Here are some lessons from the latest survey results, both in anticipating known risks and preparing for the unexpected.

Increasing Number of Claims

Perhaps the most noteworthy result of the survey is the finding that the number of legal malpractice claims is growing at a record pace. Indeed, according to Ames & Gough, "the claim frequency is rising in ways not seen for more than half a decade."

If the past is any indicator of the future, the COVID-19 pandemic may result in an increased number of legal malpractice claims, like the aftermath of the 2008 Great Recession. Historically, economic pressures have led to a greater number of claims against lawyers as clients look to "point fingers" for commercial or other setbacks—whether warranted or not.

The upward trend in claims, when combined with the COVID-19 pandemic, may give rise to even more claims in the coming years. To prepare themselves, law firms might consider whether the firm has adequate lawyer's professional liability insurance to provide the necessary protection. Law firms can also seek to tailor their professional liability coverage to the firm's unique practices, risks, and vulnerabilities.

High Exposure Claims

Another key result from the Ames & Gough survey found that the number of claims resulting in large multimillion dollar payouts had increased for the second consecutive year. The majority of insurers surveyed had a claim payout of over $150 million, including at least two settlements exceeding $250 million.

In addition, the survey indicated that, for nine out of 10 insurers, defense costs increased in 2019 from the prior year. Malpractice lawsuits are recognized as expensive to litigate because they tend to be highly complex and because they involve the "case-within-a-case" analysis, which effectively amounts to litigating two cases at once. Legal malpractice cases often also rely on expert testimony, which can be expensive.

These risks may influence the amount and type of insurance coverage a law firm decides to purchase. For example, firms can review whether they have appropriate limits of coverage; the data suggests that settlement and verdicts can be significant. It is also helpful for firms to consider whether they want to obtain coverage that includes defense fees within the policy limit, which is more common, or pays them separately, which can be far more expensive.

Common Risks

As in past years, the survey found that conflicts of interest are the most commonly alleged legal malpractice error. Legal malpractice cases alleging a conflict of interest can be particularly expensive to defend and can create significant risk. That is because the underlying theory of a conflict of interest—that a lawyer or firm did not maintain loyalty to clients—is typically easily digestible by a jury. In some jurisdictions, including California, punitive damages can be awarded in a legal malpractice action based on a conflict of interest.

Although many law firms have systems dedicated to identifying conflicts and resolutions, those systems are typically only as good as the information provided. Thus, when opening a new matter or running a conflicts check, it can be helpful to be thorough in identifying parties and their roles, and to update conflicts information during the representation if there are new parties or changes in the corporate status.

Another commonly alleged error is that an attorney missed a deadline. This is an error that can be preventable but, where it occurs, can create significant risk of liability, depending on the circumstances. This also may be a basis for claims going forward as parties continue to navigate COVID-19 closures and court deadlines, as well as personal challenges arising from COVID-19. Thus, investing in technology—and staying abreast of the evolving orders of courts regarding closures, remote appearances, and other developments—can help reduce the likelihood of these errors.

Risks for Corporate Attorneys

The implementation of resiliency planning at various companies and changing regulations have created new challenges for attorneys practicing corporate law. Even before the COVID-19 pandemic, the risks were particularly acute for transactional attorneys: For the fifth year in a row, "business transactions" and "corporate and securities" were the two practice areas that experienced the largest number of legal malpractice claims. Now, with the potential for unfinished business deals and other disruptions due to the pandemic, transactional attorneys may face even greater risks.

Given the high incidence of claims for these practice areas, firms might consider providing training to avoid commonly-litigated errors and/or ensuring that their professional liability coverage is tailored to the unique risks of a corporate practice. Engagement letters can also be used to help tailor the scope and nature of the services being provided in the event of a subsequent dispute.

These proactive steps can be especially important under the current circumstances. Indeed, while there may be many unknowns with respect to the potential impact of the COVID-19 on attorneys, recent data on claims can help guide firms in implementing measures to limit future risk.

Shari L. Klevens is a partner at Dentons US and serves on the firm's US Board of Directors. She represents and advises lawyers and insurers on complex claims, is co-chair of Dentons' global insurance sector team, and is co-author of "California Legal Malpractice Law" (2014). Alanna Clair is a partner at Dentons US and focuses on professional liability defense. Shari and Alanna are co-authors of "The Lawyer's Handbook: Ethics Compliance and Claim Avoidance."