The problem with talking about claim trends is that by the time the trend is identified, the claim file is already sitting there in the cabinet. However, lessons from the past can be used to inform the future, and these lessons can influence law firms’ responses to risk management.

Where are we now in the claims cycle?

It is a misconception that only a recession produces claims, and that during economic upturns there is a more benign claims environment. In our experience, it is simply the type of claim that alters. That said, we remain in a recession and, because of this, insurers continue to see claims common to such an environment – for example, lender claims, investment scheme-based claims, and ‘a better outcome could have been achieved’ claims.

Litigation trends

Since 2007 the general trend has been for an increase in court proceedings against law firms. In addition, we have seen increased activity around claims being pursued by litigants in person which bring their own unique challenges. Finally, the rise of CFA-based litigation has continued and will, of course, be due to peak shortly prior to long-awaited reforms in April next year.

Claim trends now

While we accept that history repeats itself, we rather hoped it would not be so soon. In the mid-1990s, the profession was facing an unprecedented claims surge from financial institutions that, in the end, played a significant part in the demise of the Solicitors Indemnity Fund in 2000. This toxic breed of claim has been back in the market since 2007 and continues, although the boundaries for such claims are being contained (see AIB v Redler).

As matters stand, the combination of unprecedented low interest rates, UK quantitive easing exceeding £500 billion and substantial political pressure on our banking industry has resulted in significantly fewer repossessions and, as a result, fewer potential losses materialising. Other trends we are starting to see emerge are:

  • Corporate transaction-based claims, particularly where businesses have since failed, deferred balances have not been paid and the meaning and effect of contract terms have been disputed 
  • Pension advice claims, arising from equalisation issues following the 1990 ECJ decision in Barber, and from advice given on scheme transfers 
  • Matrimonial claims, where ancillary relief settlements and pension assessments are questioned 
  • Fraud, and in particular sham/Ponzi styled investment schemes 
  • Wasted costs claims, although generally we find these can be defended (see Sharma v Hunters
  • Theft of client monies by rogue partners/employees 
  • The ‘try-on’ claim, particularly where the case on duty of care is weak

Looking ahead

The economic outlook for the UK and Europe continues to be shrouded with uncertainty and, given this, we can expect ‘recessionary-focused’ claims to continue. However, the work-streams which are likely to generate claims in the short to medium term include:

  • Corporate and commercial transactional work, as activity in this market moves from ‘green shoots’ to a full recovery
  • Failed litigation/under-settlement claims, given the litigation surge experienced
  • Matrimonial, with divorce levels increasing and issues arising with pension valuations

In addition to work areas, the predominant cause of claims may well shift in time from the traditional ‘human error’ to ‘computer error’ and we are seeing a number of exposures arising from IT malfunctions.

Conclusion

Most law firms now embrace the concept of risk management. Also, it has moved a long way from simply ‘learning lessons’ to actually coming into play on matter inception and then throughout the life of a transaction. By doing so, law firms (and in turn their insurers) stand the very best chance of preventing claims, or at the very least minimise the exposure.