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
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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
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