Survey: Insurers Seeing More High-Severity Liability Claims Against Lawyers

Insurers of lawyers say they are seeing higher-severity claims due in part to the rising costs of litigating complicated suits.

A survey conducted by insurance-brokerage and risk-management consultant Ames & Gough finds frequency of Lawyers’ Professional Liability claims has leveled off, but the number of large claims has risen.

The dynamic could sink a small or midsize law firm, says Eileen Garczynski, a vice president at Ames & Gough.

“Many firms don’t have high limits,” she says. “Law firms should be looking at whether they have enough to cover and defend a case against them.”

The six participants in the survey—AXIS, Beazley, CNA, Fireman’s Fund, Hartford and Ironshore—hold about 75 percent of the Lawyers’ Professional Liability market for midsize to large law firms, with CNA appearing on nearly every large program, says Garczynski.

Multiple insurers can be involved with the same quote-share agreement.

Five of the six insurers have seen an increase in the number of claims in which they set aside more than $500,000 for losses and expenses. In fact, four insurers say these types of cases rose at least 11 percent since the first survey Ames & Gough conducted at the same time a year ago.

“That is a statistic that stands out,” Garczynski says. “That’s huge.”

In addition, four of the six insurers say they paid, or participated in paying, a claim of $100 million or greater.

According to four insurers, the largest number of claims continues to originate from the real-estate practice area, driven by the recession, they say—but these claims are starting to level off. The other two insurers say lawyers doing corporate and securities work generated the most claims.

These claims arise out of mergers and acquisitions and other transactions, as well as Ponzi schemes. Trustees looking to recoup funds for investors drag in attorneys who may have assisted the offender.