2014 Professional Liability Insurance Report
California Lawyer
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2014 Professional Liability Insurance Report

February 2014

When it comes to the relationship between lawyers' liability claims and the economy, the trend is fairly predictable. A rough financial period usually breeds a multiyear spike in professional liability claims, and the 2008 financial crisis and resulting dismal economy are no exception. In 2011 the number of claims increased 6 to 10 percent from the previous year, and in 2012 they jumped another 10 to 20 percent, according to a survey by risk management consulting firm Ames & Gough. But as the economy slowly stabilizes, 2013 seemed to be the first year indicative of a true leveling off.

One obvious reason for more claims during an economic dip is that when things go wrong financially, people look to find fault. For example, real estate malpractice claims have been off the charts in California (and nationwide) which is easily traceable to the collapse of the market over the past five or six years, according to Randall A. Miller, a legal malpractice attorney and founding partner of Miller LLP in Los Angeles. "Obviously, the housing market generated a lot of claims against lawyers for errors committed during the course of those ill-fated transactions," he says. "In fact, I'm impressed by the resiliency of this trend. Most of the legal work that resulted in malpractice claims would have been undertaken by 2007 or 2008. And yet, this work is continuing to generate lawsuits, which is emblematic of the depth of the real estate market fallout in California."

Another unusual trend Miller has noticed of late is the emergence of very-high-dollar claims - some estimated at more than $50 million. Although he thinks this may be an aberration in the long term, it also highlights how intricate and high-stakes today's transactions are, even compared to just ten years ago. "IP protection, for example, can be very expensive," says Miller. "If a lawyer commits an error in an IP deal, he or she incurs a high amount of risk. It can be devastating for an insurance company."

More generally, though, Miller expects that as the economy gets back on track, the number of claims will return to prerecession levels. One of the reasons for this evening out is a noticeable return to normalcy for many attorneys regarding their practice areas. Recession-time claims are often the result of what Mitchell & Mitchell professional liability program manager Dan McKenna calls "dabbling" - lawyers venturing outside of their usual practices.

"Now that the economy is more stable, my staff and I have seen less 'dabbling' " says McKenna. "During the recession years, a lot of attorneys were forced to start taking any work that would walk in the door. For example, an attorney who does estate planning but whose work is slow would take on a personal injury case, which he might not know much about. Now we're back to people showing more focus in their specialized practice areas, which is a really good thing for the legal profession.

To view the report click here.

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