Study Shows Spike In Malpractice Claims Against Big Firms

The national malpractice news for medium and large firms so far in 2012 is alarmingly bad, according to a recent industry study.

Insurance broker Ames & Gough analyzed claims data from six legal malpractice insurance companies whose book of business is mostly large and mid-sized law firms. Nearly all of the insurers reported a jump so far this year in the number of claims with reserves (including loss and expenses) of more than $500,000. This represented an increase of up to 20 percent.

The findings were reported on the website insurancejournal.com.

Five of the six insurers said they had already paid or participated in paying a claim of at least $50 million this year.

A vice president of Ames & Gough is quoted as saying “there’s no question the proportion of claims resulting in multi-million dollar payouts has expanded.”

Among the reasons cited for the increase:

• The complexity of the underlying cases and transactions in areas like securities and corporate law, patent law, and entertainment law
• The high dollar amount at stake 
• Higher malpractice defense costs

The most dangerous practice area is real estate, the study showed. It generated the highest number of claims. Number two on the hot list is corporate and securities work, including mergers and acquisitions and corporate finance transactions.

Ames & Gough is alerting law firms practicing in these areas to make sure their insurance limits are adequate to cover and defend a malpractice claim. Another key variable is the policy deductible. A firm can adjust the price it pays for coverage by raising or lowering its deductible.

The insurers surveyed by Ames & Gough reported that conflict of interest is the most frequent error, followed by “failure to calendar or follow-up.”

One silver lining: the volume of claims against big firms does not appear to be growing – just the size of the claims. Five of the six insurers said the number of claims filed so far this year is flat compared to last year.

So what are the risk management takeaways for North Carolina attorneys?

• The bigger the firm, the bigger the claim. Large firms are not sued with any greater frequency than solo lawyers. But their claims tend to be whoppers – with damages of six figures and more.
• Loyalty counts. For good reasons, clients do not appreciate conflicts of interest. They want and expect their attorneys to be fully on their side. When they feel they have been betrayed, they do not hesitate to take action.
• Be a smart consumer. Firms of all sizes can participate in their own risk management by reviewing their professional liability policies and choosing limits and deductibles to best suit their practice needs. Their carriers can provide guidance on appropriate coverage terms.
• Keep calm and carry on. The odds are in your favor. Given the vast quantity of legal advice and service that is dispensed every day, the total number of malpractice claims remains statistically small. This will come as small solace, however, if you happen to be one of the unfortunates on the receiving end. Work hard, stay cool, and be careful out there.

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