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
- 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
"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."
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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
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
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