15 January 2025

The introduction of ChatGPT in November 2022 has taken the everyday use of artificial intelligence (AI) to a new level and with new technology comes new professional indemnity risks – just ask law firm Levidow, Levidow & Oberman, who have made the news for all of the wrong reasons. In an unprecedented and highly publicised case, US attorneys, Steven Schwartz and Peter LoDuca and their firm were asked by US District Court Judge to show cause why they should not be sanctioned for their reliance on six cases generated by ‘research’ undertaken by ChatGPT. The cases simply did not exist.

Alarmingly LoDuca also signed an affidavit deposing to the authenticity of the case authority, relying on Schwartz’s research via ChatGPT.

One of the (now) well known risks of using ChatGPT is that it ‘hallucinates’; that is, it makes up facts and sources.

According to the attorneys, they did not consider the possibility that an AI tool like ChatGPT could provide false information. The convincing information from ChatGPT included purported excerpts from fictitious cases. The law firm sought to verify the existence of the cases – from ChatGPT itself – which is a little like asking a known fraudster whether the company funds are safe with them.

The US example is startling in a profession which is traditionally risk averse. However, it is really a new example of an age-old PI risk. You should not rely on case law authority and submissions produced by junior lawyers without checking the source material, so why would you rely on authority produced by a Chat bot before providing advice to clients or relying on the cases in Court?

False information is not the only risk of emerging AI technology, with the data regulator in Italy banning ChatGPT due to privacy concerns.

Until the limitations and risks of AI are properly understood, law firms are well advised to avoid reliance on AI technology in providing legal advice and other legal services. Not only may lawyers face negligence claims and disciplinary action but the worldwide infamy of the Levidow case has shown the massive damage a firm’s reputation can sustain.

For more information on the risks of AI in the legal profession, please attend the presentation by Justine Siavelis as part of the Risk Management Training Programme 2023/24 at Law Mutual (WA). (Booking details available soon.)

In the year 2022/23, a total of 280 law practices received the 5% Risk Management Discount (RMD), ranging from a few hundred dollars to several thousand dollars. 

To be eligible for the RMD in 2023/24, the following criteria must be met:

1. 80% of lawyers within a law practice must attend at least two hours of Law Mutual (WA) approved risk management training between 1 March 2023 and 28 February 2024; and

2. 100% of partners and directors within a law practice must attend at least two hours of Law Mutual (WA) approved risk management training between 1 March 2023 and 28 February 2024.

Refer to Clause 33 to Clause 36 of the Annual Information Booklet (AIB) 2024 for more information on the RMD. The AIB can also be accessed on Law Mutual’s website here.

Insureds are reminded that they should notify Law Mutual of facts that might give rise to a claim, even if they think that a claim would be unreasonable, baseless, or ultimately likely to fail. That is because every possible claim needs to be recognised, whether it is a valid claim or not. This will allow the Insured and Law Mutual to be prepared in the event the claim materialise in the future. 

The pertinent question to ask yourself when deciding whether to notify is, “Might a claim be made at some point because of what has occurred?”

There is no penalty in notifying facts that might give rise to a claim. This should be done as soon as reasonably practicable.

The training programme will be available on the Law Society's website (on the Law Mutual page) in August 2023. This year’s topics range from typical risk management issues to the latest technological risks and targets juniors to partners. We have experienced presenters with established track-record in the legal profession to present the risk management programme. 

We look forward to seeing you during the seminars and webinars.

If you have any questions or would like to speak to a team member, please call (08) 94813111 or email info@lawmutualwa.com.au.