Legal Malpractice Claims Frequency Reaches Plateau After Year of Record Payouts

Legal malpractice claims frequency leveled off in 2020, after two years of record payouts and total costs that approached $1 billion, according to a survey by Ames & Gough.

The national brokerage, based in McLean, Virginia, said nine out of 11 carriers surveyed reported that claims frequency decreased or stayed flat last year. By comparison, 80% of carriers said claims frequency increased or stayed the same in 2019. That was the first year since 2013 that most insurers experienced higher claims frequency than the year before.

Ames & Gough said the last two years were the worst on record for legal malpractice claim payouts. There were at least four claims that cost more than $100 million.

“The collective market is now apprehensive about claims that may mature post pandemic; with most insurers reporting a significant volume of claims with substantial reserves and large payouts,” the report says.

All 11 legal professional liability insurance carriers polled had claims with reserves of more than $500,000 for indemnity and defense costs. Six of the insurers had 21 or more claims with reserves over $500,000.

Nine of the 11 insurers had paid in excess of $50 million for a legal malpractice claim in the past two years. Two paid a claim totaling $150 million to $300 million and four of the carriers had paid a claim costing more than $300 million. Ames & Gough said one claim settled for more than $400 million.

“While the full effect of the COVID-19 pandemic on global economies is still largely unknown, there is growing concern among LPLI underwriters that we may well see an increase in legal malpractice claims – similar to past recessionary periods – and that these claims might be slow to develop,” the report says.

Ames & Gough said underwriters are concerned that social isolation and economic uncertainty may create high-stress situations that might lead clients to bring legal malpractice claims against their lawyers even when unwarranted.

Trust and estates was the practice area that saw the greatest number of malpractice claims in 2020, followed by business transactions/commercial and corporate and securities. The volume of engagements involving retired Baby Boomers and the economic downturn may have exacerbated the number of trust and estate transactions, the report says.

The high frequency of legal malpractice claims may also be due to developments in case law that enable third parties, such as relatives or family friends, to bring a legal malpractice claim against an attorney who did trust or estate work for an elderly or sick client, Ames & Gough said. The brokerage said lawyers can protect themselves by writing engagement agreements that make it clear who the client is and what services are being offered.

Poor communication is also a frequent cause of malpractice claims.

“Insurers expect this phenomenon to become significantly worse during the continuation of the COVID-19 pandemic,” the report says. “Even assuming attorneys are not making more errors while working from home, they are likely communicating more loosely by text and email.”

Lawyers must carefully document instructions by their client, inform their clients of decisions and circumstances related to their case, consult with clients about what they hope to accomplish and respond to client requests for information, Ames & Gough said.

The 11 insurers surveyed represent approximately 80% of the 250 top law firms rated by The American Lawyer, Ames & Gough said.