Monday, August 14, 2017

Malpractice Trends, Cyber Risk, Conflicts Allegations




"Legal Malpractice Claims Level Off as Conflicts and Cyber Claims Rise" --
  • "Statistics regarding the type, frequency and severity of legal malpractice claims submitted to insurers during 2016 were released at the end of June. From the law firm and attorney perspective, the news is generally good in that the number of malpractice claims has remained relatively steady. For insurers, however, the news is less rosy, because legal defense costs, claimed damages and settlement sums continue to climb."
  • "In its seventh annual survey, Ames & Gough, a risk and insurance adviser to the country's largest law firms, provides data relating to legal malpractice claims submitted last year. The survey includes information obtained by polling nine leading insurance companies that insure approximately 80 percent of the Am Law 100 firms."
  • "Indeed, the data show that legal malpractice claims are becoming more expensive, both in the potential damages and in the defense. With respect to damages, 6 out of 9 insurers reported claims for which they maintained reserves exceeding $500,000, and at least one insurer paid a claim exceeding $100 million."
  • "Conflicts remain the most common error resulting in legal malpractice claims. Nearly all participating insurers cited conflicts as either the first or second biggest cause of claims. Interestingly, about half of participating insurers witnessed an increase in conflicts claims involving lateral hires, some of which stemmed from inadequate resolution of a conflict of interest."
  • "Cyber-related malpractice claims have continued to rise, with the majority of insurers indicating more cyber claims last year than in prior years. Of those insurers, four noted that most cyber events involved hackers. This trend is not at all surprising, given the increasing number of news stories involving global hacking operations and ransomware threats."
  • "Claims involving conflicts are notoriously easy for a malpractice plaintiff to explain to a jury. Juries also appear to treat such claims seriously, because they suggest an attorney's violation of one of the utmost duties owed to clients: loyalty. As a result, it is worthwhile for firms to ensure that they have the proper systems in place to identify and resolve conflicts."
"Clifford Chance under investigation by the SRA over Excalibur case" --
  • "Clifford Chance (CC) is being investigated by the Solicitors Regulation Authority (SRA) over its controversial role in the long-running Excalibur case... CC was criticised by the CoA for its role advising Excalibur, after it emerged that there were family ties between CC’s lead partner, Alex Panayides, and one of the litigation funders."
  • "While the SRA regularly investigates individual lawyers, it is less common for the watchdog to probe major law firms."

"Client Intake: Know Your Client—Or Else" --
  • "What information about a new client does a lawyer need to obtain in order to make sensible decisions about whether or not to proceed? Two recent cases, one from New York and one from the U.K., have important lessons for lawyers, wherever they practice."
  • "In reviewing the English case, P&P Property v. Owen White & Catlin, 2016 WL 05484797 (UK High Ct. of Justice, Chancery Div. 2016), it is important to note that English lawyers operate within a regulatory framework that requires them to undertake detailed "know your client" investigations about prospective clients, based on U.K. anti-money laundering (AML) laws. In addition, if lawyers find that a prospective client may be seeking assistance to violate the AML laws, they are required to report their suspicions to the authorities—without regard to attorney-client confidentiality."
  • "Another all-too-familiar aspect of the matter also stands out: The prospective client was in a hurry. It is critical that firms avoid shortcutting whatever level of due diligence they ordinarily undertake in order to confirm the client's identity and the facts surrounding the transaction. This is particularly vital where the client is in another jurisdiction or country and the bulk of communications occur via email or telephone with little in-person contact."
  • "In the United States, the absence of "know your clients" rules does not negate the need for lawyers and firms to undertake serious enquiry about the bona fides of prospective clients before beginning to engage in substantive conversations with them."
  • "In Exeter Law Group v. Wong, 2016 NY Slip Op 32425(U), 12/9/ 2016, Supreme Court, New York County, the issue was different: What does a lawyer or law firm need to do to establish who is (and is not) the client in the matter."
  • "This case underscores the critical importance of specificity in engagement agreements. Had the agreement specified who was and was not the client, the corporations' claims would likely have been dismissed. The breach of fiduciary duty claim might well also have been disposed of had the agreement detailed what information counsel was authorized to disclose. Finally, the decision highlights the danger of suing non-clients for fees. Doing so may imply that specific tasks were undertaken for the benefit of the non-client and permit the non-client to state claims notwithstanding the fact that it was never a party to the engagement agreement."

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