Bar News - May 18, 2012
Seven Steps to Better Risk Management for Law Firms
Avoiding a legal malpractice claim is a matter of risk management and of practice management. Attorneys in private practice have a 4 percent to 17 percent chance of being sued each year, depending on their areas of practice, according to a recent ABA study.
Risk management is the process of evaluating the inherent risks of a law practice and taking steps to ensure those risks are mitigated and, when they cannot be mitigated, transferring or otherwise financing those risks through professional liability insurance.
Professional liability insurance will only cover the direct cost of a malpractice suit. There are a number of uninsured costs associated with a claim such as the policy deductible, lost time and productivity, the increased cost of purchasing coverage going forward, and injury to the firm’s reputation.
Avoiding Malpractice Claims – a 7-Step Plan
Step 1 – During client intake – ask yourself the following questions:
- Do I have the expertise to handle this matter?
- Do I have the capacity to handle this matter?
- Are there any potential conflicts of interest?
- Is this a desirable client?
Step 2 – Always, always use engagement/disengagement/non-engagement letters.
- Required for all new clients
- Notice letters required for all new matters for existing clients
- Standardized language, customized for each new client
- Sent by certified/registered mail.
- Used in all matters when declining representation.
- Required in all matters at conclusion of representation
- Sent by certified/registered mail
- Includes discussion of firm’s file and document retention and destruction policies
(In the For Members area of www.nhbar.org, visit Law Practice Management Tools (login required) and click on Client Relations Manual to access model letters and other resources.)
Step 3 – Be very careful about actual or potential conflicts of interest.
- Policies typically do not permit attorneys to have commercial relationships with clients of the firm.
- If acting as counsel to the underwriter of an IPO, do not invest in the original IPO allotment.
- If acting as counsel in any form of corporate or asset acquisition, do not accept any "finder’s fees."
- If acting as counsel in any public offering of securities, do not accept stock in lieu of cash fees.
Step 4 – When representing multiple parties, exercise extreme caution.
- Avoid joint representation if there is any possibility that a conflict may arise.
- Disclose your representation to both parties and seek written permission from both before accepting the engagement.
- Fully disclose the lack of confidentiality between parties on matters of joint representation.
- Advise each client to seek independent counsel on the issue of joint representation.
Step 5 – Use a system to keep track of cases and calendars.
Use one of the many computer-based, automated docket and calendaring systems that are available. Your system should track statute-of-limitations deadlines, be updated daily, and be backed up with the data stored off site.
Step 6 – Don’t confuse board service with pro bono representation.
- Do not serve as an outside director or officer without proof that the entity has Directors & Officers liability insurance.
- Do not provide legal services to the entity.
Step 7 – Concentrate on best practices in billing and collections; don’t sue to collect legal fees.
- Suits for legal fees should be avoided at all costs as many draw countersuits alleging malpractice.
- Minimize the chance of unpaid fees by employing consistent billing and collection practices.
- Clearly explain fee agreements at the outset of the engagement. Include an estimate of the total fee, an explanation of additional costs and the firm’s right to withdraw for nonpayment.
- Bill frequently and set payment deadlines in order to minimize large outstanding fees.
While these risk management steps won’t avoid all allegations of malpractice, they can minimize your chances of being sued. Specific checklists are available for various transactions and should be referred to when needed.
This information was gleaned from a variety of sources and supplemented by the insights of Andrew Dunn, of Devine Millimet & Branch and a member of the NHBA Insurance Agency board. For personal assistance with securing insurance coverage – professional liability, general liability, and other coverages for your business or personal needs, contact Sue Morand of the NHBA Insurance Agency at 866-642-2292 or via email at firstname.lastname@example.org.