9 legal malpractice trends in 2024
The largest number of legal malpractice claims were in three practice areas: trust and estates; business transactions; and corporate and securities law. But 70% of the 10 insurers surveyed paid claims of more than $50 million; three paid more than $100 million; and two paid up to $300 million. (Image from Shutterstock)
Legal malpractice is costing law firms big bucks, and it’s expected to fetch even more soon.
Multimillion-dollar payouts increased year over year, according a 2023 report comparing 2022 numbers with the prior year report by Ames & Gough, a business insurance and risk management consultancy.
The largest number of legal malpractice claims were in three practice areas: trust and estates; business transactions; and corporate and securities law, the report says. But 70% of the 10 insurers surveyed paid claims of more than $50 million; three paid more than $100 million; and two paid up to $300 million.
The following trends are contributing to the payouts, according to the report.
The economy
We’re seeing that the value of the claims is more severe than ever, explains Melissa Lessell, Louisiana-based partner and general counsel for Deutsch Kerrigan.
“There’s a correlation between people whose lives are in turmoil and their willingness to sue lawyers when something goes wrong,” Lessell says. “They are already so emotional and upset that they’re going to look at the situation with their lawyer emotionally rather than analytically.”
As a result, while the economy is in good shape at the moment, anxiety still lingers, and claims tend to rise with perceived economic downturns, explains Bethany Kristovich, partner in the Los Angeles office of Munger, Tolles & Olson and co-chair of professional responsibility for the firm. She adds that other factors, including rising interest rates, the environment and lingering effects of COVID-19, can also add to the overall economic uncertainty.
Evolving regulatory landscape
When the landscape is uncertain amid finance and banking regulation, it can add to a pretty high exposure number very quickly, Kristovich says, adding that she expects to see more claims in the regulatory space in the next five to 10 years because it’s an unsettled area.
“There will be more at stake, and any time there is more at stake, suits on lawyers tend to follow.”
Artificial intelligence
It’s too soon to predict AI’s lasting impact on malpractice claims, but initial concerns revolve around risk management from inappropriate or uneducated lawyer use, according to Shannon Sprinkle, an Atlanta-based risk member and litigator at Stites & Harbison. There’s the risk that client confidentiality will be breached when a lawyer uses AI; the possibility of sanctions and client harm if AI is used without disclosure or with poor results; and there’s a chance that the information AI produces is inaccurate. These prospects lead to legal malpractice, copyright, data privacy and even defamation claims.
“Clients may have an expectation that AI should be used more often to reduce legal spend, and while there may be some roles for consistent AI use, any results or output must be thoroughly reviewed and vetted by lawyers—and clients should expect to pay the fees for that review,” Sprinkle says.
Silver tsunami
Baby boomers are now 60-78 years old, and as they age, there’s a larger population getting wills and trusts—and dying.
“There are more of them, and they’re suing their lawyers,” Sprinkle says, noting the increase in malpractice suits generally follows the rise in demand for legal help.
Cybersecurity
Lawyers are subject to unprecedented levels of electronic attacks, ranging from spoofed emails, phishing emails, people who intercept the transmission of sensitive information and hackers intruding into a firm’s computer systems, says Edward Cheng, partner at Sherin and Lodgen, based in Boston.
This requires constant and increasing levels of vigilance, as the standard of care for safekeeping confidential client information, client funds and privileged documents evolves to counteract the increasing sophistication of attacks on lawyers’ information systems, he says.
Add to this the exponential increase in electronic documents in discovery: Email strings can include dozens of pages produced by each party, for example, that attorneys must sort through. This makes litigation more costly and is rife with traps for the unaware.
Increase in transactional relationships
Longstanding relationships with your lawyer are a thing of the past, as the relationships between clients and firms has become more transactional. It’s more likely that malpractice claims will be asserted because clients aren’t as concerned about hurting lawyers they barely know, and less likely they will be resolved prefiling, says Ragesh Tangri, San Francisco-based partner at Morrison Foerster.
Lack of systems
Laws have become extremely complex, and there are more major legal projects executed by large teams, says Timothy Dietrich, partner at Barley Snyder.
“It’s very difficult to get good outcomes unless you’re systematic,” he says. That’s why he says his firm created a program based on quality systems that typically would be found in manufacturing and service industries to manage risk and quality. “Our view was, ‘Why can’t we do the same thing for legal services?’” he asks.
The firm’s solution was to create a checklist system that Dietrich says has been working well—especially for repetitive tasks—and focuses on the strategy. For example, when working on mortgage foreclosures, which are a procedurally complex process, the firm has a checklist to enforce the right steps in the right order. Within that checklist, they use work plans for larger processes and mapping techniques.
The firm brings in outsiders to teach their attorneys how to make and to follow the checklists. “The result has been—our insurers would say—good for us,” Dietrich says, declining to provide specific insurance claim details. “It’s assisted us in lowering our cost of insurance substantially within a few years.”
Common mistakes
Clients have become accustomed to quick results, thanks to the Amazon effect, training everyone to expect outcomes in minutes. This leads to email-related blunders, misdirected messages and careless mistakes.
“In many of the legal malpractice claims I’ve defended, the plaintiff’s Exhibit 1 is an embarrassing email message the defendant lawyer regretted the instant he or she pressed the ‘Send’ button,” says David Atkins, partner in the Connecticut law firm of Pullman & Comley and head of the firm’s professional liability practice group.
Less hesitation to sue lawyers
And this is expected to continue to increase, Sprinkle says. Knowing most attorneys are covered by liability insurance, clients are more inclined to sue for seemingly minor issues. In 2021, TerraForm Power sued its law firms, Orrick Herrington & Sutcliffe and Cleary Gottlieb Steen & Hamilton, saying their lawyers wrote the word “buyers” rather than “buyer” in a purchase agreement, and claimed $300 million in damages.
