Leading legal malpractice insurers experienced a deluge ofclaims in 2012, including those in excess of $50 million, made upof complex lawsuits that originated during the economic recessionof 2007 to 2009.

A 2013 study by broker Ames & Gough surveyed seveninsurance companies representing a large majorityof the marketplacefinds 71 percent of participants had a year-over-year spike innew claims in 2012. Forty percent experienced a 21 percent ormore increase in claims frequency, and 20 percent of respondentssaw an increase of 11 to 20 percent.

“There's no question that the number of large legalmalpractice claims is increasing,” said Eileen Garczynski, partnerand senior vice president of Ames & Gough. “The key impetus isthe recession of 2007 to 2009.”

The financial crisis caused an influx of malpractice suits ascompanies tried to reclaim funds lost in Ponzi schemes and toxicbusiness and real-estate transactions. When suits against otherfinancial parties didn't recover their losses, many opted to suetheir legal counsel. Additionally, the financial crisis ushered inmore M&A activity.

“Today, there's no question law firms are operating in anintensely competitive landscape,” said Garczynski. “Theimperative for survival and the drive for growth are leading tomore firm mergers and the hiring of attorneys from otherfirms. Unfortunately, these initiatives often bring greaterrisks.”

Five of the seven insurers surveyed attributed the rise inclaims to mergers and lateral hires (those who work for formerclients while employed at a new company), and an equal numberranked “conflict of interest” as their first- or- second- mostfrequent malpractice claim. At least one insurer cited “failure toknow/properly apply law” and “failure to file [on time]” as theirmost frequent alleged error.

The real estate industry was the greatest malpractice-claimgenerator in the study for the third year in a row, followed bycorporate business organization and securities andestates.

The spike in claims is taking a toll on insurer capital: in2012, six companies increased the rates they pay their defensecounsel. Four of seven now pay $300 to $401 per hour for defensecounsel, while in 2011 only two paid this rate.

Garczynski said that in 2008 and 2009, Legal Malpracticeinsurance was commonly written at a steady rate with comfortablecapacity, but due to claims volume the rates for this coverage arenow rising by 7 to 10 percent.

“While the lawyers' professional liability landscape and theclaim environment continue to evolve, one thing is certain,”Garczynski said. “Solid risk management and active claimsmonitoring are more critical than ever and can pay off – both interms of helping firms reduce the likelihood of malpractice suitsand keeping rising insurance costs under control.”

Garczynski advises, “Ask attorneys for documentation oftheir former firm's insurance coverage. Make sure they reportany potential claims related to their prior work to their formerfirm's insurer. And be sure they disclose fully any past workor carry over work when joining their new firm.”