The frequency and severity of legal malpractice claims increased in 2012, leading many insurers to increase their rates in this sector, according to a survey of major insurers by specialty broker Ames & Gough.

The rising frequency and severity is in contrast to last year, when a survey by the McLean, Va.-based broker of a somewhat different group of insurers indicated severity had increased, but frequency leveled off.

Of seven insurers participating in this year's survey, five — or 71% — said the number of new malpractice claims filed in 2012 was higher than in 2011. Of that group, 40% indicated frequency increased 21% or more, 20% reported an 11% to 20% increase, and 40% saw an increase of 6% to 10% in 2012 malpractice claims over 2011.

The number of large claims also is growing. Six of the seven insurers in the survey reported an increase in the number of claims with a reserve, including losses and expenses, of more than $500,000 in the past year; five of the seven indicated they saw 21 claims of this size.

This is indicative of legal claims' added complexity, with multiple parties involved, complex corporate deals at stake, and key forensic and expert analysis required, according to the report.

“During the past decade, rates charged by defense counsel have increased significantly,” the report said. “This has been especially true of the rates charged by larger firms being called upon to handle 'bet the firm' litigation, where it is not uncommon to see hourly rates of $600 or more.”

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Four insurers participated in paying a claim of $100 million or more. The report said that although it is likely that several insurers may be involved in the same claim payout, “there's still no question the proportion of claims resulting in multimillion-dollar payouts has expanded.”

For the third straight year, real estate was the practice area seeing the largest number of legal malpractice claims.

This “may be related to a spate of failed commercial real estate deals which took longer to mature than residential related transactions,” Ames & Gough said in the survey.

The trust and estate category and corporate and securities claims categories tied as the second-most frequent sources of 2012 malpractice claims in terms of practice area.

“Anecdotal evidence suggests claims associated with trust and estate work are continuing to rise as the majority of jurisdictions no longer shield attorneys from liability to third-party beneficiaries,” said the survey.

Conflict-of-interest, mergers and hiring were the most frequent alleged malpractice errors.

In light of the increased frequency of malpractice claims, the broker's survey recommends that law firms generally should budget for a 5% to 10% increase in their premiums, although the increase may be greater if the firm has had claims. “These likely increases must, however, be kept in perspective, as rates have, up until 2013, generally declined for a number of years,” said the survey.

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Insurers participating in the survey were New York-based American International Group Inc. and its Lexington Insurance Co. unit; Alterra Capital, a unit of Richmond, Va.-based Markel Corp.; Pembroke, Bermuda-based Axis Capital Holdings Ltd.; London-based Beazley Group P.L.C.; Chicago-based CNA Financial Corp.; Hamilton, Bermuda-based Ironshore Inc.; and Swiss Re Corporate Solutions, a unit of the Zurich-based Swiss Re Ltd.

Free copies of the survey, “Lawyers' Professional Liability Claims Trends: 2013” may be obtained by emailing requests to info@amesgough.com.