A year after weathering a significant rise in the number of malpractice claims submitted by law firms, insurers that cater to the legal industry are seeing the volume of such claims level off through the first six months of 2012. At the same time, the number of large claims is on the rise, according to a new survey of insurers that specialize in legal malpractice coverage.
Insurance broker Ames & Gough conducted the survey, which was released Wednesday and covers the first six months of 2012. Four of the six insurers surveyed by Ames & Gough saw the number of large claimsdescribed as those of at least $500,000submitted this year top last year’s figure. The same number of insurers reported having paid out claims of at least $100 million already this year. (Ames & Gough did not identify which of the surveyed insurers fell into which category and did not analyze the merits of any claims.)
The insurers polled by Ames & GoughAXIS Insurance, Beazley Group, CNA, Fireman’s Fund Insurance Company, Hartford Financial Services Group, and Ironshore Inc.collectively provide legal malpractice coverage to about 75 percent of large and midsize (35 attorneys and up) firms in the United States, according to the survey.
Ames & Gough found that five of the six insurers have seen roughly the same number of law firm malpractice claims so far this year as they did during the same period in 2011, while one insurer reported an increase. Two insurers said the number of claims estimated at more than $500,000 have increased at least 11 percent this year, while two others said claims of that size have increased by at least 21 percent.
Multimillion-dollar claim payouts have also been common so far this year. According to the survey, one insurer said it had paid a claim of between $50 million and $100 million, while four others said they had all participated in paying a claim worth more than $100 million. (Ames & Gough notes that it is common for multiple insurers to work on the same claim.)
Eileen Garczynski, an Ames & Gough vice president, says last year’s increase in claims was likely a residual product of the recession, while the gradually improving economy has contributed to the leveling off of claims. As for the size of the claims, she suggests that anything from increased defense costs to the magnitude of legal matters being handled by some firms could be contributing factors.
“There’s been just a sharp increase in the severity because the underlying issues and transactions are so big,” Garczynski says.
Arnold & Porter attorney liability partner Jonathan Hughes agrees that the economic collapse of a few years ago had a lot to do with the growth in malpractice claims against law firms, particularly in the hard-hit real estate and financial services sectors. “So, to the extent that there are big losses, people are looking around for somebody to recover against,” he says. “And lawyers are common targets in that scenario.”
Hughes says the leveling off of claims is likely the result of firms improving their risk management policies after scrambling in the face of the uptick in claims precipitated by the economic collapse: “I think people have gotten pretty sophisticated about it and gotten a handle on it.”
Discussing the rise in large claims, Garczynski points specifically to an increase in large claims like the one at issue in a malpractice suit targeting Holland & Knight that recently resulted in a $34.5 million compensatory award. (The case settled before the jury reached a verdict on punitive damages.) As The Am Law Daily has reported that the bankrupt Dewey & LeBoeuf settled a massive $3 billion malpractice suit (which, as it happens, involved the firm’s work for Missouri-based General American Life Insurance Co.) in February, just as the firm went into its death spiral.
Both firms faced conflict-of-interest accusations, which the Ames & Gough survey found was the most frequent allegation in malpractice claims for the second year in a row. “Failure to follow-up,” “failure to know the law,” and “failure to file timely” were also chosen by some of the insurers as the most often used cause of malpractice claims in the survey.
