Summary: A survey of legal malpractice insurers found that lateral recruits are the cause of most malpractice lawsuits.
If you’re running a law firm, what’s the best way to avoid malpractice lawsuits? According to a survey from Ames & Gough, don’t hire lateral attorneys.
The insurance brokerage firm said that “the number of new malpractice claims brought against law firms is stabilizing, but remains well above historical experience in years preceding the 2007 – 2009 recession.” The firm also said that the reason for the claims is usually a conflict of interest brought upon by lateral attorneys.
“As the legal landscape changes through mergers, acquisitions and lateral hiring, firms run the risk of increased conflicts,” said Eileen Garczynski, senior vice president and partner, Ames & Gough. “Too often, conflicts are an afterthought when attorneys move from firm to firm; and even when conflicts surface they are often ignored or overlooked. And that’s when they become costly.”
Ames & Gough surveyed nine insurers that cover 80% of Am Law 100 firms and asked details about malpractice claims. The insurers said that there has been a rise in the cost of defending malpractice claims although the number of claims has stabilized since 2016.
According to the survey, “eight insurers indicated the average costs to defend a typical malpractice claim exceed $50,000; three saw costs between $100,000 and $500,000, and two indicated average costs are more than $500,000.”
Ames & Gough” is an industry-focused specialty insurance brokerage founded in 1992. [They] serve clients domiciled in 50 states and consult on risk and insurance issues around the world from [their] offices in Boston, Philadelphia, and Washington, D.C.,” according to its website. The firm’s survey said that the number one reason for legal malpractice is problems caused by lateral hires.
The survey said that “All too often, a lateral is left to their own devices,” and this autonomy can lead to mistakes. However, law firms don’t have to accept this risk. Instead, they can mitigate the potential problem by introducing a new lateral to existing attorneys and their clients to ensure conflicts of interest are avoided.
“It pays to be smart about the hiring process altogether and extra cautious in deciding whether to bring in an attorney whose conflicts might result in disqualification of the firm,” Garczynski said. “Consider only hiring laterals known to one or more of the firm’s partners and check for conflicts early on by insisting that laterals fully disclose potential issues.”
Ames & Gough said that another big reason for malpractice claims is cyber attacks from hackers and that they advise law firms to purchase cyber-liability insurance.
“With cyber threats widespread, many law firms are actively sharing best practices for cyber security and evaluating cyber/network security insurance,” said Garczynski. “Besides providing key coverages not included in the typical lawyers’ professional liability insurance policy, cyber-liability insurance policies tailored to law firms can be structured to protect the firm’s professional liability policy limits.”
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