BY CHRISTINE SIMMONSPUBLISHED: OCT 11, 2016 From Law.com
Legal Malpractice Claims Settling Faster, ABA Study Suggests
Legal malpractice claims have been resolving sooner and seeing fewer resolutions where no money is paid out, according to results of an ABA study that suggest insurers and law firms are settling claims earlier as litigation costs go up.
The study also showed the proportion of malpractice claims related to personal injury, family law, trusts and estates, collections and bankruptcy and commercial law grew.
In its latest quadrennial report, the American Bar Association’s Standing Committee on Lawyers’ Professional Liability tracked malpractice claim trends from 2012 through 2015, looking at the area of law, size of firm and amount of payments, relying on reports from multiple malpractice insurers.
The study looked at the amount of expenses in malpractice claims, such as legal fees and other costs to defend such suits, and indemnification costs, such as settlements or court judgments.
According to the study’s report, the number of claims with combined expense and indemnity settlements between $50,000 to $200,000 nearly doubled between 2011 and 2015, from 4,717 such claims in 2011 to 8,670 such claims in 2015.
The total number of claims between $1 million to $2 million rose even more dramatically, from 49 in 2011 to 444 in 2015.
And claims resolved with indemnity payments of more than $2 million rose from 21 in 2011 to 76 in 2015, with 25 claims resolving over $5 million.
Meanwhile, the number of claims in which zero dollars in expenses or indemnity was paid dropped precipitously, the report said. In 2011, almost 60 percent of all claims were resolved for no expense or indemnity payment. In 2015, only 43 percent of all claims saw no payout, the report said.
Shari Klevens, chair of the committee and deputy general counsel at Dentons, said one conclusion from the study is an inverse relationship between legal costs and indemnification, with the proportion of claims with high expenses generally decreasing, but the proportion of claims with higher indemnity dollars rising.
This suggests that because litigation is becoming more expensive, there’s a greater likelihood insurance companies and law firms are not spending as much on defending claims and are instead choosing to resolve them early by settling, Klevens said.
This could also be reflected in the disposition time: the percentage of insurers’ claim files that closed within six months of the date of the alleged error increased in the latest study.
“Although claims are more expensive, more of them are getting resolved,” either earlier in the case or with relatively lower up-front expense costs, Klevens said.
An anonymous insurance participant in the study was quoted as saying in the report that“the costs of defending legal malpractice has gone up dramatically” and “litigation budgets are higher so it makes more sense to offer cost-of-defense settlements sooner rather than later.”
The participant added that “so many more cases are settled even though they have little merit.”
Another study member was quoted as saying, the “client base for large firms has been conditioned over the past decade to be more critical and escalate dissatisfaction into claims.”
The latest study also found that malpractice claims against plaintiffs lawyers in personal injury cases were the highest compared with any other type of practice in the last four years, eclipsing real estate, which was No. 1 in the 2008 through 2011 study.
In the 2015 study, the proportion of personal injury claims rose 2.65 percent, while real estate claims declined by 5.45 percent.
Klevens pointed to a stabilizing real estate market as one factor behind the shifting numbers.
Also, the proportion of claims related to family law; trust, estate and probate; collection and bankruptcy; and business transactions and commercial law all rose, taking up a larger share of the claims pool.
Addressing the increase in family law claims, the report said study participants attributed the rise to a “perfect storm” of conditions, including an increase in the number of divorces; the decline of family assets after 2008; family law attorneys typically practicing in smaller to midsize firms; and family law attorneys frequently failing to memorialize advice given to their clients.
“I do often wish that family law attorneys would better document their conversations and advice to their clients in their files,” said one study participant quoted in the report.
Estate, trust and probate work will continue to be a growing source of claims, the report said, as the transfer of wealth from the baby boomer generation has been occurring at a record pace and will continue. At the same time, testamentary decisions are evaluated in hindsight and against the backdrop of highly emotional family dramas.
“This is the largest transfer of wealth in our nation’s history with literally trillions of dollars moving into … heirs’ hands in the next 20 years,” the report quoted one study contributor.
But the report cautioned that because there is no corresponding data showing how much time lawyers devote to different subject areas, no conclusions can be drawn from the study on the level of risk within practice areas.
When comparing rates of claims against firm size, firms that had 100 or more attorneys accounted for the largest proportional increase in claims, rising nearly 1 percent, compared with smaller size firms.
Christine Simmons can be contacted at firstname.lastname@example.org. On Twitter: @chlsimmons