Expanding risks drive lawyers liability claims

The market for lawyers professional liability insurance remains stable, with rate increases mainly in the single digits and ample capacity available, but claims are rising, and law firms’ exposures are changing.

As the corporate transactions on which large law firms provide legal services expand, lawyers’ liability exposures for issues such as conflict of interest and clerical errors are growing, experts say.

Small and medium-sized firms working on wills and trusts are also seeing exposures grow as wealth transfer between baby boomers and later generations broadens.

Also, firms of all sizes are grappling with how to reap the benefits of generative artificial intelligence without jeopardizing client confidentiality (see related story below).

Law firms are facing increasingly large malpractice claims, said Eileen Garczynski, McLean, Virginia-based equity partner and senior vice president at Ames & Gough.

According to the specialty brokerage’s most recent claims survey of major lawyers professional liability insurers, about 10 settlements of over $100 million occurred between 2020 and 2024.

Conflict of interest was the most frequent cause of malpractice claims, followed by scrivener or clerical error claims.

In one high-profile conflict of interest case, Dentons was hit with a $32.3 million verdict in Revolaze LLC v. Dentons US LLP, a patent case in which it represented the patent owner and another office of the firm had legal relationships with one of the alleged patent violators. An appeals court upheld the verdict in 2022.

In the 14 years that Ames & Gough has conducted its survey, claims have closely tracked developments in the general economy, usually rising a couple of years later, Ms. Garczynski said. For example, claims of alleged malpractice related to tax advice rose in the years following significant tax code changes. In recent years, claims related to immigration law have grown in number.

Looking ahead, the recent growth in cyberattacks could lead to malpractice claims related to client data, though increasingly lawyers professional liability insurers are inserting cyber exclusions in policies, Ms. Garczynski said.

Medium-sized and large law firms are seeing more large malpractice claims as mergers and acquisitions and other transactions grow, and they are hitting high excess coverage layers, said Noreen Calisto, New York-based associate director, professional services practice, at Willis Towers Watson PLC.

“Law firms are doing more big transactions, and they’re so big, even a small error could result in significant exposure,” she said.

Across the lawyers errors and omissions market, claims are increasing in volume and severity, said Andy Lea, Chicago-based chief insurance officer at Embroker Insurance Services LLC, which offers lawyers professional liability insurance to firms with fewer than 25 attorneys. The company operates as a broker and managing general agent, with its lawyers professional liability product supported by Everest Insurance.

For example, rising demand for legal advice on trusts and estates, as more baby boomers retire, is leading to more claims, he said.

“That’s always been a risky area of practice,” Mr. Lea said. “There are often familial disputes, and there can be a conflict of interest where an attorney might be really just representing one family member, but another family member may think they are getting representation from that same attorney.”

Lawyers, though, are generally optimistic about the health of their businesses, according to a recent survey of law firms that Embroker published. However, the survey showed they face several headwinds, including inflation and employee retention. The use of use generative AI is also a concern.

“In terms of efficiency in gleaning information from documents, AI’s an invaluable tool,” Mr. Lea said. However, there are concerns over potential errors or misuse.

“Some clients might ask for the firm to use AI because it could be a cost-cutting measure for searching documents and things like that, but they’re very careful when using it and in putting parameters around how their lawyers can access AI tools,” said Maggie O’Donnell, Chicago-based chief client officer for professional services at Aon PLC.

Insurance market

The market for lawyers professional liability insurance is largely stable, experts say.

“There’s plenty of capacity in the market right now. Currently, there might be as much as $680 million of capacity for U.S. law firms to access,” Ms. O’Donnell said.

But with claims rising, underwriters are closely managing their capacity, she said.

“As the deals firms work on get bigger, they may look to buy more capacity, but the markets are very careful about the capacity that they put out,” Ms. O’Donnell said.

“Pricing has been moving up steadily, not double-digits but single-digits,” since 2021, she said. And that trend will likely continue through year-end, she said.

Rates are generally increasing in light of the claims, but underwriters are evaluating the exposures and claims experience of individual firms, Ms. Calisto said.

Rates for lawyers professional liability are increasing by single-digit percentages, Mr. Lea said, adding that there’s a reluctance by law firms to buy more insurance even though attorneys perceive their risks as rising.

“That’s an impact that we’re seeing from their other concerns around the increased costs of practicing law and inflation,” he said.

---

Legal practices must Lay down the law on Generative AI tools: Experts

With work that relies heavily on documentation, many attorneys are eyeing generative artificial intelligence as a tool to increase efficiency, lower costs and reduce errors.

But the use of AI by lawyers also raises liability concerns.

Last year, a federal judge imposed a $5,000 fine on lawyers at New York firm Levidow, Levidow & Oberman P.C., who used AI in preparing Roberto Mata v. Avianca Inc., a personal injury case.

The lawyers “submitted non-existent judicial opinions with fake quotes and citations created by the artificial intelligence tool ChatGPT, then continued to stand by the fake opinions after judicial orders called their existence into question,” court papers say.

In another case, earlier this year, a Massachusetts state court judge fined a lawyer $2,000 for filing “fictitious case citations” in Darlene Smith v. Matthew Farwell, a wrongful death suit.

The lawyer “attributed the bogus citations to an unidentified ‘AI system’ that someone in his law office had used to ‘locate relevant legal authorities,’” court papers say.

As they increasingly turn to AI tools, law firms should establish rules and guidelines and train staff on acceptable use of the technology, said Noreen Calisto, New York-based associate director, professional services practice, at Willis Towers Watson PLC.

The training should stress that staff should never input confidential or privileged information into public AI forums, she said.

In addition, they should never disclose any information that might reveal legal strategies.

“People will put stuff into ChatGPT just to see what will come out,” she said. “That is all incorporated and absorbed into ChatGPT’s learning model, and you never know where it is going to go.”

Any AI use must have human oversight, Ms. Calisto said.

“Law firms really should be addressing AI with their clients in their initial engagement letters,” Ms. Calisto said.

While law firms are wary of potential liabilities stemming from the use of AI, they are also embracing it for tasks such as drafting documents, e-discovery and research, said Eileen Garczynski, McLean, Virginia-based equity partner and senior vice president at Ames & Gough.

AI can make it cheaper and faster to perform many tasks and often the results are more accurate than if they were performed by a human, she said.

“But you still have to make sure you’re keeping clients’ information confidential, you are doing it competently, and there’s supervision,” Ms. Garczynski said.