Insurers paid three times more for closed Missouri legal malpractice claims last year than a decade ago, and rising defense costs are a likely culprit.
The average cost for a claim that closed with a payment of a settlement, judgment or verdict rose from $38,322 in 2001 to $120,014 in 2010, according to a June report on legal malpractice claims from the Missouri Department of Insurance.
Lawyers who handle legal malpractice cases and an insurance company official offer a variety of reasons for the increase, such as the increasing complexity of cases, the cost of experts, unwillingness to settle and pricier lawyer mistakes.
But statistics eliminate one of the usual suspects -- the number of claims -- as a reason for the increase. The number of claims closed each year has stayed in the 200s since 2001. Last year, 242 claims closed, up five from the previous year.
Jury verdicts also haven't spiked for The Bar Plan Mutual Insurance Co., said Steve Couch, vice president of claims. The Bar Plan had nearly 70 percent of the legal malpractice insurance market in Missouri last year, according to the Department of Insurance.
Most insurers elsewhere have seen a spike in the severity of judgments, Couch said.
National statistics weren't available. The last year covered in American Bar Association's most recent report on legal malpractice claims was 2007, before the economic downturn.
Defense costs are left as the main explanation for the rising cost of claims.
"Across the board, the costs to defend cases are increasing," Couch said.
The Bar Plan hasn't responded with an increase in premiums; the insurer hasn't raised rates in five years, he said. The insurer had $10.8 million in earned premiums in Missouri in 2010, and incurred $5.9 million in losses, according to information posted on the Department of Insurance website. That compares to $11.9 million earned premiums and $5.5 million in losses the previous year. The insurer has responded by expansion into other states and "disciplined" underwriting, among other tactics, Couch said in an email. But the rise in claim costs has put significant pressure on the premium rates, he said. "These costs will no doubt have to be factored into our rates as we move forward," Couch said in the email.
Legal malpractice claims are costly to begin with because of both sides' reluctance to back down and the complexities of reviewing the underlying case, Couch said.
Couch and Michael Downey, an Armstrong Teasdale partner who has been involved in prosecuting and defending legal malpractice cases, both cited pricier lawyer mistakes as one possible reason for the increase in claims costs.
The economy has led more lawyers to take on cases in practice areas where they have little experience because their other work dried up, Downey said. They might then make bigger mistakes. The practice area can make a big difference in the cost of a mistake, he said.
"Large corporate transactions drive the dollar value up," Downey said. "If it's a missing deadline in a workers' comp case you have a pretty limited damage amount. Sometimes you'll settle before filing [a lawsuit]."
The lack of experience cuts both ways, Couch said.
While the Bar Plan used to see the same plaintiffs' lawyers filing legal malpractice claims regularly, now the regular filers are "far surpassed" by the number of new lawyers bringing legal malpractice claims, he said.
"There's a greater willingness by lawyers to sue other lawyers," Couch said.
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