How COVID-19 and a Recession
Could Impact Malpractice Claims
By Mark Bassingthwaighte
During a recession, and for the three years following, there has
historically been a huge spike in paid claims, which is a number that
typically doesn’t return to a more normalized level until five years
post-recession. In addition, and looking back at the events of 2008
specifically, legal malpractice insurers experienced a spike in paid
claims above $10,000 that ranged from 35 percent to 41 percent.
I share this in order to explain why recessions always capture the
attention of the insurance industry, because given how the markets
look of late, another recession appears to be imminent thanks to the
COVID-19 pandemic. I wish it were otherwise, but it sure looks like
history is going to repeat itself.
As a risk manager for a legal malpractice insurer, one interesting
question for me is how will COVID-19 impact our insureds?
While only time will tell, I have a few thoughts. Lawyers are already
having to deal with telecommuting and all the associated risks, not
the least of which is a significant increase in the risk of someone
at a firm becoming a victim of a cybercrime. A number of lawyers,
and more than a few clients, will be forced to deal with significant
and potentially long-term reductions in household income. Some
lawyers may simply say enough is enough and decide to retire, while
others may be forced into postponing retirement as a result of steep
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declines in their retirement accounts, and this is just for starters.
While I could continue on, I’ll admit this is starting to make me feel
a bit depressed, so I’ll stop.
Here’s the point I’m trying to make. Everyone, including lawyers,
is trying to find a way to maintain some level of control and
normalcy during very uncertain times. The challenge here is to
not let emotions, such as fear and panic, cloud one’s personal and
professional judgment, because that’s when poor decisions are
made. For example, investments get sold at the market’s bottom, an
attachment to an email that claims to have the answer to preventing
the spread of COVID-19 is opened too quickly, or an important
deadline never gets entered into a calendar all because worry and
fear rule the day.
Now, based upon what has happened as a result of past recessions,
coupled with the realities of the response to COVID-19 from the
individual level to that of governments, here’s what legal malpractice
insurers are currently concerned about. First, claim frequency and/
or claims severity will change for any number of reasons. We just
can’t accurately predict how. At a minimum, clients will look to
blame their lawyers when their business dealings go south as a result
of the near-certain recession that’s coming. Lawyers and staff will
make mistakes that would otherwise not have been made due to the
rapid transition to working from home and/or being under excessive
stress. Clients, who are also experiencing excessive stress, will
question decisions they made in light of the advice their lawyer gave
them if their legal matter doesn’t work out the way they expected it
to. Regardless, there will be a new normal in terms of claims, at least
for a few years.
Second, policy retention may be an issue; but again, we can’t
accurately predict how this might evolve. Lawyers facing difficult
financial times may choose to leave the practice of law entirely or
may decide to allow their policy to lapse and simply go bare as a
way to save some money. Of course, there’s the flip side, some who
have previously been bare may decide now’s the time to purchase
coverage because the value of their assets have dropped, and their
level of risk has risen. Only time will tell.
I do understand that right now it can be difficult to turn off the
ALPS Risk Manager Mark Bassingthwaighte, Esq., has conducted more than 1,000 law firm risk management
assessment visits, presented numerous continuing legal education seminars throughout the United States, and
written extensively on risk management and technology. Check out his recent seminars to assist you with your
solo practice by visiting our on-demand CLE library at alps.inreachce.com. Bassingthwaighte can be contacted at
[email protected].
14 THE GAVEL