New Survey Cautions Lawyers to Avoid Conflicts and Be Aware of Cyber Events

We are both blessed and cursed that people who want to sue their lawyers dial our phone number a lot. We spend a tremendous amount of time screening cases to separate the ones that can get to the finish line from those that can’t. Many times when we meet with potential clients, they say “just take my case because everyone knows juries hate lawyers, so I will win.” Actually, though, if the lawyer handles the situation correctly and takes responsibility for a mistake, then we don’t believe that juries necessarily will favor the client over the lawyer.

There are a couple of exceptions. Juries generally hammer lawyers who overbill the client or falsify expenses. And juries don’t like conflicts, because they accurately believe that every client is entitled to the lawyer’s undivided loyalty. Depending on the facts, conflicts of interest can be legal malpractice or a breach of fiduciary duty—and sometimes both. A fiduciary duty is the highest duty under the law, and we are able to use that high standard to make very powerful arguments to a jury.

A new survey of claims handled by nine legal malpractice insurance carriers bears out our observations. That survey, by insurance broker Ames & Gough, suggests that conflicts of interest trigger the most claims. Interestingly, the survey focused on lateral hiring from one firm to another as being the source of an increased number of claims from the prior survey. In addition to failing to properly vet conflicts before the lawyer joins the new firm, claims also involved lawyers not being adequately trained or supervised by the hiring firm. There was even a claim where an attorney continued to work for a client of the prior firm that was not a client of the new firm.

Another uptick in claims resulted from law firm hacking. Cyber threats are widespread, and many of the largest firms are sharing their best practices to enhance cyber security. Lawyers should discuss coverage for cyber threats with their insurance brokers. Generally, if a cyber event results in an act of malpractice, there should be coverage under a traditional malpractice policy. But if the cyber event results in another type of loss—such as business interruption—other insurance has to be purchased to cover that claim.

For the second consecutive year, business transactions had the most malpractice claims followed by corporate and securities and trusts/estates. In addition to conflicts, the claims involved improper preparation and failing to provide appropriate legal advice.

Another important finding from the survey is that the costs to defend malpractice claims are on the rise. While several carriers reported average costs of defense of more than $50,000, two of the carriers reported average costs of defense of more than $500,000. This is important because the limits of most legal malpractice policies are eroded by defense costs. For example, if a lawyer has a $1,000,000 insurance policy for an $800,000 claim, there is plenty of insurance.  But if defense costs exceed $200,000, then the client has an excess claim against the lawyer.  The lesson is that if a claim is asserted against you, be involved in the defense of the case!

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