Risk Update

Law Firm Malpractice Insurance Claims — Industry Survey Shows Latest Trends, Risks and Results

Posted Dan Bressler

I always take note of the annual insurer survey report produced by Ames & Gough. The Insurance Journal offers an excellent summary: “Law Firms and Their Insurers Feel the Pain of Bigger Malpractice Claims” —

  • “Even as law firms made adjustments to sustain their operations through the COVID-19 pandemic, they were unable to avoid the rising costs of malpractice claims. Indeed, the time period beginning in 2019 through mid-2020 marked the worst two years on record for legal malpractice claim payouts, according to a new survey by insurance broker Ames & Gough.”
  • “The survey also found insurers apprehensive about claims that may mature post pandemic; most reported a significant volume of claims last year with substantial reserves and large payouts.”
  • “Nine of the 11 insurers surveyed had participated in a claim payout in excess of $50 million in the past two years; two paid a claim between $150 million – $300 million and four paid a claim over $300 million. Altogether, the survey found the number of claims resulting in larger multi-million dollar payouts, and the amounts of these payouts, had increased year over year.”
  • “Nine of the 11 insurers indicated their claims frequency decrease or stabilize between 2019 and 2020. Of the remaining insurers, one saw claims increase by 6-10% and the other, by 11-21%. By contrast, in 2019, 80 percent of the insurers surveyed indicated their claim frequency was the same or higher than the previous year, the first time since 2013 that frequency rose.”
  • “Insurers surveyed traced the largest numbers of malpractice claims to three key practice areas: Trust & Estates; Business Transactions, and Corporate & Securities.”
  • “The survey findings also underscored the value of effective communication. Ten of the 11 insurers polled indicated that poor communication – such as not getting client consent, poor documentation of a file, not using or updating an engagement agreement, or saying something derogatory about a client or colleague – was a contributing factor in legal malpractice claims.”
  • “Among the most common legal malpractice errors, conflicts of interest remains the leading cause of malpractice claims with seven of the 11 insurers surveyed ranking it the first or second cause.”
  • “This year, survey participants were asked to list the three most useful risk management techniques for law firms to mitigate legal malpractice risk. Seven of the 11 insurers cited a well-crafted engagement agreement focusing on the scope of work as essential to avoiding risk, along with revisiting it whenever there is a change in direction of the services needed.”
  • “In addition, five insurers also listed peer review and supervision of work, good client intake, and detailed communication among the most important techniques to avoid malpractice claims.”