July 5, 2011 5:44 PM

Survey: Law Firm Malpractice Claims on the Rise

Posted by Tom Huddleston Jr.

CORRECTION: 7/6/11, 10:40 a.m., The entities surveyed by Ames & Gough are insurers, not insurance brokerages as originally identified. We regret the error.

Law firms are being hit with significantly more malpractice claims in 2011 than they were in 2010, according to a new survey of insurers that specialize in legal malpractice coverage. The sputtering economy and a sagging real estate market are the main culprits.

The survey--which covers the first six months of the year and was conducted by broker Ames & Gough--found that the volume of malpractice claims is up by between 11 and 20 percent at one insurance company so far this year. 

The insurers polled by Ames & Gough--AXIS Insurance, Beazley Group, Berkley Select, CNA, Lexington Insurance, and Hartford Financial Services Group--collectively provide legal malpractice coverage to about 75 percent of large and midsize firms in the United States. 

In addition to the company that said its claims' rate has jumped by as much as 20 percent, three others said they have seen claims rise by between 6 and 10 percent. The remaining two said their claims rates have remained stable so far 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 survey cited real estate practices as the most likely to be sued, with "conflict of interest" and "failure to file timely" as the most common claims. Real estate claims, Ames & Gough notes, have been on the rise for the past three years, thanks to the large volume of transactions that occurred between 2005 and 2008 and the collapse in property values that followed amid the country's broader financial collapse. The twin forces have prompted many parties to try to recoup real estate losses any way they can, according to Ames & Gough.  

With the real estate market beginning to rebound, the rate of real estate–related malpractice caims against lawyers should level off as the year continues, Ames & Gough vice president Eileen Garczynski told Insurance Journal. 

The surge in legal malpractice claims is not entirely unexpected. In February 2009, in the midst of the recession, sibling publication The National Law Journal talked to insurers and lawyers who predicted that firms could expect a rise in such suits as clients seeing their revenue dip would be more inclined than in flush times to pursue litigation as a way of covering their losses from third parties.

Several Am Law 200 firms have been the subject of high-profile malpractice suits filed this year.

Andrews Kurth was sued for malpractice in January over claims that the firm concealed information about accused ponzi-schemer R. Allen Stanford from another client. Murray Fogler, a partner at Houston's Beck Redden & Secrest, is representing Andrews Kurth in the ongoing litigation.

McGuireWoods was sued by a pair of former clients over its representation of them in the 2009 bankruptcy filing of the National Heritage Foundation. Jones Day partner Walter Kelley, Jr., defended the firm in that case, which was dismissed at the end of May.

Atlanta Spirit, the ownership group that runs the Atlanta Hawks and the Atlanta Thrashers, filed a  $194.5 million malpractice claim in January against King & Spalding. Alston & Bird partner Steven Collins is defending King & Spalding in that claim, which is pending in George Superior Court.

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