Legal malpractice claims less frequent, more severe: Survey

The frequency of legal malpractice claims has leveled off, but their severity has increased, according to a survey by broker Ames & Gough issued Wednesday.

All but one of the six insurers participating in the survey by the McLean, Va.-based broker indicated the number of claims was flat compared with last year. In 2011, more than half the insurers polled reported the number of claims had increased by 6% to 10%, according to a survey of a comparable group of insurers.

However, most of the insurers saw an increase in the number of claims with a reserve, including loss and expenses, of more than $500,000 in 2012, according to the survey.

“Although it is likely that several insurers may be on the same claim…this finding still indicates there is a substantial number of large claims working their way through the system,” says the survey report. The survey says anecdotal evidence reveals that a large majority of these claims are from the 2009 and 2010 policy years, the period that immediately followed the height of the recession.

Furthermore, four of the six insurers reported they had paid or participated in paying a claim of $100 million or greater, while another reported a payment of between $50 million and $100 million.

Four of the six insurers surveyed identified real estate as the practice area that continued to have the largest number of legal malpractice claims, which is consistent with the 2011 survey.

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However, “legal malpractice claims stemming from real estate matters have started to level off, a possible indicator that the real estate market might be on the cusp of a post-recession rebound,” says the survey report.

The most frequent alleged malpractice error continues to be conflict of interest, with five of the six insurers reporting this as either the first- or second-most frequent cause of malpractice claims. Most of the insurers also reported they had increased the rates they pay defense counsel.

Insurers participating in the survey were Pembroke, Bermuda-based AXIS Capital Holdings Ltd.; London-based Beazley Group P.L.C.; Chicago-based CNA Financial Corp.; Novato, Calif.-based Fireman's Fund Insurance Co.; Connecticut-based Hartford Financial Services Group Inc.; and Hamilton, Bermuda-based Ironshore Inc. This group works with more than 75% of large and midsize U.S. law firms on a combined basis, according to Ames & Gough.

Copies of the survey, “Lawyers' Professional Liability Trends: 2012,” may be obtained free of charge by emailing requests to info@amesgough.com.