ABA study suggests legal malpractice insurers are settling sooner
The costs of legal malpractice cases have increased since 2011, according to a study put out recently by the ABA’s Standing Committee on Lawyers’ Professional Liability. And malpractice insurers may be settling sooner to avoid those costs.
That information comes from “Profile of Legal Malpractice Claims 2012-2015,” the most recent report in a series issued every four years (tracking beginning in 1985), examining recent legal malpractice claims using self-reports from insurers. The report tracks numbers of claims by practice area; firm size; how the claims ended; type of alleged error; costs and type of activity that gave rise to the alleged error. It also looks at how much time elapsed between the alleged error and the closing of the claim, and between opening and closing the claim.
Shari Klevens, chair of the Standing Committee and a partner at Dentons in Washington, D.C., says the report has several findings that could indicate where trends in malpractice claims are going.
In particular, she highlights the findings on which practice areas are seeing the most malpractice claims. The prior report, which covered 2008 through 2011, bucked prior trends when it found the most claims were filed in matters related to real estate. That likely reflected the 2008 economic downturn and the slow recovery, the study’s authors say.
This year, real estate has been demoted to second place, and claims against plaintiffs’ personal injury attorneys are back on top, where they typically land. Family law, trusts and estates and bankruptcy and collections rounded out the top five. Klevens attributes this to the increasing age of the “baby boom” generation.
“More people who are aging leads to more estate claims, and then that leads potentially to more claims against the lawyers who handle those cases,” says Klevens, who represents lawyers and insurance companies in large professional liability claims.
Another finding was about the costs of the claims. Claims that ended with no judgment or settlement paid were the biggest proportion of claims, as they have been historically. But they dropped from 72.41 percent in 2011 to 62.26 percent in 2015. Meanwhile, payments at the high end increased: Payments of $500,000 to $1 million jumped from 0.25 percent to 1.23 percent, and payments of $1 million or more increased from 0.08 percent to 0.6 percent.
Though the proportional increases weren’t substantial, the dollar amounts involved were enough to cause comment in the “anecdotal observations” section of the report, which relies on anonymous insurance company employees. One participant told the study authors that the cost of litigation has increased, which is causing insurers to offer settlements earlier. There’s evidence for that: The study found an increase in claims being closed within six months of the incident that gave rise to them.
“[Cases are] either going to settle early because we’re seeing more cases getting resolved or at these low-level dollar amounts, or they are ending up at a higher indemnity level,” says Klevens. “Which somewhat makes sense because if an insurer and a law firm who receive your claim can resolve the claim earlier, they’re going to try.”
