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On Risk Management: How Areas of Practice Affect Malpractice
Insurance Rates Attorneys often question which areas of practice really give rise to the greatest number of claims, and how insurance companies analyze those exposures and evaluate potential risk to determine a premium. While underwriting legal malpractice exposures is complicated today by the manner and speed with which the practice of law is changing, there is a method to the “madness.” This article will attempt to explore the more hazardous exposures in the legal field while continuing to emphasize the need for risk management in all areas of practice. Plaintiff PI Plaintiff-Personal Injury consistently generates the greatest claims frequency, approximately 24 percent of all claims by frequency and 35 percent by severity. This category includes the representation of parties in actions to recover for personal injury, wrongful death or property damage resulting from intentional or unintentional acts, negligence and other causes. It also includes libel and slander actions, medical malpractice and product liability suits where any form of personal injury or property damage is involved. Many factors contribute to this, not the least of which are poor client communications, difficult clients and poor administrative procedures. Despite general awareness of the causes of loss, and continuous emphasis on prevention by risk managers and insurance companies, claims frequency experience varies little from year to year. Knowing about the causes of claims and preventive measures is not nearly as important as the effective employment of risk management measures, on a consistent basis, by the practitioner and his or her firm. Standard office procedures and policies — including the use of client relations letters with checklists, engagement letters, non-engagement letters, client service questionnaires, calendar and diary/tickler systems, written fee agreements, and the like — should help; however, there will be claims from practitioners heavily involved in plaintiff PI. Law firms need to be prepared to accept a deductible that is large enough to handle nuisance claims. The known claim experience produced from this area of practice certainly justifies the slightly larger premiums. Real estate Real estate practice generates about 17 percent of all claims filed by frequency and 19 percent by severity. Real Estate includes legal activities dealing with all aspects of real property transactions including, but not limited to, conveyances, title searches and property transfers, leases, condominiums and cooperatives, mortgages, condemnation and eminent domain, zoning and land use planning, property taxes, real estate development and financing. These are all somewhat hazardous — with additional exposures for attorneys who serve as and/or employ title insurance agents, title abstractors, or those who own title agencies or companies. Coverage for these activities can either be included in the lawyers professional liability policy, or added by endorsement. These additional exposures broaden the chance of legal malpractice. One sure way to limit your liability exposure is to have all independent contractors carry their own Errors & Omissions insurance; however, that is the exception rather than the rule in this industry. Use of engagement and non-engagement letters, fee agreements and check lists are imperative in this area of practice. Make sure, for example, that everyone at a settlement knows who each attorney is representing. Family law Family law has become another risky area of practice as lawyers encounter more emotionally charged situations and clients than in any other field. This area represents 10 percent of all filed malpractice claims by frequency and 7 percent by severity. Family law includes all aspects of antenuptial and domestic relationships, separation and divorce, alimony and child support, child custody matters and adoption and court proceedings . An assessment of client relations, primarily in the area of client communications is essential when evaluating your risk management procedures. In addition, bar complaints involving fee disputes give rise to malpractice claims as this area of practice has high potential for fee disagreements. And suing for fees normally results in a counter-claim for legal malpractice. The same risk management techniques listed above apply in this area of law, with particular emphasis on concise clients communication, engagement letters and fee agreements. Other areas Areas of practice with high risk that have not been as common to Maryland firms include Intellectual Property and Securities. These are generally recognized as hot areas of practice with the technological explosion within the business environment and the number of IPO’s increasing work in both. * Intellectual Property — patents, trademarks and copyrights — includes all aspects of the registration, protection and licensing of same; practice before federal and state courts in actions for infringement and other actions; the prosecution of applications before the United States Patent and Trademark’s Office; counseling with regard to the law of unfair competition as it relates to patents, trademarks and copyrights. * Securities or SEC includes all activities involved with or related to the Securities Act of 1933 and the Securities Exchange Act of 1934. This area of practice also covers advice about or preparation or registration (state or federal) of securities such as stocks, bonds or interest in business. Included within this category are proxy statements, exchange of securities and insider sales. This category would also include the failure to recognize that securities law applied to a transaction. Due to the severity of the claims, not every insurer is willing to offer coverage in these areas. Those that do traditionally require comprehensive supplemental applications from the law firm before giving a quote. Risk management must include sophisticated software for conflicts of interest, calendaring (docket control) for filing deadlines and foreign filings, and confidentiality agreements. Firms must be careful with lateral hires from other IP firms as well as participating with clients, especially with respect to start-up companies. The opportunity to accept stock in lieu of fees may be present in both IP and SEC practices and can spell disaster for attorneys involved. Final thought Claims against lawyers appear to mirror the economy. If a serious recession hits a particular state or region, insurers can expect to see an increase in both frequency and severity of claims against lawyers in the following years. And, unfortunately, lawyers have often become the target of financially strapped and aggrieved clients after a downturn in the economy. Resources Profile of Legal Malpractice Claims, 1996-1999
- American Bar Association Standing Committee on Lawyers’ Professional
Liability - April 2001. Kay G. Kenny is Assistant General Manager of the Legal Mutual Liability Insurance Society of Maryland. This is the twelfth in a series of articles that includes claim prevention techniques, designed to minimize the likelihood of being sued for legal malpractice. The material presented does not establish, report or create the standard of care for attorneys, is not legal advice and does not represent a complete analysis of the topics. Readers should conduct their own appropriate research. |
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© 1998-2007 Legal Mutual Liability Insurance Society of Maryland. All Rights Reserved. |
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