Determining why legal malpractice claims occur and how they are resolved can provide an invaluable roadmap to practitioners and insurers. These statistics can help lawyers identify which pitfalls or errors are most likely to lead to a claim and which are most preventable. Data on malpractice claims can also shed light on risks to specific practice areas. To that end, the recently-released American Bar Association Profile of Legal Malpractice Claims (the "ABA Profile") contains a wealth of information that can help lawyers understand the common sources of legal malpractice claims and the short and long-term trends with respect to such claims.
Compiled every four years by the ABA's Standing Committee on Lawyers' Professional Liability (full disclosure: Shari Klevens is the chair of the committee), the ABA Profile gathers data regarding legal malpractice claims from professional liability insurance carriers in the United States and Canada. This survey, which is one of the most comprehensive of its kind, provides actual data across a wide range of categories including claims by area of law, law firm size, the nature of the alleged error and the amount of defense and indemnity payments ultimately made by the insurer. The most recent edition of the ABA Profile, which covers claims from 2012 to 2015 and was only released last month, reinforces certain common themes regarding legal malpractice claims that have been consistent through past studies. There are also a number of interesting trends that may impact how attorneys manage risk. Here are some takeaways from the latest survey data.
The importance of calendaring
As has been the case over the last several years, the 2012 to 2015 ABA Profile again found that a substantial percentage of legal malpractice claims—over 20 percent—were attributable to administrative errors. In those cases, attorneys faced allegations of malpractice as a result of, among other things, clerical errors, the failure to timely file documents or the failure to calendar properly.
Although administrative errors still constitute a significant risk to attorneys, the overall number of claims alleging administrative errors has decreased slightly over the last few years. One possible explanation for this is that recent advancements in technology have helped attorneys with calendaring and other clerical tasks. The availability of user-friendly docketing software and electronic calendaring may help with the overall decline of this type of claim, even though it still constitutes one of the most frequent types of error alleged. Accordingly, as technology is increasingly integrated into law firms, there is hope that claims arising out of administrative errors will continue to decline.
Trends in legal malpractice claims by area of law
The ABA Profile also tracks which areas of law are most likely to receive a malpractice claim. One noteworthy trend is the increase of legal malpractice claims against lawyers performing estate, trust, and probate work. One possibility for why this area of practice is receiving more claims is that the Baby Boomer generation is retiring in greater numbers and relying on estate or trust funds for their own living (or to provide for future generations). The risk with estate, trust, and probate work is that sometimes an attorney can face a claim from a non-party, such as a disgruntled beneficiary, who may seek to blame the lawyer who drafted the will where, for example, the assets of the estate are less than anticipated.
For many years before this, real estate law was the practice area receiving the most legal malpractice claims. This area of the law, while still popular with plaintiffs, is no longer at the top of the list. This decline may indicate that the previous spike in claims against real estate attorneys was attributable to the financial crisis, and that claims are tapering off as the economy improves and the statute of limitations expires on any remaining claims.
The improving economy may also explain the data in the ABA Profile reflecting an increase in legal malpractice claims in the area of family law. Because studies often show that divorce rates decrease during times of poor economic conditions, the claims against family law attorneys may now be normalizing as the economy improves and divorce rates return to normal levels.
How legal malpractice claims are resolved
There are also a number of interesting trends with respect to the disposition of legal malpractice claims. In particular, the ABA Profile showed a decrease in the amount of claims settled with no indemnity payment to the claimant. A common refrain heard from insurers is that the defense costs associated with defending legal malpractice claims have increased significantly over the past several years. The concern over defense costs may be a large factor in explaining why insurers may at times be more willing to make frivolous claims go away rather than incur defense expenses.
In addition, the ABA Profile reflects an increase in the severity of claims, or the amount of loss paid by insurers in connection with legal malpractice claims. This is a sobering data point for most attorneys and insurers. Even though attorneys overall are getting better at risk management and claim prevention, claims are becoming more expensive to settle, try and defend.
By studying the sources of and trends in legal malpractice claims, attorneys can take proactive steps to limit their risk with respect to the common issues that lead to claims. The results discussed above, however, only scratch the surface of the information available in the ABA Profile. The complete ABA Profile is available for purchase at http://shop.americanbar.org.
As published by The Daily Report