ABA 2015 study on legal malpractice claims—numbers don’t lie

 In Legal Malpractice

When speaking to lawyers about legal malpractice prevention and risk management, we often reference the 2008-2011 American Bar Association Standing Committee on Lawyers’ Professional Liability: Profile of Legal Malpractice Claims. The recently release 2012-2015 study contained some surprising developments. The numbers don’t lie, and they’re up.

Growth in size of claims and payments made

The 2015 study showed growth in large dollar legal malpractice claims, and increased indemnity payments to resolve them. The number resulting in zero dollars being paid to the plaintiff dropped by 10.89%. But indemnity payments over the $50,000 benchmark rose by a combined rate of 8.27%. According to the report, “[a]necdotal evidence suggests the sharp decline in zero-dollar indemnity cases and increase in indemnity payments between $50,000 to $1 million is as an outgrowth of two trends: increased litigation expenses and the specter of opening up policy limits where there are lower limit policies involved.”

What does this mean? It means insurers are being more aggressive about making “cost of defense” settlement offers earlier. This could be the result of being hit with “bad faith” failure to settle cases after a jury award exceeds the policy limit. And some of this may be because of hourly rate pressures from traditional defense firms. Mid-sized and smaller firms may see an increase in their retention on legal malpractice cases in the coming years.

Trends and predictions

However, since the 2008 recession and the 2011 ABA study, real estate claims have dropped 5.45%. Real estate matters currently account for 14.89% of all claims. And second in the 2011 study, personal injury claims top the charts once again, at 18.24% of all claims.

An increase in three other types of claims offset the decline in real estate claims. Estate, trust, and probate claims rose by 1.39%. Collection and bankruptcy claims rose by 1.39%. And, claims against family law attorneys rose by 1.37%. Estate, trust, and probate claims will likely continue rising, with the aging of the baby boomer generation over the next 20 years. Since the 2008 recession, personal bankruptcies increased significantly. But lately the number of personal bankruptcy filings have declined, with commercial bankruptcies rising. New federal and state regulation of debt collection, including the potential recovery of attorney’s fees upon proof of a violation, has led to a higher number of claims and class action lawsuits against collection firms. Participants in the ABA study predict that debt collection malpractice claims will continue to grow.

The 2015 study also showed that 32.66% of all errors reported involved the preparation, filing, and transmittal of documents. These errors do not relate to pleadings or contested matters. Instead, these claims relate to the preparation of contracts, leases, deeds, and wills and trusts. Participants in the study voiced their concerns that lawyers are not memorializing their clients’ decision in writing and taking greater care in drafting agreements, wills and trusts to avoid later disputes over interpretation of those documents.

Risk mitigation strategies that (sometimes) work

The good news is that better computer calendaring systems, e-filing, electronic record keeping, and multiple modes of communication with clients appear to have assisted attorneys in managing their law practices better. According to the 2015 study, attorneys have made significant gains in meeting deadlines and communicating with their clients better. As a result, administrative errors produced far fewer claims, resulting in a decline in this claim area of 6.98%. Unfortunately, all that better organization didn’t stop lawyers from giving bad legal advice. Substantive errors—failing to know or properly apply the law or poor procedural choices—increased by 8.76%.

As we continue to digest all the figures and stats in the 2015 study, we will bring you our observations in future articles. If you have a problem client—or a potential claim or question you would like to discuss—please call on Chandler & Moore Law.

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