Risk Update

More Fresh Covid-related Risk Updates — Will Pandemic + Recession Impact Malpractice Claims?

How COVID-19 and a Recession Could Impact Malpractice Claims” —

  • “During a recession, and for the three years following, there has historically been a huge spike in paid claims, which is a number that typically doesn’t return to a more normalized level until five years post-recession. In addition, and looking back at the events of 2008 specifically, legal malpractice insurers experienced a spike in paid claims above $10,000 that ranged from 35% to 41%. I share this in order to explain why recessions always capture the attention of the insurance industry because given how the markets look of late, another recession appears to be imminent thanks to the COVID-19 pandemic.”
  • “Now, based upon what has happened as a result of past recessions coupled with the realities of the response to COVID-19 from the individual level to that of governments, here’s what legal malpractice insurers are currently concerned about.”
  • “irst, claim frequency and/or claims severity will change for any number of reasons. We just can’t accurately predict how. At a minimum, clients will look to blame their lawyers when their business dealings go south as a result of the near-certain recession that’s coming. Lawyers and staff will make mistakes that would otherwise not have been made due to the rapid transition to working from home and/or being under excessive stress. And clients, who are also experiencing excessive stress, will question decisions they made in light of the advice their lawyer gave them if their legal matter doesn’t work out the way they expected it to. Regardless, there will be a new normal in terms of claims, at least for a few years.”
  • “Second, policy retention may be an issue; but again, we can’t accurately predict how this might evolve. Lawyers facing difficult financial times may choose to leave the practice of law entirely or may decide to allow their policy to lapse and simply go bare as a way to save some money. Of course, there’s the flip side, some who have previously been bare may decide now’s the time to purchase coverage because the value of their assets have dropped, and their level of risk has risen. Only time will tell.”