The practice of business transactions presents greater professional liability risk for attorneys than many other areas of practice, a new analysis revealed.
A new study based on claims from CNA’s Lawyers Professional Liability Program, “Investigating the Hidden Risks of Business Transactions Practice,” reports that many solo practitioners and small law firms perceive business transactions as a “safe” area of practice. However, the study indicates that lawyers who report that business transactions represent only 5 percent or less of their annual revenues account for the majority of claims in this area. The study also reveals a significant correlation between an attorney’s level of experience in this practice area in relation to the frequency and related severity of such claims.
The Risk Control unit of CNA insurance companies recently released the study, which looks at lawyers and the practice of business transactions, a diverse area that often involves drafting and negotiating agreements and contracts.
Developed by CNA Risk Control professionals – Gawain Charlton-Perrin, Theresa Garthwaite and Joe Wolfe – the study is based upon an analysis of approximately 1,000 closed claims, originating from business transactions from CNA’s Lawyers Professional Liability Program.
Additional findings include:
- The leading cause of business transactions claims – the improper preparation, filing and/or transmittal of documents – accounts for more than one-third of claim volume. Failure to provide appropriate legal advice, the second leading cause, represents approximately one-fourth of these claims.
- The cost to defend a business transaction claim is more than twice the cost of claims resulting from other areas of practice.
- Attorneys who dedicate more than 25 percent of their practice to business transactions are less likely to have a claim asserted against them. However, those claim losses are on average significantly more expensive than those brought against attorneys who only dedicate 5 percent or less of their practice to this area of law.
The study concludes by offering a number of risk control strategies – such as representing only one party in a business transaction – for managing risks related to business transactions.
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