Attorney Malpractice Insurance Risky Practice Areas
Insurers look at claim frequency and severity when setting rates and underwriting guidelines. Unlike auto insurance or home insurance, attorney malpractice insurers do not have the law of large numbers in helping to set rates and underwriting guidelines. With claims-made lawyers malpractice insurance insurers may not have the history to precisely set rates and underwriting guidelines.
Economic conditions, state laws, and court rulings all impact attorney malpractice insurance. For example, prior to the Great Recession real estate and estate work were considered low risk practice areas. By around 2009 this changed. Homes loans were financially underwater, leading to economic losses. Previously unknown found mistakes made by attorneys in purchase agreements created malpractice claims. Estates and trusts suddenly loss value with clients and heirs both alleging attorney malpractice. Even though errors existed, no one would have cared until the market collapsed.
Different attorney malpractice insurers consider different practice areas riskier than others. Reinsurers appetite or lack of appetite for practice areas also dictate rates and underwriting decisions. Clients/non-clients that suffer economic loss will allege attorney malpractice.
Common Factors That Increase Risk:
- High-value transactions
- Strict regulatory oversight
- Complex client relationships
- Long statutes of limitations leading to late-emerging claims
Riskier Practice Areas:
- Anti-Trust/trade Regulation – High value complex rules make attorney errors expensive. Potential 3rd party non-client claims.
- Banking/financial Institutions – Financial changes make good legal decisions look bad. Heavily regulated with potential 3rd party non-client and government claims.
- Bankruptcy Law – Errors in filings or misinterpretation of laws can have severe consequences for clients.
- Class Action/Mass Tort — Large groups of plaintiffs mean high exposure and settlement risks
- Collections – Repeated administrative errors that violate collection laws are ripe for class action suits against law firms.
- Entertainment/Sports especially with money management– Large contracts and intellectual property disputes can lead to major claims.
- Environmental Law – Evolving regulations with long term exposures involving potential 3rd party non-client claims with high value settlements.
- Intellectual Property — Mistakes in patents or trademarks can cause significant financial losses.
- International Law – Cases maybe brought outside the US legal system.
- Large Estate & Trust work — Drafting errors in wills/trusts can lead to inheritance disputes. Ambiguous language, failure to update documents, or tax-planning mistakes with potential 3rd party non-client claims. Long tail on alleged errors.
- Medical Malpractice – Blown statues, inadequate investigation, and high value cases plus unrealistic client expectations
- Mergers & Acquisitions — Complex deals with multiple stakeholders create high exposure.
- Real Estate — Title issues, escrow errors, and conflicts of interest frequently result in claims. High exposure to cybercrimes.
- Personal Injury Plaintiff — Contingency fee arrangements, high client expectations, and significant financial stakes. Clients may sue if they lose or receive lower settlements. Blown statutes, inadequate investigation and unrealistic client expectations contribute to the risk.
- Securities — High-dollar transactions and strict regulatory requirements lead to frequent and costly claims. High potential for 3rd party non-client and governmental claims.
- Tax Opinions – Misinterpretation of the law with potentially years of exposure.
Not all malpractice insurers accept law firms providing services in the above practice areas. Law firms involved in the above practice areas may have specialized needs to properly cover their exposures. Careful review of policy language may uncover policy exclusions for the law firm’s work. These exposures may require the need for using a surplus lines insurer.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
