The Cost of Lawyer’s Malpractice: Which areas of practice have the highest and most severe claims cost in today’s market?
Lawyers professional liability insurance, also known as legal malpractice insurance, covers claims arising from errors, omissions, negligence, or misconduct in the provision of legal services. While the specific areas of practice (AOPs) with the highest and most severe claims may vary over time and depend on various factors, certain practice areas tend to carry a higher risk.
The top four common AOPs for severe claims:
Personal Injury - Personal injury cases involve representing clients who have suffered harm due to accidents, negligence, or intentional actions. These cases often involve significant damages, and if lawyers fail to meet the required standards of care or make errors that harm their clients' cases, it can lead to substantial claims. Common errors in this AOP are missed statute of limitations claims, meaning that the attorney did not file the case in time, thus preventing the claimant from successfully suing the responsible party.
Real Estate - Real estate transactions involve large sums of money and complex legal issues. Mistakes or negligence in handling property transactions, drafting contracts, or providing incorrect advice can result in financial losses for clients and give rise to professional liability claims. Generally speaking, commercial real estate transactions produce higher losses than residential real estate. However, many law firms engage in a high volume of residential real estate transactions, which can lead to repetitive mistakes which taken together can result in large claims payouts.
Estate Planning and Probate - Lawyers assisting clients in estate planning, drafting wills, trusts, or handling probate matters are responsible for ensuring the proper distribution of assets and adherence to legal requirements. Mistakes, inadequate planning, or failure to meet legal obligations can result in disputes among beneficiaries, potential litigation, and claims against the lawyer. Also, if the estate is not crafted properly, additional taxes might be due to the IRS, which could result in a claim against the estate attorney.
Corporate and Business Law - Lawyers practicing in the field of corporate and business law are often involved in complex transactions, contract negotiations, and corporate governance matters. Errors in contract drafting, misrepresentation, conflicts of interest, or improper advice can lead to substantial financial losses for clients and give rise to claims.
Other less common AOPs with high severity potential include law firms with exposure to Banking/Financial Institutions, Entertainment, Oil & Gas, Patent, Securities and Tax AOPs.
Typically, when there is a “financial crisis” that is in the national news, law firms that practice in those AOPs will be caught up in the ensuing litigation. The most recent concern for lawyers professional liability underwriters are those law firms that have provided legal services to those banks that have recently failed, such as Silicon Valley Bank. Although the Federal Reserve has taken steps to bail out these institutions, it is as yet unclear if similar dynamics will result in a larger contagion. If so, the law firms serving these banks will surely be pulled into the litigation
It is important to note that the severity of claims can vary based on individual circumstances, the jurisdiction, and the specific nature of the legal services provided. However, one thing is for certain - law firms that practice in these severity-prone AOPs should be insured with a carrier that provides a broad policy form, deep expertise in professional liability claims handling, and have an A.M. Best rating that is high enough to bring added comfort that they will be there for the law firm when the large claim hits.