for a legal malpractice claim were down significantly.
For example, claims alleging a failure to file by deadline were down significantly, from 11 percent to 3 percent. Failure to calendar claims was down from 7 percent to 4 percent. Failure to react to the calendar was down from 4 percent to 2 percent. These trends reflect the continuing success of computerized programs to replace haphazard reminder systems that failed to provide reliable reminders of upcoming deadlines.
Unfortunately, it was not all good news in this area. Procrastination errors were up from 4 percent to 10 percent and clerical errors were up from 2 percent to 4 percent. These increases reflect the changes in the pace and pressure on the average attorney, as computers and smartphones provide reminders but attorneys simply do not get the work done. Technology has certainly increased the efficiency of most attorneys. Unfortunately, it has not increased the amount of time to get the job done.
Substantive errors were up slightly, to 14 percent of all errors. Again, this appears to be a reflection of attorneys working outside of their traditional practice areas as the nature and availability of work changes.
Conflict of interest claims were down slightly to just 5 percent of all claims. Computerized conflict checks combined with standardized conflict resolution procedures have resulted in some improvements in this area.
There were two noticeable increases in claims frequency in client relations claims. Specifically, claims based on the failure to get consent or keep clients informed increased from 5 percent to 7 percent. And, the “failure to follow orders” claims doubled, from 3 percent to 6 percent. These are especially troublesome problems for attorneys in Georgia, where the specific authority rules expose attorneys to additional risks for legal malpractice claims.
J. Randolph Evans and Shari L. Klevens are the authors of Georgia Legal Malpractice Law, published by Daily Report Books. J. Randolph Evans is a partner in McKenna Long & Aldridge’s Atlanta office, where he is the chairman of the financial institutions practice.Shari L. Klevens is a partner in McKenna Long & Aldridge’s Washington office and is the managing chairwoman of the firm’s law firm defense practice.