NU Online News Service, June 30, 1:03 p.m. EDT
The collapse of the housing market has led to an uptick in professional liability lawsuits filed against real estate attorneys — which has contributed to an rise in the number of claims filed against attorneys overall, according to a survey from insurance broker Ames & Gough.
Four in 6 insurers surveyed say lawyers' professional liability claims frequency is higher than last year. Three of the 4 say the increase runs as high as 10 percent over last year, while one says the increase is up to 20 percent, the specialty insurance broker reports.
The remaining two insurers said the claim count was near the same as last year.
The six surveyed insurers handle 75 percent of mid-sized to large law firms, Ames & Gough adds.
Driving real estate claims was the increase in transactions during the period 2005 – 2008.
“With more transactions come more closings and increased risk and errors,” the survey says.
“More buyers and lenders began to look to the parities involved in these transactions to lay blame and seek to recoup their losses,” concludes Ames & Gough.
Behind real estate in claims activity are corporate and securities, and trusts and estates. The economic downturn again contributed to the increase in claims activity here, as deals went bad or equity values tanked.
There is also an uptick in the number of claims with large reserves of over $500,000—an increase of 6 percent to as high as 20 percent depending on the insurer.
Five of the six insurers say they paid a claim of $50 million or more, and while more than one insurer may have been involved under a quota share agreement, the number of “multi-million dollar payouts has been growing steadily.”
Conflict of interest was noted as the primary driver of malpractice claims, the survey noted, while failure to file timely was a close second.
When asked about market reaction, Dan Knise, president and chief executive officer for Ames & Gough says there has been “a stiffening of the market from a pricing standpoint. Premiums on renewal aren't going up much, but there is a definite slow down or ceasing of the rate decreases of the past.”
He continues, “The second thing we are seeing is an increased focus on underwriting, meaning underwriters seeking complete applications, wanting to understand real estate exposures, etc.
“Finally, some firms with large real estate practices, especially in problem states like Florida, are having trouble getting LPL [lawyers professional liability] insurance at a reasonable price,” he concludes.
The companies surveyed for the report were AXIS, Beazley, Berkley Select, CNA, Lexington and Hartford.
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