Business of Law

Law Firm Insurance Costs Rise as Malpractice Suits Increase

One of the biggest expenses for law firms is professional liability insurance, after paying employees and office rent.

And it’s getting bigger, as malpractice suits, driven by the difficult economy, increase both in number and the scope, requiring insurers to mount a more expensive defense even in cases in which the law firm prevails, according to the Wall Street Journal (sub. req.).

Cases the industry is watching include complaints alleging that McDermott Will & Emery released thousands of documents to the U.S. Attorney’s office in Los Angeles that were either irrelevant or privileged concerning J-M Manufacturing Co. and that Ropes & Gray derailed a Cold Spring Harbor Laboratory patent application by performing a cut-and-paste job using boilerplate language.

Both firms declined to comment when contacted by the newspaper.

Meanwhile, there has been a “disheartening increase” in the number of clients who threaten suit in order to get a break on their legal bills, says Martin S. Checov, who serves as general counsel for O’Melveny & Myers.

Similarly, bankruptcy trustees often seek a clawback from accountants and lawyers of failed companies as they gather assets to repay creditors.

Handling such claims is “part of my everyday work, where I’m dealing with a bankruptcy trustee or a receiver trying to recover assets any way they can,” says partner Tom McGarry of Hinshaw & Culbertson, which often defends law firms in malpractice cases. “It’s a new ballgame and all the loyalties are gone.”

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