Real Estate Lawyers Face Rising Malpractice Claims

October 1, 2008

Legal malpractice claims related to real estate are up approximately four percentage points according to the just-released American Bar Association study of legal malpractice claims for 2004-2007 compared to the previous study covering 2000-2003.

As real estate values have fallen across the country, more individuals and businesses are suing their lawyers for bad results, according to panelists who discussed the findings of the 2004-2007 claims study during the conference’s opening plenary.

“The frequency of claims goes up as the economy goes down,” Katja Kunzke, president and CEO of Wisconsin Lawyers Mutual Insurance Co. said.

Brian Baney, assistant vice president of professional program claims for Zurich American Insurance Co., noted that most findings are consistent from one study of malpractice claims to another, with the exception of the real estate claims.

In preparing the claims study, the ABA invited all insurance companies providing malpractice coverage in the United States and Canada to participate. Edith R. Matthai, chair of the ABA Standing Committee on Lawyers’ Professional Liability, said the group had participation from 18 U.S. insurers and six from Canada.

The study looks at malpractice claims in several different ways, examining such factors as claims by the size of the firm, by type of activity and by type of alleged errors.

Claims resulting from alleged errors in real estate transactions range from conflicts of interest, closing errors or contract drafting, to zoning or escrow issues. In many states it is not uncommon for only one lawyer to be at the closing table, presenting a huge potential for conflict of interest.

Claims for failure to know and apply the law, failure to file documents, and errors in planning or procedural choices are several of the main reasons for alleged malpractice.

Source: American Bar Association

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