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Controlling Claims Through a Comprehensive Loss Prevention Program

03.01.10  |  By Marian C. Rice

No attorney or firm is immune from a malpractice claim. The number of professional liability claims has dramatically increased over the last decade as the courts continue to expand the theories of liability under which an attorney may be held liable. Public perception of attorneys as a class is at an all time low with no end in sight. Despite the countless lawyer jokes and horror stories circulated, when the client needs help, it is the lawyer to whom he or she turns. Part of the problem may be that no one needs a lawyer when things are going fine. It is when times are tough, when a client feels aggrieved and cannot resolve a situation alone, that the intervention of an attorney becomes necessary. People are never at their best when they come to see an attorney and it is always the lawyer's job to make it better. Sometimes that just can't be done.

The only guaranteed method of avoiding the interposition of a claim is to stop practicing law. For most of us, this course is neither viable nor desirable. While there are circumstances under which an attorney may be sued, notwithstanding the quality of the representation afforded to the client, a number of common sense preventive measures exist which may be incorporated into one's practice that will decrease the potential for claims and, at the same time, increase productivity. Implementation of a malpractice prevention program may, with concerted effort, result in lower insurance costs, increased insurability and, as an important side benefit, minimize those sleepless nights.

The Beginning

The tenor of an attorney-client relationship is set from the first meeting, even before the actual retention. Do not feed the prospective client's unreasonable expectations or guarantee the outcome of the expected retention. If a proposed retention presents challenges from the beginning, clearly state the concerns, in writing if necessary. Use your common sense. Experience tells us that the client relationship difficult from the start will only deteriorate as time passes and expenses build. Look into the client's past relationships with attorneys; multiple short-term relationships with prior counsel are rarely a good sign.

The representation of relatives is rarely a mutually satisfactory relationship. In the event a problem does develop with a close relative, depending upon the language of the malpractice policy, coverage may be declined.

The Retention

Always reduce the terms of retention to writing, preferably acknowledged by the client. At a minimum, the letter or agreement should clearly state the scope and purpose of retention, including those areas outside the intended representation; the monetary terms of payment, including the frequency of payment; an estimated budget of the cost of the representation, subject to revision as the matter proceeds; the definition of the expenses for which the client will be responsible; the respective responsibilities of the attorney and the client; the frequency and means by which the client will be kept apprised of the status of the proceedings; the primary contact at the firm, making certain that the client is aware others may work on the case; and a realistic outline of the steps involved in the course of the representation, together with the time frame within which the client may expect to know the outcome of the retention. Be wary of clients that show inordinate concern over the amount of fees or, to the extreme, represent that money is no object. Similarly, the reason the client has chosen to pursue a legal remedy is significant: rarely is a person motivated by anger, revenge or other emotion satisfied with any outcome the judicial process may afford. While the client is always the customer whose needs must be directly addressed, a client who insists on managing the litigation from the outset should be avoided. By the same token, avoid clients unfamiliar with the legal process.

If a retention is accepted "subject to investigation," be certain to set time limits in writing by which time the decision will be made whether or not to proceed and take all necessary steps to secure the information required to make the decision within the parameters established. If desired, the retainer should spell out the steps the attorney is entitled to take in the event fees are not timely paid.

An attorney should not accept clients whose needs fall outside the firm's area of expertise or matters which require an expenditure of time disproportionate to the size of the firm. Instead, develop a network of attorneys whose expertise is respected and refer clients to the attorney best suited to the client's needs. There is no downside to a quality referral. The client will appreciate the concern demonstrated by the effort to find the attorney that specifically suits the client's needs. The attorney to whom the matter is referred will likely reciprocate. Furthermore, provided each attorney contributed to the legal work, and there is no claim that either refused to contribute substantially more, the courts will not inquire into the precise worth of the services rendered by each attorney. Care must be taken, however, to ensure that the fee arrangement is disclosed to the client; is not excessive; and does not otherwise violate the Code of Professional Responsibility.

A valuable tool, particularly with reference to personal injury litigation, is the use of a client intake sheet containing basic facts regarding the claim. As an alternative to having the client complete the form by hand, a copy may be sent to the client with the retention letter which incorporates the request that the client immediately provide any necessary corrections.

Client Communications

Having chosen to enter into the attorney-client relationship it becomes the attorney's task to nurture the relationship. Nationwide statistics show that over 16% of all malpractice claims are caused by a breakdown in the relationship with the client. Open communication is pivotal to a mutually satisfactory attorney-client relationship. As a regular practice, all telephone calls from the client or the adversary should be returned as soon as possible and, in any event, within one day. If it is impossible to call, have a staff member return the call and explain the problem. With the advent of voice-mail, it is important to record incoming calls in a log in order to ensure that calls do not get missed. The client's file should contain written memoranda of the content of all substantive telephone communications.

It is rare that a problem with a client comes as a complete shock to the attorney. If tensions develop, take a step back and do what has to be done to defuse the situation before a real problem develops.

Keeping a client advised of events as they occur will minimize the potential for misunderstandings. Frequent and explicit written communications should be forwarded to the client updating the status of the representation and providing copies of all pleadings, significant correspondence and motions. Periodic meetings should be scheduled with the client timed to occur at various stages of the litigation or to review major developments. All important strategy decisions must be discussed with the client in advance and the impact of the decisions made as a result of these discussions should be confirmed in writing. Medical professionals are not the only targets of "informed consent" claims.

If the client opts to take a course other than recommended by the attorney, the decision should be confirmed in writing and, if possible, the client should acknowledge that the decision is against the professional's advice. While this advice may seem harsh, if the attorney's instinct is that the client's choice of action is counter-productive or unsupported by the facts or law, and an acceptable compromise cannot be worked out, the relationship should be terminated. With the enactment of Part 130 of the Uniform Rules for Trial Court, more is at stake than the loss of a client. There is no need to terminate the relationship in anger; explain the fundamental problem and offer to assist new counsel in getting up to speed. Above all, treat the client with respect.

Billing the Client

If suit is commenced to collect legal fees, it must be understood that the firm will be the target of a malpractice counterclaim. The statistical risk of a legal malpractice action in response to a suit for attorney fees is over 25%. Never commence an action for fees for the sake of principle. If your practice permits, any decision to sue a client for fees should be made by a partner not involved in the underlying litigation. In addition to the fact that the ABA Model Rules of Professional Conduct require that an attorney's fee "shall be reasonable," rarely is the amount of fees owed worth the cost of litigation, the likelihood of a malpractice counterclaim or the cost of collecting a potentially valueless judgment. To avoid the situation, be diligent in the firm's billing practices and never let a client fall too far behind in payments. Whenever possible, require the client to deposit an initial retainer to be replenished at stated intervals or various stages of the representation.

Be explicit in the billing entries describing, in layman's terms, the work performed, the identity of the attorney and the time expended. Invoices should be submitted to the client at frequent intervals so that the client always has an approximate idea of the charges incurred. If you communicate properly with the client, the amount of the legal fees should never be a shock or surprise.

The Rejection

In the event it is determined that proposed retention will not be accepted, be certain to explicitly decline the representation in writing. The declination letter should be sent both by certified mail and regular mail and must explain that no attorney-client relationship has been created. A brief statement as to the reason the representation is being declined may be included if appropriate. The better practice is, however, not to address the merits of the proposed retention.

The concept of the statute of limitations, the manner in which the limitations period applies and the import of ignoring the date should be explained in terms familiar to the layperson. The imminent need to seek a further opinion if the proposed client intends to pursue the matter should be conveyed in clear, unambiguous terms. One of the biggest mistakes made is to hold on to potential representations until just before the expiration of the statute of limitations. The reasonableness of an attorney's conduct in rejecting a case just prior to the expiration date may form the basis for a claim.

The proposed client should always be advised that attorneys differ in their opinions and that the client is entitled to obtain a second opinion. Records of the identity of non-clients and the specific matters where engagements are declined must be recorded in the firm's conflict program.

Office Systems

A statistical analysis performed by the American Bar Association concluded that 25% of all claims resulted from administrative errors with missed deadlines comprising 21% of the total figure. Properly utilized, computer programs and procedures may reduce the errors arising from the two largest areas of administrative errors: calendar controls and conflicts of interest. Regardless of how important a role computers play in improving accuracy and efficiency in the law firm, any system is only as good as the effort put into it. Every attorney should learn how to operate, and be proficient in, every piece of equipment in the office.

The importance of good calendar control practices cannot be overemphasized. An attorney should maintain his or her personal diary in order to avoid scheduling conflicts, to keep track of important events and to ensure as even a work flow as possible. The personal calendar should be backed up by a diary maintained by the secretary or paralegal working with the attorney. In addition, a centralized firm calendar should be maintained with strict written guidelines as to how the system will be maintained and the types of events that will be recorded. The centralized calendar should also include a tickler system reminding attorneys of upcoming dates, periodic reporting requirements and the like. It is important that the individual maintaining the tickler system not be the attorney to whom the reminder is addressed. A system should be developed so that entries in the central calendar are carried forward until the task is completed or adjourned. Regular checks must be maintained to ensure that all attorneys are timely complying with outstanding tasks and reminders.

The Disciplinary Rules of the Code of Professional Responsibility require all law firms to maintain a conflicts check system and to have a policy by which the law firm regularly implements the system to screen for conflicts. The rule creates what amounts to a per se violation of the disciplinary rules and provides a basis upon which attorneys and law firms may be found to have engaged in misconduct without the necessity of demonstrating intent. It is sufficient to show that the firm failed to keep contemporaneous records of engagements by clients and did not maintain a policy for checking past relationships with clients before new retentions are undertaken.

From the moment an attorney begins to practice, a database and back-up rolodex of all clients and those related to each representation, including non-clients, must be maintained. As lateral hires are brought into the firm, care must be taken to incorporate the new attorneys' prior representations into the firm's system.

Absent consent, an attorney may not represent a new client in a substantially related matter in which the proposed client's interests are materially adverse to the interests of the former client. Violation of this principle will form the basis of liability, possibly even in the absence of damages directly flowing from the claimed conflict. In order to avoid potential conflicts, a series of inquiries should be raised with respect to each proposed representation. In the first instance, it must be determined whether an attorney-client relationship existed with the person or entity who might seek the disqualification. One must also consider whether the interests of the former and new client are adverse, i.e., whether the current client's representation would be to the detriment of the former client. There should be inquiry into whether a substantial relationship exists between the two representations. Finally, where a question exists, and the former client has not consented to or waived objections to the proposed new representation, the engagement must be rejected.

The End

The representation of a client can terminate under any number of given circumstances. A firm should get into the practice of utilizing termination letters at the conclusion of all representations. In addition to potential use of the letter as a marketing tool for future representations, since the statute of limitations for professional liability occurs at the time of the negligent act or the termination of representation, whichever is later, the letter may also serve as a concrete start date for the purposes of calculating the limitations period.

At a minimum, the letter should confirm that the representation has been terminated and summarize the circumstances of the termination if the representation was not at a natural ending point. If a new attorney is to be substituted, the extent to which the firm will consult with successor counsel and provide access to work product not yet paid for should be addressed. The status of the matter should be reviewed together with an outline of important deadlines and uncompleted activities which need attention. If a substitution occurs, never turn over the file without maintaining a complete copy of the file including all notes.

Continuing Legal Education

Attorneys licensed to practice law in the State of New York are now required to attend continuing legal education. Statistics demonstrate that 9.4% of all claims result from the failure to know the law with 6.8% caused by missed deadlines. By encouraging attorneys within your practice to participate in continuing education courses, you not only increase the level of expertise of the firm but also decrease the incidence of claims caused by the failure to stay abreast of the current law in a given field.

The Safety Net

No attorney is comfortable with the concept that a claim has been asserted. While the best way to protect against claims is to exercise diligence in one's practice, in today's climate insurance is a must for all practicing attorneys. When purchasing a policy of insurance, be a consumer and review the policies in question to determine the best type of coverage for your practice. Choose policy limits that will protect the firm and its members and a deductible that the firm is comfortable paying in the event of a claim.

Be A Good Client

Despite the best efforts of an attorney, at times a claim may be inevitable. A question often arises as to when the obligation to report a claim is triggered. Most policies require an insured to give written notice to the carrier as soon as the insured is aware of an incident which could reasonably expected to be the basis of a claim. The fact that the client has not yet stated that a claim will be interposed is not determinative. Since the failure to notify the carrier of a potential claim may vitiate coverage, one should err on the side of caution. If a question is raised within the firm as to whether an event should be reported, report the claim at that time. Under most circumstances, an attorney should not attempt to cure a potential claim without the consent of both the client and the professional liability carrier. To do so may constitute a violation of the Disciplinary Rules and, in addition, may provide a basis upon which the carrier may disclaim coverage.

Once defense counsel is assigned to you, provide your attorney with all of the information relevant to the underlying representation, not just that information you deem relevant to the claim asserted. Often you are the expert in the area of law in which the claim is interposed and your input is invaluable. As a result, you should remain involved with your claim but refrain from becoming obsessed with it. Unfortunately, you have now become the client. Use the experience to develop a greater insight into the client's point of view and to avoid potential problems in the future.

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