Special Focus: Professional Indemnity 2014 - Page 2

Special Focus: Professional Indemnity More clients suing for negligence The number of court cases involving professional negligence claims against lawyers in Iberia is increasing due to clients being better informed about their rights, law firms employing fewer fee earners and more junior lawyers increasingly being used on cases and deals. So how can law firms reduce the risk of being sued for negligence? Concern has been mounting that professional negligence claims against lawyers in Iberia are on the rise, with anecdotal evidence suggesting that in Spain, for example, the last decade has seen claims against lawyers increase almost three-fold. One of the factors thought to be behind the rise is the impact the recession has had on the way in which law firms work. Ana Dores, XL Group’s senior professional indemnity underwriter for Iberia and Latin America, believes that law firms have made substantial changes in terms of the number of lawyers they employ and, while this made firms more competitive, at the same time it has raised concerns for insurers. “Less personnel are handling the same or even a greater workload, and less experienced lawyers now represent a higher proportion of the teams,” she says. “This, obviously, could potentially have an impact on the number of errors and omissions, and consequently there are more claims.” And the bad news for law firms is that the risk of being on the wrong end of professional negligence claims is set to increase. Dores says: “This is especially a risk in the coming years as activity levels rise as expected due to the improvement of economic perspectives.” As such, law firms deciding to use more inexperienced lawyers increases the risk of a negligence claim. This is because most PI claims are often based on relatively simple errors by lawyers rather than firm-wide gross misconduct allegations. “Most of the professional indemnity 52 • IBERIAN LAWYER • May / June 2014 claims are due to fiscal advice, procedural issues, and issues relating to patents and trademarks – in general in all those areas where there are deadlines,” Esteban Manzano, director general at Markel International in Spain says. lnsolvency administration, which is a common trend amidst the financial crisis, is one area highlighted by Manzano as giving rise to claims. Claims increase nearly three-fold So by how much are claims increasing? Juan Antonio Ruiz, a litigation partner at Cuatrecasas, Gonçalves Pereira, says that while there is no empirical information collected, searches in case law databases show that courts would decide around 30 cases a year on lawyers liability in the 1990s, but that in the last 10 years, courts are deciding around 80 cases per year. However, he adds: “These figures are misleading, given that legal databases have broader access to court decisions now than they had in the 1990s. Our perception though is that claims against law professionals have increased, not only because the literature says so, but because it is common knowledge in the professions that this increase is real.” Virginia Martínez, associate at Hogan Lovells, highlights three common grounds for a professional indemnity claim. The first is negligent advice provided by a lawyer to their client, such as the failure to inform a client about the low probabilities of success relating to a claim or an appeal. Other frequently cited reasons for a claim include the failure to file a claim within the prescription or limitation periods – for example, a tort liability action must be exercised within a one-year term beginning from the date of the damages – and failure to file an appeal within the term given by law. Litigious work is the main source of professional negligence claims against lawyers in Spain and Portugal. Ruiz says complaints against lawyers were uncommon until a few years ago but have been increasing in relation to instructing legal proceedings. “The following circumstances of lawyers’ liability stand out: allowing substantive prescription or expiry periods for submitting complaints to elapse; allowing procedural periods for answering complaints or filing appeals to elapse; not giving clients information; omitting relevant requests or elements from legal writs; and failing to return www.iberianlawyer.com