The number of malpractice claims filed against attorneys has remained steady year-over-year, according to Ames & Gough’s 2018 Lawyer’s Professional Liability Insurer Survey. That’s the good news.
Here’s the bad news: The cost of defending these claims continue to rise due to increasing attorney’s fees, rising discovery costs, and the overall complexity of these cases. All nine insurers surveyed had claims with reserves over $500,000 in 2017. Five major insurers reported paying a claim of $50 million or more, while one paid out more than $150 million.
In our work providing lawyers’ professional liability products at First Indemnity Insurance Group, we find that the average amounts to defend a solo practitioner range from between $25,000 to $80,000, and the average for small- to midsize firms could easily run $100,000 and above.
Yet many common claims can be prevented. Here are the top three claims we see, and ways to avoid each one:
1.Failing to calendar. According to the American Bar Association’s Standing Committee on Lawyer’s Professional Liability, more than one-third of legal malpractice claims filed from 2012-2015 involved calendar and docketing errors. These include issues like failure to file, improper calendaring, failure to know or learn deadlines, lack of follow-up, failure to react to a court calendar, and clerical errors. In this area, small firms represent the majority of all claims.
How to prevent it: Maintain at least two forms of docketing within your firm, and make sure both are properly synced. Take advantage of cloud technology that allows you to keep your calendar on your smartphone or other devices at all times, and to update it from wherever you are. Use online court date calculators to ensure you don’t miss key filing dates. And make sure everyone in your firm understands your calendaring protocol and knows who is responsible for keeping everything on schedule.
2.Conflicts of interest. This category includes claims filed for both conflict of interest and perceived conflict of interest, and a lawyer can face them whether or not they knew about the conflict.
How to prevent them: Do your due diligence. Run a conflict of interest check for any client, former client, subsidiary of that client or family member. Do the same for any witnesses or co-parties in any cases. Make sure any potential conflict found is documented and resolved. If you’re in a firm with several partners, make it mandatory for those partners to have regular conflict of interest meetings so everyone knows which new clients are coming on board and can identify any potential conflicts.
3.Fee disputes. As attorneys’ fees rise, so do your clients’ concerns. While some clients file claims about exorbitant fees, most claims boil down to a lack of communication about the fee.
How to prevent them: Send a written letter of engagement and a fee agreement to all clients that explain precisely what your professional services are, and what they are not. Include a fee schedule for full transparency. Take a retainer, and institute monthly billing. And we highly recommend against lawyers suing a client over a fee. In such cases, the client will most often counterclaim professional negligence to avoid paying the fee. If that happens, it will trigger your professional liability policy deductible and will lead to an automatic 15% claim surcharge for five years. A wiser approach may be fee arbitration or mediation if you practice in a state where such a process exists.
The costs of professional liability claims continue to rise even as the number of claims holds steady. Taking these simple steps can help you avoid these claims, save you money, and most of all, save you time and headaches.
Andrew Biggio is the founder and president of First Indemnity Insurance Group, which provides professional liability insurance for attorneys, tax prep accountants, CPAs and bookkeepers. First Indemnity is headquartered in Lynn, Massachusetts (near Boston), with additional offices in New York, Chicago, Dallas, Los Angeles, Philadelphia and Tampa, Florida.