What is Legal Malpractice? And How Can You Protect Your Firm Against It?
If you’re just starting your legal career, you may think that a legal malpractice claim could never happen to you.
While that’s hopefully the case, the reality is that the majority of lawyers will face a malpractice claim at some point in their career.
According to the American Bar Association (ABA), four out of five attorneys will get sued for malpractice at least once. And 70% of malpractice claims are filed against firms with one to five lawyers.
Legal malpractice lawsuits are on the rise, with multimillion-dollar insurance payouts increasing year over year, according to a 2023 report by insurance broker and consultant Ames & Gough. Part of this has been attributed to clients being less hesitant to sue their attorneys due to market pressures, economic turmoil, and the common knowledge that most attorneys have legal malpractice insurance.
Just look at the 2021 lawsuit that TerraForm Power brought against its law firms because “buyers” instead of “buyer” was used in a purchase agreement. The company claimed $300 million in damages.
While certain areas of practice such as trusts and estates, business transactions, and corporate and securities generally experience the most malpractice claims, any lawyer in any practice area is at risk of a malpractice lawsuit.
Want to learn more about legal malpractice and how to protect your firm? You’ve come to the right place.
What is Legal Malpractice?
Just like everyone, attorneys can make mistakes. But what if those mistakes jeopardize their ability to provide proper representation?
In the U.S., lawyers must follow the Rules of Professional Conduct established by the ABA. Legal malpractice claims arise when a lawyer is alleged to have failed to perform their duties according to those standards of professional and ethical conduct.
For example, if a lawyer fails to file documents on time, communicates poorly, or breaches client confidentiality, they may be liable for legal malpractice.
Even if there is no breach of professional standards, some clients may perceive an unfavorable legal result as enough reason to bring a malpractice claim against your firm.
Unfortunately, for even the most diligent attorneys, the risk of costly claims comes as part of the job.
What Are Common Types of Legal Malpractice Claims?
George Bernard Shaw once said, “A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing.”
But try telling that to a lawyer who’s been hit with a malpractice claim. While legal malpractice claims often involve an error made by an attorney, even the perception of a potential mistake can put lawyers at risk of a lawsuit.
Some of the common mistakes that lawyers may make that lead to legal malpractice claims include:
Misuse of finances: If an attorney puts a client’s retainer in their personal account, that is considered a misuse of finances. A more extreme example would be a lawyer stealing funds from a client.
Missed deadlines: Legal proceedings are full of deadlines, and missing a deadline can have serious consequences. If an attorney misses a deadline for filing documents or anything else associated with a case, they may be liable for legal malpractice.
Conflicts of interest: If an attorney puts their own interests ahead of a client’s, that would constitute a conflict. Representing multiple clients with competing interests and having a personal relationship with a member of the opposing party (client or attorney) are also considered conflicts of interest.
Failure to apply the law: Lawyers are expected to understand the areas of law they practice and know how to apply the law properly. If an attorney does not correctly understand the laws affecting a particular case, or fails to keep up with laws and regulations, they would breach the legal professional standard of care.
Communication errors: Poor communication is a leading cause of attorneys being sued by their clients. While clients may get upset about not having their calls and emails returned promptly, a more pertinent reason for malpractice claims is when an attorney fails to provide a client with information relevant to their case.
Lack of consent: Lawyers are hired to represent clients in legal proceedings, but that doesn’t mean they have all the say in making legal decisions. Lawyers must have their client’s informed consent before taking any legal action.
Fraud: If an attorney deceives their client or anyone else involved in a legal proceeding to obtain an unlawful gain, they likely committed fraud, which could lead to a malpractice claim.
What Are the Consequences of Legal Malpractice Claims?
Legal malpractice allegations can have serious consequences for law firms that don’t have protections in place.
Legal defense fees, settlements or judgments, and other expenses can add up quickly. Depending on the situation, a legal malpractice lawsuit could also result in fines, loss of income from practice restrictions and reputational damage, and even suspension or disbarment.
A recent example involves a South Carolina legislator who had his law license suspended indefinitely after a former client sued him for malpractice for allegedly forging the client’s signature on settlement documents (that the client says he didn’t even know about).
However, even meritless claims can easily take up a lot of time and money, which impacts your practice, with much of your energy going into dealing with the claim rather than representing clients.
The good news is that legal malpractice insurance protects lawyers in the event of a malpractice claim by covering the costs of legal representation and any potential damages.
What Can Lawyers Do to Protect Against Legal Malpractice Claims?
Every lawyer must protect and represent the best interests of their clients. But it’s also crucial for lawyers to remember to protect themselves by taking a proactive approach to risk management.
Below are some ways that attorneys can mitigate the chances of being sued for malpractice while also protecting their practice.
Don’t take every case: This tip is also known as “listen to your gut.” If a particular case or client seems problematic or risky, don’t be afraid to politely decline or refer the matter to another firm better suited to take it on. Turning down cases that aren’t a good fit for your law firm will do significantly less damage in the long run than taking on every case that comes your way.
Always have a contract: This one is obvious, but attorneys should only provide services to a client if they put in writing what those services will involve. The contract should consist of the terms of services, the retainer, and a detailed definition of what the attorney must do under the retainer.
Set realistic expectations: When it comes to risk management for law firms, setting expectations with clients early on is a huge part of the process. Honest and open communication with clients is vital when strategizing a case to avoid overpromising and underdelivering.
Document everything: And we mean everything. Keeping detailed and time-stamped notes, documenting specific undertakings for every case, recording conversations, and backing up emails will help protect you from potential hearsay. Make sure to keep legal documents secure to prevent sensitive information from being leaked in a data breach.
Continuing legal education: Most states have continuing legal education (CLE) requirements to ensure that attorneys stay updated on current laws and ethics. Even in states without CLE requirements, it’s still a good idea for lawyers to continue with education to keep up with legal trends and changes.
Have insurance: Even the most meticulous and experienced attorneys can’t fully avoid the risk of a legal malpractice claim. That’s why every lawyer and law firm needs professional malpractice insurance as protection from having to cover costs associated with a claim.
What Are the Benefits of Professional Liability Insurance for Law Firms?
Despite your best efforts, you’ll inevitably have unhappy clients at some point. And every legal malpractice claim stems from disgruntled clients.
Let’s say that a final ruling results in losses for the client. That client believes you dropped the ball professionally and opts to recoup their losses by filing a malpractice lawsuit against you. As mentioned earlier, even baseless claims can be costly and time-consuming.
That’s where the benefit of a legal malpractice insurance policy comes in.
Legal malpractice insurance, also known as lawyers professional liability insurance, covers both a law firm and individual attorneys, so you won’t have to worry about defense expenses from a malpractice suit or damages that your practice may be required to pay.
While professional liability insurance is an additional expense for your law firm, given the prevalence of legal malpractice claims, having the right coverage is a worthwhile investment.
The consequences of “going bare” — the term for a lawyer who practices without professional liability insurance — can be devastating. Those who decide to save a few dollars and go without malpractice insurance are playing a risky game of chance since the financial fallout from a lawsuit will far outweigh the cost of an insurance policy.
What’s more, professional liability insurance is often viewed as a key factor for people to consider when choosing a potential attorney. This means that not having legal professional liability insurance could hinder your firm’s growth by making it difficult to attract new clients.
The Importance of Risk Management for Law Firms
Every business faces risk. And that’s especially true for law firms, which are particularly vulnerable to cyberattacks and allegations of negligence.
Using risk management best practices is essential for law firms to withstand threats that could potentially jeopardize their practice. Recognizing risks and having procedures and protocols to deal with them can make all the difference in protecting your firm from legal malpractice claims.
Every law firm should have a risk management process to identify malpractice risks and evaluate threat levels and occurrence probability. Once risks have been assessed and evaluated, you can decide how to deal with them. That may involve avoidance techniques, risk reduction strategies, or risk transfer using insurance.
With insurance, you can transfer most of the financial risk to a third party — your insurer. While we’ve already touched on the benefits of legal professional liability insurance, other business insurance options, including cyber insurance and directors and officers insurance, could also help protect your firm against costly claims
It’s important to remember that as your law firm grows, the risks that it faces will change. But even if your law firm remains relatively unchanged over time, new risks are constantly emerging, such as artificial intelligence. With the right insurance, you can rest assured that costly claims won’t blindside your law firm.
Want to learn more about how to protect your law firm from the financial repercussions of legal malpractice claims?
Check out Embroker’s legal malpractice coverage options, or contact a member of our expert legal insurance team to discuss your law firm’s insurance needs.
