Law firms are experiencing a rise in the number and cost of lawsuits leveled against them. Factors compounding this surge include generous insurance policies, clients who are resistant to paying fees, and the influence of investors in litigation issues. These factors are placing a significant defensive burden on legal practitioners and operations.
These lawsuits often allege recoverable lapses such as conflicts of interest or failure to timely file a document. Significantly, the clients who are filing these suits are increasingly resorting to attorneys with expertise in suing law firms. According to Bethany Kristovich, a litigation partner based in Los Angeles at Munger, Tolles & Olson, clients are becoming more willing to take legal action against their counsel, viewing law firms as another contingency cache.
Insurance claims against law firms resulting in large payouts have shown an upward trend, says Ames & Gough, an insurance broker and consultant. Seven of the ten companies that provide insurance to around 80% of Am Law 100 firms paid a claim exceeding $50 million while two paid a claim over $150 million in 2021 or 2022, according to a 2023 report.
The broker found trusts, estates, as well as business and commercial transactions to be the leading causes of malpractice claims against law firms. Furthermore, the rise of litigation finance–with investors funding lawsuits in hopes of a return–is escalating the chances of substantial payouts.
The perception of law firms as being backed by deep-pocketed insurance providers is making them attractive targets for malpractice lawsuits, suggests Leslie Corwin, managing partner of Eisner LLP. Additionally, he points out that market pressures and economic tumult are making law firms more susceptible to legal actions.
Recent high-profile cases include Elon Musk’s X Corp. suing Wachtell, Lipton, Rosen & Katz over a $90 million fee, TerraForm Power LLC suing Orrick, Herrington & Sutcliffe and Cleary Gottlieb Steen & Hamilton for allegedly causing $300 million in payments due to a wording error, and 3M bringing a lawsuit against Covington & Burling in 2017.
Kristovich predicts that we can expect more lawsuits against law firms in the coming year, primarily alleging breaches of fiduciary duties and conflicts. She adds, “The size of the claims continue to grow as lawyers and law firms handle bigger and bigger transactions and deals”. She now represents Pillsbury Winthrop Shaw Pittman and Willkie Farr & Gallagher, both grappling with malpractice allegations and malpractice suits, respectively.
Furthermore, she expects an increase in firms being sued for their association with a client’s alleged criminal acts rather than their legal advice. In a recent case, Fenwick & West filed a motion to dismiss a lawsuit that accused them of aiding their client, FTX, a cryptocurrency exchange, in committing a large-scale fraud.