Risk Management Archives - Page 5 of 6 - Lawyers Insurance Alliance

Unfortunately, there is no simple way to predict if your client will sue you for malpractice. In order to prepare for the likelihood of malpractice claims, it is necessary to actively engage in risk management. Risk management involves the use of a comprehensive risk management policy.

New Clients

Risk management begins as soon as a person becomes a potential client. Every lawyer approached by a potential client must first ascertain if they have the necessary expertise for the matter. An eager lawyer may be tempted to take on every client, expecting to learn the area of law. This is dangerous behavior in most cases.

Having identified the matter as one in which you have expertise, the attorney must then assess available resources. If the attorney’s calendar is full or if the matter will take too much time, it is best to not take on the client. By taking on the client when you are too busy, you would expose yourself to double the risk, from the client you are short-changing to take on the new matter and from the new client.

Check for Conflicts

Lawyers must have stringent conflict checks. This is not only a risk management consideration, but also a major factor in ethics rules. Conflicts checking involves not only knowing and applying ethics rules, but also setting up a formal system. Ideally, a computerized system should be used to maintain client and matter lists. There are various off-the-shelf software programs that are appropriate for conflicts checks. While the expense may seem needless in the outset of your practice, in this area it is far better to be overly-cautious.

Engagement Letter

In addition, as clients are often emotional and full of expectations, a law firm should use both dis-engagement and non-engagement letters. It is very important that the client know and understand when you refuse or conclude service.

Insurance Policies

While every lawyer in the firm should read the policy and be familiar with its general provisions, one person should be tasked with maintaining it. This person should know the policy extremely well and he or she should handle all purchase decisions. This person should be the main point of contact with the insurance company. It might be advisable for this person to receive additional training in identifying risks and advising on a recommended course of action.

Many professionals are bound by a code of professional conduct. Sure, we have to play by the rules but those rules may require that we ensure others do as well. In a recent opinion, the Supreme Court of Ohio Board of Professional Conduct considered the circumstances in which an attorney is required to report rule violations by others. The Board addresses two specific questions in its opinion: (a) whether a lawyer prosecuting a malpractice case is obligated to report the defendant lawyer to the disciplinary authority and (b) whether the information acquired form the client regarding their prior lawyer’s conduct is privileged, thereby eliminating any duty to report.

The board noted that a lawyer is only obligated to report misconduct when the knowledge is unprivileged and it raises a question as to another lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects. The board added that in order to invoke the reporting requirement, the attorney must have actual knowledge that another lawyer has violated a rule of professional conduct. However, a lawyer is not required to report misconduct where it would involve disclosure of privileged information, and may be prohibited from revealing confidential information related to the representation, including information protected by the attorney-client privilege without client consent.

Based on these standards, the board concluded that a lawyer who represents a client against the client’s prior lawyer has an ethical obligation under the rules of professional conduct to report the prior lawyer’s misconduct to the appropriate disciplinary authority if the knowledge is unprivileged and relates to honesty, trustworthiness, or fitness. If a lawyer determines that he has a duty to report unprivileged knowledge of another lawyer’s misconduct, failure to report is itself a violation of the rules of professional conduct.

Professionals are expected to uphold a standard of ethical conduct both for themselves and others in their profession. This expectation imposes an affirmative duty on professionals to report certain ethical violations by others. Professionals who knowingly disregard another’s misconduct could expose themselves to liability through their own inaction.

Attorneys depend on third-party email services to operate their business. As a result, they may assume vendors are safeguarding their electronic information and therefore the professional is not exposed. False. Consider an attorney sued recently for malpractice arising from an e-mail hacking scam.

A New York real estate attorney‘s e-mail account was hacked recently. The attorney was hired to represent wealthy clients in the purchase of a multi-million dollar condo. When the hackers gained access to the attorney’s email account, they identified the attorney’s clients as targets for a wire fraud scam. The hackers e-mailed the attorney posing as attorneys for the sellers of the condominium. The attorney forwarded these emails to her clients, who were tricked into wiring nearly $2 million to the hackers.

The clients learned they were defrauded the following day from their bank, but by that time it was too late to recover the funds. The clients later filed suit against the attorney for malpractice, alleging that she failed to take basic steps to secure her computer and to protect the clients from wire fraud. The clients alleged that the email service used by the attorney was notoriously vulnerable to hacking, but the attorney nevertheless relied on the email for sensitive communications involving the clients’ purchase of the multi-million dollar condominium. The clients further alleged that the poor security practices allowed the hackers to impersonate the seller’s attorney, which enabled them to persuade the clients to wire the funds.

Professionals must remain vigilant of cyber security threats. Simply relying on third-party platforms for email and other electronic communication may not relieve a professional of her duty to keep client information safe. If the professional ignores red flags, or fails to take basic safety precautions, she may be held liable if a client becomes the victim of a scam.

If you’re a good lawyer, you won’t get sued for malpractice, right? This belief may be comforting, but it’s a myth. Good (and bad) lawyers get sued. There is no simple way to predict if your client will sue you for malpractice. In order to prepare for the likelihood of malpractice claims, it is necessary to actively engage in risk management.

“Hiring” Clients

Every lawyer approached by a potential client must first ascertain if they have the necessary expertise for the matter. An eager lawyer may be tempted to take on every client, expecting to learn the area of law. This is dangerous behavior in most cases. While it is acceptable for a family lawyer to take on a trust and estates matter that is new to them, it would be foolish to take on a securities matter. Every attorney must identify areas of expertise and interest and “hire” clients in these areas.

Assuming the matter is within your area of expertise and you have the time to take on the client, you must engage in formal checking for potential conflicts of interest. Lawyers must have stringent conflict checks. This is not only a risk management consideration, but also a major factor in ethics rules. Conflicts checking involves not only knowing and applying ethics rules, but also setting up a formal system. Ideally, a computerized system should be used to maintain client and matter lists. Even if the lawyer is a solo practitioner, it is important to set up these systems, not only in anticipation of future growth, but also in realization that your memory will fail you in this crucial area of risk management.

Once a person has passed the conflicts check and you are ready to take them on as a client, the engagement letter and/or fee agreement may also serve as a risk management tool. In addition to clearly setting out the terms of service, the agreement can potentially include fee arbitration and mediation clauses. It is very important to check with your state bar to determine whether these clauses are permissible and the limits on the use of each clause. However, if permitted, lawyers should use these clauses to manage risk. In addition, as clients are often emotional and full of expectations, a law firm should use both dis-engagement and non-engagement letters. It is very important that the client know and understand when you refuse or conclude service.

Handling Cases

Studies consistently show that missed deadlines are a major cause of malpractice claims. Considering the ready availability of electronic tools, caseload management is much easier today. Research the automated docket and calendaring systems available and invest in one that will grow with your practice. In using the system, one person should have specialized knowledge of the available tools.

Insurance Policies

Finances

Every jurisdiction has clear rules regarding the handling of client finances. The mishandling of client finances is one of the primary causes of malpractice claims. Learn the rules, but make sure you have someone who has specific expertise in this matter. Often, different types of cases allow for different types of financial handling.

Attorneys are often approached by friends and family for advice. At times, the particular issue might not fall squarely within their area of expertise or may involve a matter outside of the jurisdiction in which they are licensed to practice.

In a recent decision, the Minnesota Supreme Court took a Colorado attorney to task for the unauthorized practice of law. The attorney was licensed to practice law in Colorado where he maintained an environmental and personal injury practice. The attorney’s practice also included debt collection, which he had done for several years.

The attorney was approached by his in-laws for assistance regarding a $2,368 judgment entered against them in Minnesota in favor of their condominium association. The in-laws explained to the Colorado attorney that they had been harassed by an attorney for the condominium association, who was attempting to collect the debt.

The Colorado attorney sent an email to the association’s attorney in Minnesota informing the attorney that he would be representing the in-laws and to direct all future correspondence to him. Thereafter, the attorneys exchanged approximately two dozen emails. The Colorado attorney assumed that he was not required to hire local counsel if he could settle the matter without filing a lawsuit. The association’s attorney, however, asserted that the Colorado attorney’s emails constituted the unauthorized practice of law and filed an ethics complaint.

In addressing the ethics issue, the Minnesota Supreme Court noted that out-of-state attorneys may provide legal advice only on a temporary basis if the matter arises in a state in which the attorney is authorized to practice and the attorney reasonably expects to be admitted to practice in the particular proceeding as pro hac vice counsel. The Court concluded that the attorney’s representation of his in-laws did not relate to his practice in Colorado and did not involve a body of uniform law, and that he was therefore engaged in the unauthorized practice of law. Accordingly, the attorney was issued a reprimand.

Professionals must be cautious that in their attempt to help close friends and family, they do not unwittingly violate rules of professional conduct. Even having a small role in handling simple matters out of state could be deemed the unauthorized practice of law, and lead to liability for counsel and jeopardize the client’s interests.

Over the past few years law firms have seen a dramatic rise in employee lawsuits against their firm for claims like harassment, age discrimination, failure to promote, unlawful termination, and racial discrimination.

In fact, according to the EEOC, almost 100,000 discrimination claims were filed by employees last year.

Before a claimant can press a discrimination claim in federal court, they need to bring an action before the EEOC. But even if the claims wind up being ruled unfounded, EPL cases can be a drain on time and monetary resources for a small or mid-sized law firms. The average tally for a discrimination case exceeded $235,000, according to the EEOC.

What can a law firm do to protect itself against EPL lawsuits? The following guide will show how businesses can take out special insurance, called EPL insurance, to protect against employee claims, the types of claims covered under EPL insurance, and other steps legal experts recommend businesses take to protect against EPL claims.

What Is EPL Insurance?

EPL insurance policies protect businesses from the financial costs incurred from employment-related lawsuits filed for a range of reasons, from wrongful termination to harassment to discrimination and so on. While every EPL policy is different, a company with $1 million in sales and 50 employees can likely get a policy for about $7,000 per year.

Leading Causes of EPL Claims

The leading charge filed in discrimination cases is an allegation of racial discrimination, at 36 percent of cases, according to EEOC figures. Gender-based discrimination was alleged in 30 percent of cases. Age-based claims made up 24 percent, and allegations from the disabled tallied 23 percent. In many cases, multiple allegations are made. One of the growing charges, according to the EEOC, is retaliation against employees for making discrimination claims, which can involve a job switch that the employee views as a demotion related to the initial claim.

Protections Against EPL Lawsuits

In general, the more protections a small business puts in place against EPL claims and the better internal policies and procedures that are implemented, the lower the business’s premiums will be for EPL coverage and the more likely the business will be considered a candidate for coverage. It’s essential that businesses have a written employee handbook with strong anti-harassment and anti-discrimination policies, but other efforts can also pay off.

The following steps are important for businesses to take in order to protect themselves against EPL claims.

Distribute an employee handbook. Generally speaking, it’s not as important how long or detailed it is as what topics are in there. The handbook should contain the business’s equal employment opportunity policy. It should also provide employees with an internal mechanism to complain about discrimination or harassment ‘so maybe you can head off a lawsuit at the pass.. If the employee doesn’t use that procedure, your business may be able to use that as part of its defense, saying that the employee didn’t exhaust internal channels for seeking resolution to the problem.
Develop a code of ethics policy. This policy tells employees that they shouldn’t do certain things, like giving kickbacks and engaging in other ethical violations. This reduces the employer’s exposure to punitive damages, which may not be covered by EPL insurance policies anyway, if the business is sued over the actions of an employee.
Include an anti-retaliation provision. In light of the new rise in claims of retaliation, it is recommended that you include a statement saying that it’s the policy of the business not to retaliate against employees over accusations of discrimination or harassment.
Institute handbook auditing procedures. Having an audit procedure in place under which the handbook is periodically updated to keep up with changes in the law is also important and can help in the defense of a business.

Missed deadlines and time management-related errors are the second biggest cause of malpractice claims at all sizes of firms. Over the last decade, they have represented over 17 percent of all malpractice claims.

The most common time-related error is a failure to know or ascertain a deadline – missing a limitation period because you didn’t know it. The good news is that this specific error has declined by almost 50 percent over the last ten years. The bad news is that the other time and deadline-related errors are holding stable or increasing slightly.

While in the longer term we expect that the new Limitations Act will result in fewer limitations period claims, at this stage it does not appear to have had any impact. Indeed, over the last year it may have resulted in more claims due to confusion over transition provisions.

A failure to calendar is the second most common time-related error (a limitation period was known, but it was not properly entered in a calendar or tickler system). The fourth most common time-related error is the failure to react to calendar error. In this case the limitation period was known and entered into a tickler system, but was missed due to a failure to use or respond to the tickler reminder.

Lawyers at firms of all sizes seem to have a dusty file or two that sits on the corner of their desks for far too long, and this makes procrastination-related errors the third most common time related error. By count and costs, procrastination-related errors are on an upwards trend.

These deadline and time management errors are easily preventable with better time management skills and the proper use of tickler systems. Practice management software programs such as Amicus Attorney and Time Matters are excellent tools for helping lawyers manage deadlines and tasks, and for helping them better manage client communications and relationships.

A recent trend within the legal industry is the “settle and sue” lawsuit. A plaintiff in this type of legal-malpractice action is unhappy with settling a prior lawsuit even after the plaintiff voluntarily agreed to settle the case. In classic buyer’s remorse mode, disgruntled clients regret the decision to settle and focus their litigation crosshairs on their former attorney who advised the “negligent” settlement. In this case, the blame for that mistake is projected toward the former attorney.

An attorney may not be able to absolutely insulate himself or herself from a lawsuit raised by a former client post-settlement, but there are tips that one may follow to allow a more favorable opportunity to defend such a claim. Here are some suggestions:

Establish parameters early in the representation. Use an engagement letter to the client to underscore that your objectives are not necessarily to obtain the highest monetary settlement/verdict or to defend the case so that the least amount of money is paid. Rather, the goal of resolving the case is to reach a settlement that the client can understand and accept given the strengths and weaknesses of the case. In short, don’t promise the moon. Merely promise that you will provide the best recommendations you can.

Get client input. Communicate with your client regularly regarding what his or her expectations of the case are and document his or her potentially evolving impression of the case in writing. Clients change their attitudes and goals frequently. An attorney therefore would be prudent to elicit regular input from his or her client to ensure that there is no miscommunication about what constitutes a “fair” settlement.

Fully explain the release. Clients frequently will assert that they could not understand the legalese of litigation and that no one attempted to explain the legal intricacies. Avoid that issue by showing your client a copy of a standard release early in the process and invite a discussion about the ramifications of signing such a release (for example, it may mean there is no admission of liability and one party is releasing all other potential claims). Again, document that this consultation took place.

Describe the mediation process in writing. If a case mediates, ensure that the client understands what the mediation process entails. This will require putting in writing (a) the qualifications and justification for the selection of the mediator, (b) the strengths and weaknesses of the case, (c) the possible settlement range and verdict range of the case, and (d) an acknowledgment that settlement could bypass a better result at trial. Reiterate that the parties are not obligated to settle just because a mediation has been scheduled and will be paid for by the parties. Rather, the client must be told in writing that he or she should ask questions if he or she does not understand any part of the process, and should never feel forced to settle.

Alert the client to post-settlement responsibilities. The client must be made aware of how any potential liens will affect the collectability of settlement, the time frame for payment, and how the attorney fees may be paid from that settlement. The case is not over the moment an agreement to settle is reached, and the client must be kept apprised of what will be done to bring a final resolution to the case.

A purchaser stricken with buyer’s remorse is consumed by the type of regret evidenced by plaintiffs in “settle and sue” lawsuits. Most jurisdictions agree that settlement of an underlying action does not automatically bar malpractice claims. Regardless of a plaintiff’s motive, the defendant-attorney must understand the law of his or her jurisdiction regarding these type of cases and must take comprehensive steps during the underlying litigation to ensure that there are ample grounds to defend the claim if one arises. The execution of a settlement agreement is usually the final chapter of litigation. At other times, it serves as prologue for the “settle and sue” lawsuit.

It should come as no surprise that attorney/client communication errors are the leading cause of malpractice claims. In fact, over the last decade more than one-third of malpractice claims are caused by some sort of communication error.

There are three types of communication-related errors. The most common is a failure to follow the client’s instructions. Often these claims arise because the lawyer and client disagree on what was said or done – or not said or done. These claims tend to come down to credibility, and the case will typically come down to how well the attorney documented his or her file on the matter in question. Without significant notes or documentation, the chances for the attorney to win decrease significantly.

The second most common communications error is a failure to obtain the client’s consent or to inform the client. These claims involve the lawyer doing work or taking steps on a matter without client consent (e.g. seeking or agreeing to adjournment; making or accepting a settlement offer); or failing to advise the client of all implications or possible outcomes when decisions are made to follow a certain course of action (e.g. pleading guilty on DWI; exercising a shotgun clause).

Poor communications with a client is the third most common communications error. These claims often involve a failure to explain to the client information about administrative things such as the timing of steps on the matter, or fees and disbursements. This type of error also arises when there is confusion over whether the lawyer or client is responsible for doing something during or after the matter (e.g. sending lease renewal notice to landlord, renewal of a registration or filing).

On top of being the most common malpractice errors, communications-related claims are also among the easiest to prevent. You can significantly reduce your exposure to this type of claim by controlling client expectations from the very start of the matter, actively communicating with the client at all stages of the matter, creating a paper trail by carefully documenting instructions and advice, and confirming what work was done on a matter at each step along the way.

Bad clients can make you question your skills, destroy your reputation, and result in the worst money you have ever made. Learning how to spot and avoid them can be the best decision you ever make.

All Clients Are Created Equal, Right?

No.

Bad clients have an amazing way of sapping time and energy in ways you cannot bill for. Remember you cannot bill for stress. You cannot bill for screaming when you get off the phone. You cannot bill for not sleeping well. You cannot bill for spending an hour talking about why you already wrote off a third of your time and why your bill is reasonable.

Bad Clients Chase Away Good Ones

Bad clients can cause you to turn down good clients for two reasons:

Bad clients have an amazing way of sucking up more time than they should. That means you will probably turn down good clients because you are so busy dealing with your problem client.
The mental fatigue is greater than you realize. When you are in the middle of dealing with a bad client, it can make otherwise good clients seem like bad clients.

It Doesn’t Get Better

You are doing yourself a disservice if you tell yourself “it can only get better” or “it has to get better from here.” Sure, you can cross your fingers and hope they suddenly start responding to phone calls or emails, but that probably won’t be the case. Hopefully your retainer has a provision for these scenarios, and you should not be afraid to invoke it and terminate your representation.

Check the Warning Signs

Now that you understand all money is not created equal, you can sharpen your intake skills to avoid bad clients. Someone might call with what sounds like the greatest case in the world, but your intuition may make you question the case or the client. Instead of talking yourself into cases, trust your instincts and turn them away.

If you are not ready to live and die by your gut, here are some other warning signs that trouble could be brewing down the road:

Your client calls with a legal emergency, but then doesn’t return your call for days.
Your client doesn’t know who you are because they have called so many different attorneys.
He leaves a message without any specific details, other than he knows “it’s a great case” and you need to call back immediately.
She sends multiple emails with documents before ever talking to you.
Makes an appointment and then no-shows or reschedules repeatedly.
The client tries to bargain on your rate or explains why you are too expensive.
Explains they previously hired another attorney but want to give you a shot.
Tells one story over the phone and a completely different one in your office.

That is not an exhaustive list by any means. Those are just some of the red alerts that should warn you about potential issues looming. This is also the perfect opportunity to bounce the case off another attorney and get some feedback. But never try and convince yourself that any client is a good client. It’s not that simple.