Data points provide the most information to attorneys regarding trends in malpractice claims and risks. The most recent data for the years 2008 through 2011 was released at the fall 2012 National Legal Malpractice Conference sponsored by the ABA Standing Committee on Lawyers' Professional Liability. The committee continues to explore this area and has expressed its intent to issue its next study of legal malpractice claims in fall 2016, covering the years 2012 through 2015.
While awaiting the new results for 2012 through 2015, it behooves attorneys to look back at the trends from the prior report, covering the worst years of the economic crisis. This helps prepare attorneys for potential malpractice claims and identify more ways to avoid them altogether.
For plaintiffs' personal injury attorneys, the news has been good. There was a significant decline of around 5 percent in the number of claims against plaintiffs' personal injury attorneys during the three-year period most recently studied. For years, plaintiffs' personal injury attorneys and real estate attorneys battled for the top spot as the practice areas with the highest frequency of claims—with plaintiffs' personal injury attorneys typically taking the top spot. However, in the latest reports, the top spot rested solely with real estate attorneys. Indeed, more than one out of every four legal malpractice claims between 2008 and 2011 were against real estate attorneys. There are a number of factors that likely contributed to this shift.
Plaintiffs' personal injury attorneys have made good use of technology to focus on their most significant risk for malpractice: missing a deadline, including, specifically, the statute of limitations. In addition, many plaintiffs' attorneys have implemented meaningful standard operating procedures for file openings. These procedures permit them to better screen clients, identify conflicts and confirm fee arrangements in writing. This combination of improvements resulted in a notable decline in the frequency of malpractice claims, moving plaintiffs' personal injury attorneys from the unenviable top spot to a solid second place.
In contrast, real estate attorneys' risks remained high between 2008 and 2011. Like plaintiffs' personal injury attorneys, real estate attorneys' mistakes can rarely be remedied without a contribution from the attorney. Compounding this inherent risk, the collapse of the real estate market created dynamics that only increased the risks for malpractice claims against real estate attorneys.
Notably, from 2008 to 2011, the time between the closing and the discovery of a mistake was compressed by early defaults, with errors discovered long before the resale or refinance of the property. Finally, with the number of transactions down (as a result of the weakened real estate market), many real estate practitioners went outside of their comfort zone in terms of the type of legal services that they provided to clients. For instance, rather than dealing exclusively with closings, many real estate attorneys found themselves practicing in the litigation context—in foreclosures, collections or other related civil litigation. The net effect was a higher risk, and higher occurrence, of legal malpractice claims.
After the real estate and plaintiffs' personal injury practice areas, the remainder of the top five practice areas with the highest frequency of legal malpractice claims remained the same from prior years: family law; estates, trusts and probate; and collection and bankruptcy.
All of these practice areas indicate the impact of declining asset values following the rendition of legal services. When property values and other assets were increasing in value, attorneys' mistakes were often overcome by higher valuations. With the economic downturn between 2008 and 2011, prior mistakes translated into quantifiable losses much more quickly as the property values and asset portfolios declined.
On the other hand, intentional tort claims against attorneys generally declined in all categories between 2008 and 2011. Fraud claims against attorneys were down from 6 percent of all malpractice claims to 5 percent; malicious prosecution and abuse of process claims were down from 4 percent to 3 percent; libel and slander claims were down from 2 percent to 1 percent; and alleged civil rights violations were down from 2 percent to 1 percent. Though these numbers may seem statistically insignificant on their face, the combination of all of these declines signified a notable decline in exposure for intentional tort claims against attorneys.
During the reported period, it remained true, as usual, that most malpractice claims were made against smaller firms. Two out of every three claims (66 percent) were made against practices involving one to five attorneys, with 34 percent of claims made against solo practitioners (down slightly by 3 percent), and 32 percent of claims made against law firms of two to five attorneys (down by 1 percent). The need for standard file opening procedures—including file opening memoranda, engagement letters and file closing letters—among these firms has never been greater.
Midsized firms saw a slight increase in the frequency of claims, with firms of six to 10 attorneys up slightly to 10 percent of all claims, and firms of 11 to 39 attorneys up slightly to 11 percent. The frequency of claims against larger firms remained relatively constant, with firms of 40 to 99 attorneys at 4 percent of all claims and firms with over 100 attorneys steady at 8 percent of all claims.
Based on the data, the use of better practice management tools utilizing technology appeared to pay some significant dividends. Overall, administrative errors as a basis for a legal malpractice claim were down significantly.
For example, claims alleging a failure to file by deadline were down significantly, from 11 percent to 3 percent. Failure to calendar claims were down from 7 percent to 4 percent. Claims for failure to react to the calendar were down from 4 percent to 2 percent. These trends reflect the continuing success of computerized programs to replace haphazard reminder systems that failed to provide reliable reminders of upcoming deadlines.
Unfortunately, it was not all good news in this area. Procrastination errors were up from 4 percent to 10 percent, and clerical errors were up from 2 percent to 4 percent. These increases reflect the changes in the pace and pressure on the average attorney, as computers and smartphones provide reminders but attorneys simply do not get the work done. Technology has certainly increased the efficiency of most attorneys. However, it has not increased the amount of time that attorneys have to complete their tasks.
Substantive errors were up slightly, to 14 percent of all errors. Again, this appears to be a reflection of attorneys working outside of their traditional practice areas as the nature and availability of work changed between 2008 and 2011.
Conflict of interest claims were down slightly to just 5 percent of all claims. Computerized conflict checks, combined with standardized conflict resolution procedures, resulted in some improvements in this area.
There were two noticeable increases in claims frequency in client relations claims. Specifically, claims based on the failure to get consent or keep clients informed increased from 5 percent to 7 percent. And, claims for "failure to follow orders" doubled, from 3 percent to 6 percent.
In anticipation of additional data coming out soon, attorneys should be able to track how financial and political circumstances, along with increased risk or increased precaution, manifests in new data.
As published in The Recorder