Professional Liability Insurance Report
California Lawyer

Professional Liability Insurance Report

February 2012

Legal malpractice claims rose by as much as 10 percent last year at some of the country's leading insurers, according to a survey by broker and risk management consulting firm Ames & Gough. Real estate practice generated the biggest increases, but claims in corporate and securities as well as in trusts and estates practice areas also showed spikes. The data came from senior insurance claims examiners at insurance firms that collectively cover three-quarters of U.S. law firms with at least 35 attorneys.

This trend mirrors a rise in claims in California "due to the state's poor economy," says Dan McKenna, lawyers' professional liability program manager for the Mitchell & Mitchell Insurance Agency. A sluggish economy generally gives rise to more malpractice claims as floundering investors and businesses seek to recover financial losses and blame their lawyers.

In the case of real estate claims, the soaring number of transactions just prior to the start of the recession in 2008 meant more closings with a quicker turnaround - and more opportunities for mistakes. After the bubble burst, many lenders and buyers reviewed their transactions and turned on the counsel who handled them to recoup losses. Likewise, corporate and securities claims rose when more deals went bad. Many beneficiaries of trusts and estates hit hard by slumping values also pursued claims against their managers and advisors. Conflict of interest was the largest cause of claims, followed by failure to meet filing deadlines, Ames & Gough reported.

Nationally, the number of claims with reserves of over $500,000 (amounts representing actual or potential liabilities kept by an insurer to cover debts to policyholders) increased markedly - by at least 11 percent. Multimillion-dollar claims also increased; most of the insurers surveyed said they'd paid out a claim of more than $50 million.

Rising along with the size of claims was the cost of malpractice defense. Some experts attribute this to higher attorneys fees, e-discovery expenses, and more aggressive tactics by plaintiffs counsel.

"In California, carriers are recognizing the need to increase rates relative to the rest of the country," reports Tim Barrett, assistant vice president for lawyers' professional liability at Monitor Liability Managers.

"In order to ensure compliance" with the terms of their liability coverage, says McKenna, "attorneys should educate themselves on the reporting requirements of their policy." Experts also warn lawyers to overcome the fear that reporting a potential claim will affect the pricing or availability of their malpractice insurance. Insurers, they advise, need to know of any potential or actual claims in order to provide timely counsel that can help prevent a small problem from becoming a bigger one.
-Rene Ciria-Cruz

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