Professional liability insurance advisor Damian Schade of Lockton shares where, when and why professional indemnity insurance is used in the legal profession. Damian shares his expertise to show how lawyers can reduce the impact of a professional liability claim being brought against their firm and how to best avoid a claim all together.
Professional liability or negligence claims continue to be a source of frustration, irritation and burden for lawyers in New Zealand. During times of economic decline and uncertainty we often see the level of litigation increase, particularly against professional services firms with lawyers often at the top of that list. In a challenging environment disgruntled clients or aggrieved parties are often looking at avenues to recover costs, so when the legal bill arrives there can be a temptation to avoid it by manufacturing a negligence claim or disputing the costs.
Any claims, even the frivolous, have to be defended and dealt with either through the avenue of the Law Society complaints process or possibly even with litigation. Either way the exercise is timely and costly, placing an extra layer of strain on the firm.
Impact of Cyber: The recent CrowdStrike outage has shown the widespread impact even a minor Cyber issue can create. Law firms remain preferred targets for Cyber criminals especially in respect of Social Engineering through elaborate and well-constructed Phishing attacks. The sophistication of criminal emails and deepfake technology means that firms must stay vigilant and aware, especially around the transfer of funds. It remains crucial for law firms to understand and mitigate their associated AI risks as well, including taking steps to ensure that they adhere to the standards expected and these are not compromised through AI’s use. Any inappropriate or unmonitored activity may expose the firm to additional risks and consequently, unexpected negligence claims.
“The impact of a professional liability claim brought against the f irm may not only be financial but can be emotional as well”
The impact of a professional liability claim brought against the firm may not only be financial but can be emotional as well. It can be a particularly challenging and stressful time for everyone involved as often these claims can be complex and prolonged, taking years to mature. This means that your billable client time could be replaced with preparation of documents, attending hearings and meetings with your own legal representatives. Whilst the original claim for damages might be insurable, the time and stress of dealing with the claim itself is generally not.
While the best advice for managing claims is to avoid them altogether, there are steps you can take to reduce the probability of liability claims impacting you or your firm, including:
Professional Indemnity insurance is the last resort in the event of a claim, but good risk management can reduce the likelihood that your firm will be next!