Firms See Sharp Rise in Big Money Malpractice Suits

By Emma Schwartz
Legal Times
New York Lawyer
May 13, 2005

It's getting more expensive for corporate lawyers to defend themselves.

A soon-to-be-released study by the American Bar Association shows that the number of big-

ticket suits those with claims of $2 million or more against firms has risen dramatically since 1996. While the overall volume of cases is still small, the numbers point to a costly, long-term problem for law firms. If claims continue to rise, firms may face much higher malpractice insurance premiums, higher deductibles, and insurance carriers that are less willing to provide coverage.

In other words, they'll face a big hit to the bottom line.

Corporate firms also must deal with an increasingly aggressive set of plaintiffs firms that are willing to go after high-end cases, usually involving big-money corporate and securities practices. Even a few corporate firms are getting into the act, launching malpractice suits against their competitors.

Excerpts of the ABA study were released to Legal Times last week. Comparing two four-year periods, 1996 to 1999 and 2000 to 2003, the ABA found that legal malpractice cases of $2 million or more jumped 60 percent. The study, which compiled data provided by 15 law firm insurers, will be released in June.

The growing severity of claims stems in part from the major corporate scandals of the past five years, which have opened law firms up to new liabilities, insurers and law firm managers say. But the fallout goes beyond some of the biggest headlines. In recent months, three major law firms Sidley Austin Brown & Wood; Pepper Hamilton; and Gunster, Yoakley & Stewart have each been hit by suits with claims that top $100 million. All three firms decline comment.

Other firms have seen eight-figure jury verdicts. In February, a Texas court ordered Baker Botts, along with co-defendant Wells Fargo & Co., which served as executor of an estate, to pay $71 million to the trust of a widow for breach of fiduciary duty while planning her husband's estate. Last month, Seyfarth Shaw was slapped by a Los Angeles jury with more than $35 million in claims and punitive damages for mishandling a lawsuit for one-time client and Tae Bo creator Billy Blanks. Both firms have said publicly that the claims are baseless, and they are appealing.

And that's just the public cases. In most instances, suits against lawyers are settled behind closed doors.

Although firms have faced high-stakes cases in the past like the wave of suits against firms like O'Melveny & Myers following the savings and loan scandals of the 1980s malpractice lawyers say that recent lawsuits have become increasingly complex and have expanded the legal theories that can be used against lawyers.

In response, insurers have pushed firms to hire general counsel, to tweak their ethics guidelines, and to provide greater oversight to identify potential malpractice claims. Firms are hoping the measures will keep insurers from hiking rates.

"Without a doubt, everyone is focused and concerned about it," says Kimball Anderson, general counsel of Chicago-based Winston & Strawn, which is fighting a malpractice claim of more than $30 million by the city of North Hempstead, N.Y., over the firm's representation of the town in a lawsuit