DWF Legal Insights – Trends in claims against Solicitors 2019-20

Leading legal services group DWF have released an excellent review of the trends in professional indemnity claims against the legal profession….

Introduction

There has been a reduction in volume of claims against solicitors in the last 5-7 years following the swathe of lender claims which were made arising out of the last financial crisis. Whilst the volume is reduced, however, the number of types of claims which solicitors firms face are widening. We have considered, from our own experience, the types of claims which might arise in the coming 12 months and how those might impact on solicitors and their Insurers.

Cyber attacks and data breaches

Solicitors, as with other businesses, hold high levels of personal and private data for their clients. Depending on the size of the firm and the profile of work being carried out, this might involve investment information and business data, but at the very basic level this will include high levels of personal data. As such, solicitors firms, as with any other business of that nature and particularly professional firms, are susceptible to cyber attacks and data breaches. This is the case whether those breaches are malicious or accidental.

The background to all of this is the increasing reliance on technology together with the criminal fraternity becoming more sophisticated in the types of crimes it commits.

The losses associated with cyber attacks are immediate and can give rise to a number of different types of claim. This might involve significant periods of business interruption and thefts from solicitors firms. These, of course, are first party claims and therefore are very rarely or not at all covered under a professional indemnity insurance policy. Solicitors therefore need increasingly to look at the protection offered by a stand-alone cyber policy which may deal with matters such as incident response, business interruption, data and system recovery and cyber extortion.

As incidents such as Morrisons have highlighted, attacks from disgruntled employees are always a threat, particularly those with access to the systems. This might also give rise to privacy and liability protection and incident response costs. The issue of vicarious liability for employees is very much an issue in the current climate and the current case law treats this as a strict liability offence.

Linked to this is the risk of fraudsters approaching solicitors as vendors in residential property transactions and then making off with the monies on completion of the sale. This gives rise to incidences of solicitors on both sides of the transaction being exposed to claims for breach of trust and negligence. There are also incidents on the rise of cyber breaches involving hackers emailing or contacting solicitors in the name of clients of that firm with the effect that client funds are sent to the criminals. Recent research shows that the SRA were made aware of approximately £11 million worth of client money having been stolen in the period 2016-17 due to cyber crime.

There is therefore an increased need for solicitors firms to carry out basic risk management and provide good financial management processes with checks and balances in place to allow several hurdles to be overcome before client money is released.

Wills, trusts and probate

We are seeing more and more claims arising out of alleged negligence involving Wills, trusts and probate. As society becomes increasingly polarised, the potential for an increase in the value of claims of this nature increases. We have also seen an increase in the volume of these types of claims. There are a number of potential reasons for this increase, including increased life expectancy, multiple marriages and larger families. Added to this is the UK tax system which is becoming increasingly complex and with ever-changing regulation in this regard, together with rich individuals having assets in multiple jurisdictions which require different treatment for tax purposes.

All of these factors mean that it is difficult for lawyers to advise when working in the area of Wills, trusts and tax planning.

Issues of mental capacity are also very much at play here, people are living longer and therefore this adds to the trend.

One of the problems with disputes of this nature is the fact that they generally involve family members and can become very emotive. For this reason, the costs of dealing with claims of this type are invariably very high, particularly in the context of the sums which are in dispute.

Family and matrimonial claims

We are seeing increasing numbers of claims in this area. One of the main types of claim arising from this area of law is the valuation of pensions and delving into increasingly complex financial arrangements. It therefore makes advice to a client as to what he or she can expect from a divorce settlement far from clear. It is certainly the case that the cost of carrying out the work with no stone being left unturned is out of the scope of affordability for many clients and this means that the solicitors have to work very hard in order to caveat their advice accordingly and make it clear that any settlement is based on the information available at the time, rather than all of the information being available to them. The types of claims which we see increasing include failure properly to identify assets held by parties to a marriage, advice on disclosure, costs management, errors relating to pension sharing orders (with one ATE provider advertising in magazines such as Woman's Own) and, perhaps most common of all, claims arising from under or over-settlement in matrimonial cases.

In circumstances where a claim is made against a matrimonial solicitor, it is important to separate the underlying matrimonial claim from the professional negligence action. A number of solicitor clients do not appreciate the difference between the two. A negligence claim does not simply re-litigate the underlying matrimonial case. It does not help that claims of this nature are highly emotional and this makes settlement of such claims and the valuation of them difficult.

SDLT claims

We are seeing an increasing number of claims made against firms of solicitors for advising on stamp duty land tax avoidance schemes and also relating to commercial property lawyers advising on the appropriate rate of SDLT payable on purchases of property or advising wrongly as to which reliefs apply to various transactions. We consider that these types of claims will increase, particularly in circumstances where the commercial property market continues to grow.

Ground rent claims

We anticipate that the growth in claims against solicitors for rising ground rents on new build developments will continue to rise, as they have done over the last two years. Claimant firms have maintained their aggressive marketing campaign to attract claimants who have been affected by solicitors failing to advise on ground rents which increase significantly after a certain amount of time. Some banks and building societies have refused to lend against properties which might be affected and, as political and economic uncertainty grows, so too might the number of claims in this area.

Property Fraud

We are still seeing claims of this nature in the aftermath of the Dreamvar decision. This can take the form of claims against the vendors' solicitors if their client was a fraudster or the purchasers' solicitors if it was the Vendor firm which was fraudulent and or a sole practitioner who condoned dishonesty. There are very big potential losses in claims of this nature unless and/ or until the section 61 point is resolved.

Litigants in person

This is a trend which has been growing for a few years, certainly since court fees were increased but we are seeing more and more litigants in person. This comes about either because litigants do not have the money to pay for solicitors (which might increase if economic uncertainty continues) or because they have approached solicitors who are unwilling to run the arguments. These types of claims are inevitably expensive, even in circumstances where the claims have no merit and are ultimately struck out as the time required to deal with litigants in person tends to be more than when dealing with a claimant solicitor.

Insolvent law firms

Unfortunately, recent years have taken their toll on many law firms as a result of the economy, changes to the regulatory regime and competition have brought about claims. These arise from the fact that some firms are under-staffed, work, (particularly in smaller firms) is carried out for which the solicitor is not qualified, and this means claims are made. It is clear that in straitened times, law firms look at risk management as being a low priority.

Read more articles on the DWF website www.dwf.law