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Bad Economy Leads to Rise in Legal Malpractice Claims

December 22, 2010 | Posted in : Ethics & Professional Responsibility, Fee Dispute, Fee Dispute Litigation / ADR, Legal Bills / Legal Costs, Litigation Management, Unpaid Fees

A recent Insurance Journal story, “Lawyer Malpractice Claims on the Rise” reports that  the bad economy has taken a toll on many businesses and law firms are no exception.  Law firms are being forced to trim employees and expenses in this economy.  From an errors and omission (E&O) perspective this spells trouble for some law firms because such cost cutting measures can result in more malpractice claims.  Michele Wade, executive vice president of Lockton Cos., says downsizing the number of attorneys and staff often leads to client falling through the cracks.  “It leads to possibly the same number of clients and a lot less number of people to help them,” she says. 

Another cause for concern when it comes to E&O claims stems from what Wade refer to as “door law,” a circumstance where law firms might choose to represent any client that walks in the door, even when the case involves unfamiliar territory.  The competition for new business is leading many firms to go after clients not typically within their legal specialty, Wade say.

Another basis for rising E&O claims that has developed as a result of the bad economy are lawsuits against firms arising out of unpaid legal fees.  Wade says may E&O claims are related to legal fees.  “In this economy law firms are not getting paid.  Their collections are way down and they tend to want to sue their client for fees more aggressively than in a good economy,” Wade says.  When client get sued for unpaid legal fees, a counter legal malpractice suit tends to follow.  “Suits for fees draw counterclaims and that bring professional liability claims,” Wade says.