A focus on risk management

Issue January 2013

How to avoid legal malpractice claims in what most attorneys consider a 'safe' practice

Business transactions (BT) representations are a stable practice for many lawyers across the country, but even more prevalent in small to mid-size firms. Many lawyers view business transactions as routine matters that do not involve substantial risk. However, a recent study conducted by CNA has revealed that BT practice presents greater professional liability risk for attorneys than many other practice areas. The unexpected findings, based upon an analysis of 998 closed claims from sole practitioners and law firms with fewer than 35 attorneys maintaining professional liability insurance with CNA, are contained in the recently released claim study, Investigating the Hidden Risks of Business Transactions Practice.

Interesting findings:

  • The preparation, filing and/or transmittal of documents are the most frequent activities associated with BT claims (37 percent). Examples include the omission of an important contractual provision or the failure to acquire the appropriate license, signature or approval before recording. Other examples include claims alleging a failure to file or record a document, or failure to timely file the documents, with a required authority.
  • Attorneys with less experience generate the majority of BT claims. In fact approximately 70 percent of the claims arising from BT practice were instituted against attorneys who devote no more than 5 percent of their practice to this practice area.
  • Attorneys who devote more than 25 percent of their practice to BT are less likely to have a claim asserted against them, but those claims are on average much more expensive than those brought against attorneys who devote 5% or less of their practice to BT.

"Attorneys who don't have a great deal of experience with business transactions law may underestimate the complexity of such matters," says Mike Troiano, lawyers professional liability claim director, CNA, who manages claims in Massachusetts. "They may not have the resources needed to properly process, prepare, handle and review all of the necessary documents in the transaction, resulting in the filing of a claim by the client."

One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. It is not intended to constitute a binding contract. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation. Copyright © 2012 CNA. All rights reserved.

CNA offers some steps lawyers can take to minimize the risk of a claim:

Don't rely solely upon a client's representations.

Document the scope and specifications of the engagement.

In multi-party representations, thoroughly discuss with all parties the potential for conflicts to develop and document these discussions.

Prepare and execute comprehensive written conflict waivers.

Regularly discuss the clients' understanding of the attorney's relationship with all parties to the transaction and document these discussions.

Act swiftly to correct misconceptions concerning whom the attorney represents and to whom the duty of loyalty, as well as fiduciary obligations, are owed.

Do not give legal advice to non-clients, or inadvertently create or give rise to the mistaken belief that an attorney-client 
relationship exists.

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