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  • Wisconsin Lawyer
    March
    01
    2013

    Managing Risk: Malpractice Claims Trends: Real Estate Remains Risky

    Thomas J. Watson

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    The economy – although slowly recovering – is still affecting malpractice claims. Not only does the frequency of malpractice claims go up as the economy goes down but different practice areas are more vulnerable to claims than others.

    The American Bar Association (ABA) recently released another study of legal malpractice claims. The study, the sixth of its kind, updates the ABA’s analysis of four years ago. Nineteen U.S. insurers, including Wisconsin Lawyers Mutual Insurance Co. (WILMIC) in Madison, and nine Canadian insurance companies provided information that was used to prepare the findings.

    Four years ago, the ABA found that the economy was having a significant effect on malpractice claims. We then were in the throes of a deep recession. Although the economy is improving, albeit slowly, the results of the most recent study indicate very few changes in the riskiest areas of practice and the types of mistakes being made.

    Thomas J. Watsoncom Tom.Watson wilmic Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison.

    Areas of Practice

    One change the ABA study did find was in malpractice claims related to real estate transactions. The number of such claims increased nationally in the past four years, according to the findings. Many national legal experts indicate that as real estate values have fallen across the country, more individuals and businesses are suing their lawyers for “bad” results. Some of that continues, even though several years have passed since collapse of the housing market.

    The good news is that declining real estate prices nationally did not seem to hit Wisconsin lawyers hard when it comes to legal malpractice claims. Sally Anderson, vice president – claims at WILMIC, says, “When the economic downturn hit, we saw a slight rise initially in real estate-related claims here, but nothing overly significant. While no big increase is a good statistic, it doesn’t change the fact that real estate remains the second largest area of practice for claims against Wisconsin lawyers.”

    In the ABA study, real estate-related claims have overtaken plaintiff-side personal injury claims as the riskiest area of practice. In Wisconsin, however, that is not the case. “Roughly 22 percent of our claims come from real estate work,” Anderson says. “And that is unchanged from four years ago. Plaintiff personal injury claims account for approximately 26 percent of our claims, a small increase over what it was four years ago.”

    However, Anderson says, she has seen more claims in the areas of business and corporate work in the past several years. “The increase has been for lawyers who do transactional work – work often done by real estate lawyers. So while Wisconsin lawyers have been squeezed out of many real estate transactions by brokers, mortgage brokers, and lenders, the difference does show in the business transactions area of practice. Because bank financing has been so difficult to obtain, a number of these claims arise out of seller-financed deals that were unsuccessful, leaving a disappointed seller to pursue the lawyer for what the buyer couldn’t pay. Everyone is optimistic when the deal closes, and it is difficult to plan for what won’t work, especially when there may be no or only a few clues for that at the time.”

    Other areas of practice that generate a significant number of claims at WILMIC include estate planning (21 percent), family law (16 percent), and collections and bankruptcy work (15 percent). “These are all areas the more general practitioner sees but that have become more and more sophisticated,” Anderson says. “This increases the risks associated with them. It is important to know the nuances, and to have significant experience to be able to identify and deal with the client’s challenges.”

    WILMIC Claims Experience: Riskiest Practice Areas


    WILMC claims experience

    Frequency

    Although the areas of practice that generate the most claims have not changed during the past four years, the number of claims in these areas has increased for WILMIC, according to Anderson.

    The increase in estate-planning-related claims bears that out. Anderson says part of the reason is an aging baby-boomer population. “People are often very contentious when it comes to ‘free money’ and especially where there is some psychological baggage within a family. It becomes a matter of ‘Mom loved you best.’ Because disenfranchised heirs can make these claims, the legal basis might be shaky to begin with, but the dollars involved are often worth an effort.”

    Anderson says there is also a slight increase in family law cases. “The lagging economy has caused some of this increase. There are so many difficult issues involving other areas of practice. The couple cannot sell or refinance assets, and often a bankruptcy is involved, too.”

    The economy also may have affected collections and bankruptcy practices during the past four years. Anderson says these claims often also involve mortgage-foreclosure, Fair Debt Collection Practices Act (FDCPA), or Wisconsin Consumer Act issues.

    General Practice-Management Behaviors

    Regardless of how the economy is doing, the general areas of communication with clients and client expectations are important. During the past four years, errors related to client communication made up almost 20 percent of the claims WILMIC reported to the ABA for its study.

    “Technology has made a big impact on how lawyers practice,” Anderson says. “Clients expect things to be done more quickly, but just as accurately. While technology has made life easier in many ways for lawyers, it can also be a double-edged sword. A very significant increase for us has involved lawyers who fail to obtain their clients’ consent and fail to fully and adequately inform their clients. That seems strange in an era of constant emailing, but we are seeing that often the emails are misunderstood by both sides.”

    Knowing your clients, keeping them informed of case developments, responding to their inquiries in a timely manner, and providing them with sufficient information to allow them to participate in their representation in a meaningful way can help you and your client work well together – and also make more likely that the client and the lawyer have identical or similar expectations for a matter. That means writing confirming letters, making phone calls, and otherwise trying to ensure the client understands what is going on. “It’s matching client expectations with reality, and making sure those expectations line up with the lawyer’s expectations and what can realistically be achieved,” Anderson says.

    foreclosure“Letters of engagement that state your goals in the representation and include risks and costs also can make your life much easier down the road,” says Anderson. And the value of communicating regularly, and documenting that communication, as a case unfolds cannot be overstated. “Letters documenting risks, costs, alternative approaches, and status reports can save you from a malpractice claim or OLR grievance.”

    Other errors that have generated more claims during the past four years include missed deadlines and procrastination (especially in personal injury work) and inadequate discovery and investigation. Anderson says, “Lawyers may be taking on more marginal matters because they are looking for work. When it becomes apparent that the case isn’t very good they seem to lose interest, without going through the steps necessary to get out of the representation.”

    Conclusion

    What does this all mean? It means clients will continue to scrutinize your work more closely, especially in the areas of bankruptcy and collections, real estate, transactional work, business and corporate work, estate planning and probate, and plaintiff-side personal injury work.

    You might not need to change the way you practice, but you should review your procedures and make sure you are taking steps now that will keep you from making mistakes that lead to second-guessing down the road. The statistics are still showing similar errors being made by lawyers and the same areas of law generating the most claims.

    Although the next ABA study comes out in 2016, Anderson says it is never too late to streamline your risk-management strategies. “Remember that the best protection for avoiding malpractice claims is a good relationship with your clients: treat them as you would want to be treated if your roles were reversed. The golden rule applies here, too!”