Professional indemnity 2015 - Page 3

Special focus: Professional indemnity The blame game With more clients inclined to bring negligence claims against their legal advisers, lawyers need to ensure that the terms on which they accept instructions are made clear at the outset Law firms are increasingly at risk of being sued by clients for negligence. The fact that clients do not view lawyers in the deferential manner they perhaps once did is cited as one of the reasons for this trend, as is the perception that law firms, particularly the major players, receive massive fees for the service they provide. Accurate or not, views such as these are fuelling clients’ desire to seek recompense from their legal advisers when deals or disputes turn sour. In such a climate, the onus is on law firms to ensure they take the correct steps to minimise this risk. Jose Maria Pimentel, a partner at DAC Beachcroft in Madrid, points out that, traditionally, Spain has been a country in which a claim against a legal adviser was not culturally acceptable or common. “Now that this cultural barrier has been removed more or less since 2006, it is more common that a client instigates recovery actions against their advisers,” he claims. “This is leading to an increase in professional liability claims against legal advisers.” Lawyers in Iberia are, of course, required to have some professional indemnity (PI) cover. In Portugal, PI cover is mandatory, although levels of cover have historically been quite low, while Spanish lawyers must have a professional liability insurance policy that appropriately covers civil liability. Insurance companies such as Willis, Markel International, Howden Group and XL Group are among those to have targeted the Iberian market – research commissioned by reinsurer PartnerRe Wholesale, and conducted by Finnacord, estimated that the professional indemnity insurance market in Spain (for all professions including lawyers) will be worth €412 million in 2017, up from €393.3 million in 2013. No more deference Market observers say there is www.iberianlawyer.com now an increasing risk of law firms being targeted for legal action. Clients are much more prepared to go after the legal advisers should something go wrong with a case or a deal, meaning the importance of obtaining PI cover is growing. This has been driven by higher expectations from clients as well as the knowledge that lawyers have PI policies to cover claims. No longer are professional advisers treated with deference – clients have got a better understanding of how systems work and that any adverse outcomes may be a result of negligence rather than economics. Cuatrecasas, Gonçalves Pereira litigation partner Juan Antonio Ruiz agrees that lawyers, like other professionals such as doctors and architects, are increasingly facing civil liability claims. “Between 2011 and 2014, the number of cases relating to liability in the legal profession dealt with each year by Spanish courts doubled. The spread of legal professionals´ liability insurance – which is compulsory for law firms – has contributed to the increase.” Margarida Lima Rego, of counsel at Morais Leitão, Galvão Teles, Soares da Silva & Associados (MLGTS), says Portuguese lawyers are in a similar predicament: “Over the last ten years we have witnessed an increase in negligence claims against legal advisors. We believe that this is mostly due to society’s growing awareness of our legal duty to seek professional liability insurance. More recently some clients have started to show interest in whether we had topped up the mandatory insurance with any additional coverage.” Some insurance experts, such as Almudena Benito, executive director in Willis’s financial and executive risks practice in Madrid, agree that clients are increasing ly looking to recoup some of the losses by making negligence claims against their legal advisers. “The client is increasingly litigious, particularly in relation to larger law firms in Spain that receive high fees for their services,” Benito says. However, Esteban Manzano, head of Markel International Spain, has not seen a trend for clients to take such action, although he adds Markel has encountered some of these types of claims. “Liability policies are sometimes seen as a potential ‘source of income’ for distressed companies,” he says. More vulnerable to claims With clients exhibiting a greater tendency to sue their legal advisers, experts say that common causes of claims include errors, missing deadlines and problems that have occurred as a result of using junior lawyers. Jose Antonio Muñoz Villarreal, managing partner of Muñoz Arribas Abogados, explains the majority of clients no longer simply accept an adverse result but demand a more detailed explanation in cases of an adverse or unexpected result. “If the explanations do not satisfy clients, the latter could conclude that the adverse result was caused because of the lack of diligence of his instructing lawyer,” he says. Manzano says that, in general, corporate law firms tend to be more vulnerable to professional indemnity claims, particularly in areas such as mergers and acquisitions, legislative compliance and securities law. Meanwhile, Virginia Martínez, a senior associate in Hogan Lovells’ insurance and reinsurance practice, stresses that it is easier for lawyers to make mistakes on “very complicated transactions”, while contentious May / June 2015 • IBERIAN LAWYER • 53 >>