Large Malpractice Claims in U.S. on the Rise

While the frequency of malpractice claims against law firms appears to be leveling off, the number of large claims is apparently on the rise. In a new major insurance study, a growing number of leading malpractice insurers have had to pay claims in excess of $50 million.

The author of the study polled six insurance companies that combined work with more than 75% of large and midsized U.S. law firms. Four of the six insurers reported paying a claim of $100 million or greater, while another had made a payment of $50 – $100 million. All the insurers stated that they’ve seen an increase in the number of claims with a reserve of more than $500,000 in 2012.

The increase in large claims is most likely mainly due to the sheer magnitude of the transactions, as well as the increased defense costs associated with complex litigation related to the malpractice suits.

Areas of practice where the majority of suits have sprung include:

Real estate
Corporate and securities work (which encompasses merger and acquisition activities as well as other corporate finance transactions)
Conflict of interest
Failure to calendar or follow-up with clients

Getting proactive in claims management

As the severity of malpractice claims increases, law firms should focus on their risk management and proactive claims management efforts, which may help save firms premium dollars, loss and defense expenses.

There are certain claim-reporting requirements of Professional Liability policies for attorneys. Failing to report a claim, or failing to do so in a timely manner, can lead to a possible disclaimer of coverage by malpractice insurers.

Key indicators that a claim may be made against the firm, and therefore should be reported immediately to the insurance company as a potential claim, include:

Attorney discovers an error in legal work performed.

Client questions the actions of counsel after the case has concluded; or after a motion has been lost.

An unexpected jury verdict against the client; or after the attorney has advised against accepting a settlement offer.

A default judgment is entered against the client due to a missed filing deadline.

The client files a grievance against one or more of the attorneys at the firm.

The client changes counsel.

The firm sues a client for fees.

Understanding policy reporting requirements and teaming with an experienced professional liability insurance broker can go a long way to reducing the magnitude of an individual claim and its potential financial consequences.

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