Bench & Bar – January 2007
“What do we know about it?”
Del O’Roark, Loss Prevention Consultant, Lawyers Mutual Insurance Company of Kentucky
The first thing we know about legal malpractice in Kentucky is that historically there is not much of a track record available to examine. This is true in part because it was not until about 1970 that legal malpractice claims became a significant daily consideration in the practice of law in the United States. Beginning in the early ‘70s, malpractice claims against lawyers exploded changing the practice environment forever. Malpractice insurance became a necessary and often expensive cost of doing business. Risk management became an essential part of managing a law firm to minimize this growing hazard of practicing law. Legal malpractice was suddenly the elephant in the room that could ruin professional relationships and destroy firms.
Adding to the fog of what was going on with legal malpractice in the nation and in Kentucky in those days is the policy of most commercial insurers to treat claims experience as proprietary information. This is a legitimate practice, but made it virtually impossible to tell what the magnitude of legal malpractice was in a given state. The anomaly in analyzing legal malpractice for the purpose of preventing claims is that the great majority of claims are resolved by insurance companies – not the courts. The best information on what is going on in legal malpractice and how to prevent it is generally not available to the public. In Kentucky we could not tell in the ‘70s and ‘80s whether the ever increasing insurance premiums for Kentucky lawyers were because of bad experience in Kentucky or whether, as suspected, Kentucky lawyers were subsidizing the payment of malpractice claims against lawyers in other states – and the companies then insuring Kentucky lawyers would not help answering this question when asked by the KBA.
In response to this dilemma in the 1980s lawyers in a number of state bars sponsored the formation of bar-related insurance companies to provide malpractice insurance and risk management education exclusively for their state. The KBA joined in this movement in the mid-‘80s resulting in the formation of Lawyers Mutual Insurance Company of Kentucky which opened for business in November 1987. Its purpose is to provide a competitive insurance market for Kentucky lawyers based on Kentucky malpractice experience and use this experience to foster claims prevention by assisting Kentucky lawyers in developing risk management programs.
At the national level the ABA in an effort to come to grips with the problem of increasing legal malpractice claims published its first study of national legal malpractice claims statistics in 1985. It published further studies in 1995, 1999, and in April 2005 issued “Profile of Legal Malpractice Claims 2000-2003” that recapitulates the results of all studies through 2003. The more recent studies are based primarily on input from bar-related insurance companies with a few commercial insurers participating. Lawyers Mutual was an active participant in these studies.
This article compares selected statistics from the ABA’s “Profile of Legal Malpractice Claims 2000-2003” (hereinafter ABA 2003) with Lawyers Mutual’s claims statistics to enable Kentucky lawyers to see where the major malpractice risks are both nationally and locally. The limitations on these statistics are that the ABA study methodology has evolved over the years as has Lawyers Mutual’s statistics collection procedures making comparisons among the studies imperfect. It is also significant that the information in recent ABA studies is based heavily on bar-related insurance company experience. These insurers primarily insure small firms (2-5) and solo practitioners.
While these and other factors diminish the overall usefulness of the ABA studies, they remain valuable in developing a national profile of malpractice trends that is a valid benchmark from which to compare Kentucky’s claims experience.i The idea is to use the available statistics as indications of where the risks are and allow lawyers to focus risk management programs on those risks most applicable to their practice.
The studies and claims statistics cited in this article do not identify good and bad lawyers or areas of practice. They show only where the claims are occurring. These studies do not include demographic data such as the number of lawyers practicing in an area of law or the amount of overall lawyer time spent in an area of law or practice activity. Most important to remember is that overall Kentucky lawyers provide a high quality service to the clients they represent. This article necessarily centers on alleged errors by the small percentage of Kentucky lawyers who through neglect or bad luck are exposed to a claim of malpractice in a given year.
Included in the article along with the statistics are observations on trends from the limited, but growing, amount of knowledge we have on legal malpractice in Kentucky. Finally, the article offers a recently developed Risk Management Analysis checklist that is recommended for use in evaluating errors occurring in your practice for the purpose of identifying the causes of errors and the corrective actions required to prevent recurrence.
What the Statistics Show
The statistics displayed in this article are a helpful guide in identifying hazards relevant to the practice of law in Kentucky. We have selected the following framework for analyzing malpractice claims for this purpose:
|Table 1: Percentage of Claims by Area of Law|
|ABA %||KY %||ABA %||KY %||ABA %||KY %||KY %|
|Collection & Bankruptcy||7.91||7.89||8||12.17||7.92||11.5||11.21|
|Corp./Business Org.& Transactions||19.53||5.78||12.19||2.22||9.55||3.35||3.69|
|Estate, Trust & Probate||7.59||6.49||8.67||9.26||8.63||8.42||8.13|
- Area of Law
- Type of Activity
- Type of Alleged Error
- Administrative Errors
- Substantive Errors
- Client Relations
- Intentional Wrongs
These categories organize claims statistics from differing perspectives, but have a vectoring effect that pinpoints where the serious problems are. What follows are tables for each category comparing ABA 2003 statistics with those of Lawyers Mutual’s. Significant trends and observations are noted in the accompanying commentary for each table.
Area of Law Claims
Table 1: Percentage of Claims by Area of Law lists the ten leading areas of law warranting malpractice analysis from a Kentucky perspective. The key considerations from Table 1 include:
- ABA 2003 noted that Personal Injury-Plaintiff in the 200003 study (hereinafter 2003 study) remained the area of practice with the highest claims rate responsible for approximately 20% of all claims. Kentucky had an even higher claims rate in the period 2000-06 of almost 26%. The nature of Personal Injury-Plaintiff practice with numerous deadlines to meet and the high risk of clients with unrealistic expectations accounts for many of the claims. The inescapable facts are that if your practice includes Personal Injury-Plaintiff matters, an aggressive risk management program is absolutely necessary for self-preservation.
- ABA 2003 showed that in the 2003 study Real Estate was again the second highest in percentage of claims. Kentucky experience in the period 2000-06 also shows Real Estate as the second highest. The primary cause for real estate claims is prosaic and remains the same as it has been for many years – error in public records search. This seemingly routine work requires careful attention to detail and close supervision because errors are expensive and for the most part indefensible.
- Collection and Bankruptcy is an area of law where Kentucky malpractice claims in the last several years are trending significantly higher than national experience. With a new and complex bankruptcy law governing an already technical area of practice it is essential that bankruptcy representations be undertaken only if you know what you are doing. Practicing “a little bankruptcy law” is a form of malpractice Russian roulette.
- ABA 2003 showed Personal Injury-Defense with an increase in claims to nearly 10% in the 2003 study. It moved to third highest in claims for an area of law. Kentucky statistics show a much better picture for Kentucky defense counsel with a percentage of claims consistently lower than the national average over all studies. For the latest period it was a remarkable 8% lower than the national average. Defense practice has historically been low risk, but it is clear that the dynamics of defense representation is changing. Clients of defense counsel are no longer quietly acquiescing in adverse results and are much quicker to claim. We are on notice in Kentucky that the risks of Personal Injury-Defense practice are much greater than in the past and that risk management is as essential to the defense lawyer as it is to the plaintiff lawyer.
Type of Activity
Table 2: Percentage of Claims by Type of Activity focuses on the legal process in which a lawyer was engaged when the error occurred. The key considerations from Table 2 include:
- Preparation, Filing, Transmittal of Documents is a broad category that applies to documents that are not part of a pleading or related to a contested matter. It includes contracts, leases, deeds, formal applications, wills, and trust. It does not include tax returns or title opinions. ABA 2003 shows this category as the highest ranked for type of activity claims in the 2003 study. Kentucky statistics have been consistently better over all studies than the ABA statistics. We flag it here nonetheless because it is clearly a troublesome area for many lawyers and we can do better. Risk management that includes tight control over document flow, detailed mail procedures, and docketing of all time sensitive and important documents is essential to avoid claims.
- Commencement of Action/Proceeding is a category that focuses on the formal activities in starting a contested proceeding including filing a government claim. It is an area where Kentucky has been consistently higher in claims that the ABA studies show. A combination of failing to know or ascertain a deadline, to calendar a deadline, to calendar a deadline accurately, and to react to a calendar alert accounts for most of the claims. Every practice should have an automated docketing system that alerts the responsible lawyer, her secretary, and a central control person in the firm to deadlines (solo practitioners use your computer as the central calendar control).
- It is not surprising that the percentage of claims in the activity Title Opinion is high in Kentucky given our high rate of real estate claims. What is alarming is that our Title Opinion percentage is more than twice the percentage ABA 2003 shows in the 2003 study. This is a risk that is screaming for attention. The percentages tell it all.
- Appeal Activities is another category where Kentucky’s percentage of claims have been consistently higher that the ABA percentages. We attribute this primarily to missed deadlines and again encourage emphasis on using state of the art docketing systems.
|Table 2: Percentage Claims by Type of Activity|
|Trial or Hearing||7.1||6.73||5.1||6.51||5.07||3.8||5.2|
|Ex Parte Proceeding||1.43||1.38||0.39||0||1.72||2.08||1.36|
|Post Trial or Hearing||2.62||3.96||1.08||3.08||1.72||5.52||4.51|
other than Title
Alleged Error Claims
Administrative Errors: Table 3: Percentage of Claims by Type of Error – Administrative Errors concerns getting the work done on time. Of significance is:
- Getting the work done on time administrative errors account for 24.98% of all Kentucky claims in 2000-06. This contrast marginally favorably with the 28.36% ABA 2003 shows in the 2003 study, but leaves a lot of room for improvement
- The Kentucky percentages for the categories Failure to Calendar Properly and Failure to React to Calendar show again that this is a major weakness in office administration and risk management for too many Kentucky lawyers.
|Table 3: Percentage of Claims by Type of Error — Administrative Errors|
|ABA %||KY %||ABA %||KY %||ABA %||KY %||KY %|
|Failure to Calendar Properly||6.75||8.71||7.03||7.71||5.19||9.69||8.94|
|Failure to React to Calendar||6.35||2.77||1.27||3.25||4.35||4.8||3.92|
|Failure file Document No Deadline||2.69||0.39||1.54||0||4.28||1.08||0.63|
|Lost File, Evidence, Document||0.57||0.59||0.4||0.68||0.37||0.54||0.59|
Substantive Errors: Table 4: Percentage of Claims by Type of Error – Substantive Errors concerns lawyer competence. The key considerations from Table 4 include:
- Failure to Know/Apply Law is a category that Kentucky has improved in over the years, but a claims percentage of 17.84% for 2000-06 is a significantly higher percentage than the ABA statistics show in the 2003 study. This can be the result of taking on more work than can be competently managed, relying too much on inexperienced assistance, or accepting matters outside a firm’s practice area. If there is not time to gain the competence to practice a matter, representation should be declined.
- The higher 2000-06 percentage of Kentucky claims in the category Error in Public Record Search reinforces what is already evident from the statistics for the Area of Law category Real Estate and Type of Activity category Title Opinion. Far too many errors are made in title searches virtually all of which could be avoided with careful attention to detail and close supervision and review by the responsible lawyer.
- The category Planning Error – Procedure Choice concerns cases when the lawyer knows the law and facts but allegedly makes an error in judgment. The Kentucky 2000 – 06 percentages show a serious increase in claims for this category. Judgmental immunity for such claims as a defense in Kentucky was reviewed in Equitania Ins. Co. v. Slone and Garrett PSC, (Ky., No.2003-SC-1003-DG, 2/2/06) and is recommended reading. Kentucky lawyers can expect more claims for simply get ting a bad result even when fully competent and informed on a case.
- The category Conflict of Interest shows Kentucky trending below the ABA studies’ percentages of conflict claims. What is significant is that the ABA studies show a national upward rend in claims alleging a conflict of interest. We too are seeing more claims that, in addition to alleging negligence, add allegations of a conflict of interest or fiduciary breach. In ABA 2003 the comment is made:
“We continue to see an increase in claims alleging a conflict of interest by a lawyer or firm. Claims involving conflicts of interest increased slightly to 6.2% of all claims during the survey. Few of these claims appear to have involved intake problems. Instead, some industry observations are that the vast majority of significant malpractice claims include a claim of conflict of interest. The conflict may not have given rise to the claim, but colors it and makes it more difficult to defend.”
- Everyone knows to screen for conflicts before accepting a matter, but many lawyers fail to periodically check for conflicts that may have arisen during a representation. Make sure your risk management program calls for periodic review of all matters for new circumstances that could create a conflict of interest.
Client Relations and Intentional Wrongs: Table 5: Percentage of Claims by Type of Error – Client Relations; and Table 6: Percentage of Claims by Type of Error – Intentional Wrongs show Kentucky claims percentages for 2000-06 overall in line with the ABA percentages in the 2003 study.
|Table 4: Percentage of Claims by Type of Error — Substantive Errors|
|ABA %||KY %||ABA %||KY %||ABA %||KY %||KY %|
|Failure to Know/Apply Law||11.05||29.3||21.9||27.1||10.98||19.84||23.03|
|Inadequate Discovery Investigation||10.24||9.5||6.13||7.89||10.37||7.33||7.98|
|Planning Error Procedure Choice||10.87||4.75||3.21||3.43||7.72||11.14||7.61|
|Failure to Know/Ascertain Deadline||6.97||7.32||15.24||6.17||7.09||6.25||6.47|
|Conflict of Interest||3.79||4.55||5.12||3.43||6.28||2.8||3.37|
|Error in Public Record Search||1.24||10.69||2.65||5.83||2.54||8.96||8.53|
|Failure Understand/Anticipate Tax||1.96||0.99||1.57||0.85||1.26||1.26||1.09|
|Error Math Calc.||0.44||0.59||0.48||0.34||1.04||0.18||0.31|
|Table 5: Percentage of Claims Reports by Type of Error — Client Relations|
|ABA %||KY %||ABA %||KY %||ABA %||KY %||KY %|
|Failure to Follow||5.06||3.36||3.93||4.45||6.72||7.15||5.56|
|Failure to Obtain Client Consent/Inform Client||9.77||8.11||11.89||5.14||5.75||3.07||4.79|
|Improper Withdraw of Representation||2.14||4.55||2.93||3.08||2.1||1.9||2.82|
|Table 6: Percentage of Claims by Type of Error — Intentional Wrongs|
|ABA %||KY %||ABA %||KY %||ABA %||KY %||KY %|
|Malicious Prosecution Abuse of Process||3.7||11.48||4.09||7.03||3.59||2.62||5.83|
|Libel or Slander||1.11||2.17||1.18||1.37||1.59||1.08||1.41|
|Violation of Civil Rights||1.29||0.39||1.15||0.17||1.26||0.09||0.18|
Risk Management Analysis
Accompanying this article is a Risk Management Analysis checklist that is printed in a way to facilitate copying. It is from materials developed for the Hinshaw & Culbertson 2006 Legal Malpractice & Risk Management Conference, and is reprinted with permission. We consider it one of the best checklists of its kind. It is a valuable instrument for evaluating and correcting errors that occur in a firm. It should be used to analyze all questions of malpractice that arise in a practice – not just the situations that rise to the level of an actual allegation of malpractice. This analysis should permit immediate correction of a malpractice risk within a firm. By using the Risk Management Analysis checklist for all incidents of potential malpractice and retaining them in a permanent file, systemic weaknesses in firm operations can be identified over time, recurring errors come to light, and risk management programs can be developed responsive to a firm’s unique situation. Risk management is not a “one size fits all” process. Every firm is different and requires a tailored risk management plan. The Risk Management Analysis checklist is the instrument that gives a firm the means to identify its special risk management needs.
Space precludes going into detail on other important malpractice information. For example, ABA 2003 finds in the 2003 study that most claims concern firms with less than five lawyers (65.45%), but that claims concerning firms of 40 or more lawyers were up 10.79% to 14.89%. This is an important indicator of the continuing trend of increasing and more expensive malpractice claims because larger firms typically have sophisticated risk management programs and tight internal controls. It is also an unfortunate fact that the trend is for claims to take longer to resolve. This means a dark cloud can hang over a lawyer and his firm for a protracted period of time – an unhappy way to practice law. We hope this article serves to help you avoid this stress by providing you some of the information needed to effectively risk manage your practice. We urge you to use the Risk Management Analysis checklist to facilitate this effort and achieve a claims-free practice.
- Kentucky statistics are based on all reports received by Lawyers Mutual of potential claims (incidents), claims, and suits.