The biggest risk: Real estate law most likely to yield malpractice claim

Listen to this article

By Gary Gosselin
Dolan Media Newswires

Real estate law has edged out personal injury-plaintiff matters as the practice area most likely to ensnare a lawyer in a malpractice lawsuit.

It is the first time since the American Bar Association began conducting surveys of legal malpractice insurance claims in 1985, that personal injury was not first. Family law, another perennial top-three area, ranked No. 3 in the survey.

“In the last four to five years, our LawyerCare professional liability insurance program has seen an uptick in the number of claims related to real estate transactions, both commercial and residential,” said attorney Lori Watson, vice president of claims at ProAssurance Cos. in Okemos, Mo.

“While there may be a variety of reasons for this increase, one factor was the downturn in the economy. The downturn led to a number of individuals trying to recover from foreclosures or recoup investment losses.”

But, she added, the number of real estate related claims has leveled off in recent months.

The survey, provided by the ABA Standing Committee on Lawyers’ Professional Liability, covered 2008-11 and was released late last year. Eleven member insurers of the National Association of Bar-Related Insurance Companies from the United States and nine from Canada contributed data to the study, along with eight commercial insurance companies. Insurers provided data on 53,000 claims.

“I wouldn’t touch a real estate transaction even if it was my best friend,” said Ronald W. Chapman, of Chapman & Associates PC in Birmingham. “There are so many moving parts to that transaction. And mistakes become so much clearer after the transaction. In hindsight, you say, ‘Really? You didn’t do this or that?’ But when you’re doing it, you don’t see it.”

Chapman said his firm only handles “really, really bad” malpractice cases and almost inevitably it comes down to attorneys working in an area of law with which they aren’t familiar.

“It’s a case of you don’t know what you don’t know,” he said. “The ones we have been involved in were clearly areas where the attorneys should not have been involved in that case; they were outside their areas of expertise, they could not handle it.”

Watson agreed with Chapman, and said if someone wants to delve outside their comfort zone, he or she should tread very carefully.

“If they do make the decision to handle a case outside their expertise, they should take extra time and effort to master the relevant legal principles, case law, and procedural requirements,” Watson said. “In addition, an attorney may also want to confer with another attorney experienced in that particular area of law.”

“We see a lot of buying and selling — I don’t know why people work on buying or selling a business if they don’t do that for a living,” Chapman added. “There are so many things you have to be thinking about. Our biggest claims have been basically in that area, with respect to business litigation, buying and selling, non-compete agreements.”

Often, Chapman said he’s noticed that the worst offenders are very young or older, but usually not middle-aged. The older attorneys just weren’t as sharp as they should have been and got into something over their head, while the younger ones just don’t know better.

“Given the turmoil in the real estate and financial markets, it is not surprising that real estate and collection and bankruptcy have been the source of larger percentages of claims activity in the last several years,” observed the study’s authors.

“But, based on the data, we must question whether real estate’s first place finish is actually due solely to an uptick in real estate-related claims, or can be attributed to a decline in alleged malpractice by personal injury practitioners.

“The authors believe that failed real estate (and other business) transactions likely were the source of increased claims in the 2011 Study, but it would be a leap to state that is definitively so based on the data.”

The study found that the type of activity most likely to generate claims was “preparation, filing, and transmittal of documents,” retaining its No. 1 position from previous years. “Advice” moved up to become the second-most-likely reported activity to generate claims.

Of the individual errors generating claims in this edition of the study, “failure to file a document — no deadline” showed a steep decline in its share of all errors, dropping from its second-place position in the 2007 study to the bottom third percentage of all individual errors.

One possibility the study’s authors didn’t touch on is that of an increasingly well-informed buying public.

“LawyerCare also is seeing legal cases becoming more complex, with consumers more conscious of their rights and interests — also potentially leading to more malpractice claims. Lawyers must be acutely aware of the potential for conflict of interests and take steps to avoid conflicts and identify them as they develop; it is also important for lawyers to notify their carriers for assistance.”