Attorney Business Transactions Affect Professional Liability Claims
Business transactions representations (such as negotiation and drafting sales agreements, agency agreements, entertainment contracts and commercial transactions) are a staple of practice for many attorneys throughout the country – particularly for small to midsize firms. According to a study by a major insurer of 35 attorneys carrying professional liability with the carrier, business transactions, although perceived to be a “safe” area of practice, are consistently among the top loss drivers for many years.
What’s more, according the insurer study, business transaction claims typically result in payments of more than twice the amount paid on claims arising from other areas of practice.
One of the causes for the high severity of claims is the lack of experience of the attorneys working on business transactions. Almost 70% of all business transactions claims against attorneys report that this type of practice only accounted for 5% or less of their annual revenues.
A review by the insurer of the claims generated in this area indicates that attorneys inexperienced in business transactions may underestimate the complexity of these matters. Also, they may not have the appropriate resources to effectively manage the activities associated with business transaction clients, such as adequate staffing and the ability to properly process, prepare, handle and review all of the necessary documents in the transaction. They may also not be getting management’s commitment, or they themselves are not fully committed, in terms of investing in software, equipment, etc., as this represents such a small percentage of their business.
What types of claims arise?
Activities leading to business transaction claims involve allegations that:
- Documents were improperly drawn, such as the omission of an important contractual provision or the failure to acquire the appropriate license, signature, or approval before recording
- Failure to file or record a document, such as filing with the required authority on a timely basis
- Failure to provide appropriate legal advice which caused the client damage – this represents about 25% of the claims
The top two alleged errors in business transaction claims, according to the study, are inadequate representation and conflict of interest.
MGU Caitlin Morgan provides professional liability insurance for a wide range of professionals, including lawyers, physicians and any other type of professional practice. Our reliable professionals will ensure all of your client’s specific needs have been addressed. Give us a call at 877.226.1027.