Don’t be a part of the statistic – legal malpractice payouts reach unprecedented amounts

 In Law Firm Practice Management, Legal Malpractice

Earlier this year, insurance broker Ames & Gough published the results of its survey of eleven leading lawyer professional liability insurers which provide insurance to 80% of the nation’s top 100 law firms. According to the Ames & Gough survey, the costs of legal malpractice claims “are reaching troubling new heights.”  Although the number of legal malpractice claims are remaining the same or decreasing to some extent, the amount of payouts are increasing to alarming amounts.  The Ames & Gough study showed that ten of the eleven insurers surveyed had participated in the payout of a legal malpractice claim in excess of $50 million in the past two years; three of those insurers paid a legal malpractice claim between $150 million and $300 million; and four of those insurers paid a legal malpractice claim in excess of $300 million. As attorneys we need to be aware of the potential for these outcomes.  These survey results help provide insight to the legal community to help us understand the reasons for these outcomes.

As attorneys we should heed the wise words of Albert Einstein when he said, “intellectuals solve problems, geniuses prevent them.”  The legal community should in essence do both – solve problems for others and prevent problems for ourselves as a result. Indeed, we can learn from the mistakes of others.  Understanding the issues and reasons underlying the high payouts on recent legal malpractice claims can assist us in taking measures to prevent these disastrous outcomes.

What areas of the law do most of these legal malpractice claims stem from?

The areas of law experiencing the largest number of legal malpractice claims are Trusts and Estates, Business Transactions, and Corporate and Securities.  

Under what circumstances did these legal malpractice actions arise?

Many actions, especially those brought against tax attorneys, arose as a result of changes to the tax laws during the COVID-19 pandemic.  In light of the rapid changes in this area of the law, some attorneys who lacked experience to handle these matters undertook them anyway and, in other instances, attorneys failed to effectively communicate the changes in law to their clients.  

The most common error leading to legal malpractice claims were related to conflicts of interest.  While the second most common errors were clerical and scrivener’s errors.  As legal matters increase in complexity, an otherwise small error can result in significant consequences and a big loss in the form of a legal malpractice action as the cost of defending these actions continue to increase and so do the judgments.

How can you avoid a legal malpractice claim or lawsuit?  

First and foremost, familiarize yourself with the Georgia Rules of Professional Conduct with regard to conflicts of interest, namely Rule 1.7, Rule 1.9 and Rule 1.10, and try to avoid all actual conflicts.  Where potential conflicts are identified, written consent to an informed decision based on sufficient disclosures regarding the pros and cons of the potential conflict, with ample opportunity to consult with independent counsel is mandated by these Rules. 

Next, ensure that you are double and triple checking your work product including having multiple attorneys review the same document to ensure accuracy and completeness.  Many of the clerical and scrivener errors can easily be avoided by having the proper protocols in place.  Avoid undertaking matters that are outside the scope of your particular area of expertise.  Refer those matters to a colleague, there is plenty of business to go around.  Additionally, always be aware of changes in the law in your area of expertise and consider whether you have a duty to effectively communicate those changes to your clients.  Finally, err on the side of over communication with your clients throughout the course of any engagement and ensure that you memorialize those communications in writing for the file—document, document, document. You will rest better at night knowing that you did!

Interestingly, the survey noted that one additional contributing factor to malpractice issues for firms included in the survey resulted from lateral partner hires which showed an increase by 45% between 2019 and 2021.  Make sure you are diligent during the hiring process and that you have proper protocols in place to identify conflicts of interest, and that you are supervising those under your employ to help prevent the risk of a legal malpractice claim.

Although payouts on legal malpractice claims are increasing at an alarming rate, the number of claims are not increasing.  Remaining aware of the risks and taking steps to prevent or minimize the risk of a claim is not a difficult task to undertake and you will reap the benefits as a result. An ounce of prevention is truly worth a pound of cure.

Please reach out to us if you would like to discuss any concerns about your practice.

Recent Posts

Start typing and press Enter to search