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Dubious Honor: Real Estate Leads the Practice Field for Malpractice Claims, Says ABA Report

Posted Dec 1, 2012 2:50 AM CDT
By James Podgers

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Plaintiffs personal injury lawyers might let out a small sigh of relief after reading the results of the latest in a series of four-year studies of malpractice claims experience produced by the ABA Standing Committee on Lawyers’ Professional Liability.

The committee’s Profile of Legal Malpractice Claims for the years 2008 to 2011 indicates that plaintiffs personal injury has been knocked off its dubious perch as the practice area that produces the highest number of claims.

The new “champion” is real estate—based on data provided by many, but not all, of the legal malpractice insurance providers serving the U.S. market. Participating companies reported 10,772 claims in the real estate field during the 2008-11 time frame, or 20.33 percent of all claims reported. Meanwhile, plaintiffs personal injury produced 8,260 claims during the period, or 15.59 percent of all claims, putting it in the second spot.

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Graphics by Brenan Sharp

The other leading practice areas in terms of claims are family law (12.14 percent of total claims); estate, trust and probate (10.67 percent); and collection and bankruptcy (9.2 percent). All three areas produced more claims, and higher percentages of total claims, in 2008-11 compared to the previous study covering 2004-07. (Defense personal injury, by the way, produced 1,727 claims, or 3.26 percent of the total for 2008-11, putting it in ninth place among 25 identified areas of practice.)

The professional liability committee issued its first profile of legal malpractice claims in 1985 and has produced follow-up reports every four years since 1995. The latest report, issued in September, represents an important advance over previous reports in terms of methodology and the amount of claims data collected, says Gerald T. Merritt, a committee member and chair of the subcommittee that coordinated its production. (Statistical consulting services for the study were donated by Milliman, a firm of actuaries and consultants in Seattle.)

“It’s a pretty broad data set. This is an important step forward in the continuum of the study,” says Merritt, who is president of the Hanover Insurance Group’s professional liability division in Itasca, Ill.

But the report comes with the caveat that the data presented is not definitive. “The committee believes that this Profile of Legal Malpractice Claims, like its predecessors, offers a heretofore unavailable look into the current state of malpractice claims, which is of tremendous benefit to law firm risk managers, attorneys practicing in the field and legal malpractice insurers,” states the report. “That said, the committee urges caution in the interpretation of any of the data analyzed herein as reflective of the industrywide claims picture.”

Nevertheless, the report offers much to chew on. One particularly interesting question, the report notes, is whether legal malpractice claims experience has been affected by what it terms the “dramatic economic upheaval” of the past four years.

UPTICKS AND THE DOWNTURN

“I do think economic conditions have played a significant role in the frequency and severity of claims in many areas during the past four years,” Merritt says. He notes, for instance, that malpractice claims in the real estate area spiked in 2007 and 2008, at the height of the real estate market meltdown, before starting to drop off again.

But Merritt and the study itself caution against making too many assumptions about those numbers. “Based on the data, we must question whether real estate’s first-place finish is actually due solely to an uptick in real estate-related claims or can be attributed to a decline in alleged malpractice by personal injury practitioners,” the report states.

In addition to claims frequency, the study presents information on claims experience for law firms of different sizes, including sole practitioners; claims for different types of activity; disposition of claims; dollars paid to claimants; and claims by type of alleged error. The leading error is a substantive one: failure to know or properly apply the law, the report states. That accounts for 13.57 percent of all types of errors identified in the report. But while failure to know or apply the law is consistently at the top of the errors list, Merritt suggests that the economy may be a factor in the growing number of claims—6,115 in 2008-11, compared to 3,275 in 2004-07. When practitioners discuss the problem with risk managers, he says, “the answer always is: ‘I thought I could do it. I needed the money.’ It will be very interesting to watch that trend as we head to the 2015 study.”

Profile of Legal Malpractice Claims can be purchased online through the ABA Web Store or by calling 800-285-2221 (product code 4140045).image

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