Four out of five attorneys will be sued for malpractice during their careers. Are you next? It might depend on the kind of law you practice. Each year, professional liability insurance company Ames & Gough surveys the top nine insurance providers for attorneys. (Participating insurance firms were: AXIS, CAN, Huntersure, Ironshore, Markel, Travelers, Swiss Re, and XL/Catlin. Combined, these companies account for insuring around 80 percent of the top 200 ranked law firms in the United States. Respondents cite the areas of legal practice generating the most malpractice claims and the alleged cause of those claims.) The results were published in Lawyers’ Professional Liability Claims Trends: 2018.
Each year the survey has been conducted, the biggest cause of malpractice error has remained unchanged: conflict of interest (including perceived conflicts). Duty of loyalty to the client is imperative and something the courts take very seriously. “Interestingly,” points out New York attorney Anjelica Cappellino, “nearly half of the insurers surveyed…cite lateral hires or “merged attorneys not being properly trained or supervised as the root cause to conflict of interest claims.” Which legal practices generate the most malpractice claims? According to the latest results, the top four are:
#1: Business Transactions
While the U.S. economy thrives, it may also be partially to blame for the malpractice claims in this practice area. More business means more business transactions. As workloads increase, so does the potential for errors or omissions including:
- typos in legal documents (known as scrivener’s errors)
- not including key provisions in transaction documents
- missing important transactional points
- failing to advise the client of the resulting tax implications
- Another risk for business transaction attorneys is that legal advice can sometimes be interpreted as business advice. “It is important to note that lawyers are not business consultants,” says Nicole Strout in Duty to Advise of the Legal Risks from Business Transactions. “[They] do not specifically owe a duty to their clients to protect them from poor business decisions.”
#2: Corporate and Securities
The laws governing corporations differs according to specific state statutes and regulations. Failure to understand the nuances associated with state requirements can land attorneys in hot water. Claims of malpractice brought against corporate and securities attorneys may be the result of:
- failing to implement necessary stakeholder meeting requirements and disclosures
- not following state-specific corporate formation requirements
- failure to protect corporate intellectual property
- failure to advise on the appropriate regulatory disclosure for the issuing of stock or other negotiable instruments
Working through the maze of requirements requires a special skill set. As Ames & Gough senior vice president and partner Eileen Garczynski states, “[The] outside counsel must have the experience and know-how to guide the company through these complex and high-stakes challenges.”
#3: Real Estate
Another result of increased business is commercial real estate transactions. These negotiations often involve large amounts of money changing hands. Because of this, real estate attorneys must perform their due diligence in evaluating all documents, development plans, environmental concerns, and financial arrangements. Real estate malpractice can involve:
- errors on deeds or mortgage documents
- weak lease or loan language
- not disclosing nearby development plans that could upset property value
- failure to properly manage or maintain appropriate escrow fund balances
Attorneys in this area of practice must also refrain from answering questions from the parties they are not representing during a closing. Loyalty to the client must always remain top-of-mind.
#4: Trusts and Estates
Conflict of interest claims are especially high in this area, due in part to the attorney’s unique position in these matters. A third party may reach out to a trust and estate attorney on behalf of an elderly potential client. Therefore, notes Bradley E.S. Fogel, “[The] typical estate planning attorney may be sued for legal malpractice by individuals she never met or worked for. This lack of privity between the attorney and the plaintiff creates special issues…in the estate planning legal malpractice context.” Trusts and estates malpractice may occur when there is:
- a failed bequest to a third-party beneficiary
- drafting of poorly executed estate documents
- mishandling of personal and sensitive information
- improperly representing both a husband and wife
Clear, detailed record keeping and communication are essential. “The U.S. is entering a period of enormous wealth transfer from older to younger generations,” cautions Pennsylvania attorney Joshua Sloan.
While legal malpractice claims have stabilized in recent years, claim payments have continued to increase. The survey cites ever-increasing attorney fees and discovery costs as the cause. On the flipside, defending a legal malpractice claim is also on the rise. Insurers have seen a two to five percent cost increase. Law firms must carefully weigh the professional liability limits they purchase against high cost of malpractice claims. As always, planning ahead means being prepared in the face of an uncertain future.