Legal Malpractice Insurance

(excerpt from Small Firm Business article)

As the number of legal malpractice lawsuits has risen in recent years, the cost of malpractice insurance has soared as well. An attorney can now expect to be sued at least once during his or her career.

And while all lawyers should be concerned about the growing trend of clients -- and even third parties -- suing legal advisors, it has become a top-of-mind concern for solo practitioners and attorneys at small law firms.

Solos and small-firm attorneys find themselves particularly vulnerable to charges of malpractice. According to the American Bar Association, most malpractice suits are filed against lawyers in firms with one to five attorneys. Without the information technology departments, big administrative budgets and large numbers of support personnel that large law firms have at their disposal, solos and small firms must be creative and proactive when it comes to anticipating and preventing malpractice suits.

Malpractice claims tend to mirror the economy, the ABA's Standing Committee on Lawyers' Professional Liability found when it conducted a survey on malpractice claims several years ago. While suits remained relatively steady in the late 1990s, the association predicted an increase in the number and severity of malpractice claims as the economy faltered. And that has, indeed, been the case, according to attorneys around the country who are grappling with the increasing threat of lawsuits and the rising cost of malpractice insurance.

So how can solos and small firms arm themselves for this battle? A multifaceted approach is the best way to head off malpractice lawsuits before they are ever filed.

In order to guard against malpractice claims, solos and small firms must first audit themselves for current weaknesses and vulnerabilities.

The first step should be to take a good, hard look at the firm's attitude toward malpractice lawsuits. Some lawyers still do not believe they will be sued by their peers. Such idealistic thinking can be an expensive mistake in an environment where more and more attorneys are making a living suing other attorneys for real and perceived malpractice.

In this environment, partners should also take a hard look at their malpractice insurance policy. They should make sure that there are no gaps in their coverage, and that they carry enough insurance. Partners at firms that currently don't have malpractice insurance should strongly consider it, even if it is costly and not mandatory in their jurisdiction. State bar associations are a good resource to recommend carriers that offer malpractice insurance.

Several factors to consider when deciding on a policy include the attorneys' area of specialization (real estate attorneys, divorce lawyers and personal injury lawyers have a higher likelihood of being sued); geographic location, since malpractice lawsuits are more common in some areas than others; and the track record of the attorneys in the firm -- any previous claims or state bar disciplinary proceedings can affect insurance rates.

Lawyers should also look at their client-screening policies and decide if they need to say "no" more often to potential clients. Ineffective client screening is one of the major causes of malpractice claims, according to the ABA.

Lawyers should learn to trust their gut about potential clients. Some people are just naturally more likely to be dissatisfied than others. When considering taking on a new client, they should ask themselves several questions: Does the client have realistic expectations for his or her case? Can the firm handle the workload? Does the client have a negative attitude toward doctors, accountants and other professionals that could spill over onto the firm?

Fees are another area where firms can be vulnerable to lawsuits. Lawyers need to be completely explicit with clients about fees and put everything in writing so there are no misunderstandings later. The agreements should clearly spell out the fees, costs and scope of the work.

Lawyers should develop a system for identifying potential conflicts of interest. When it comes to fees, they should never take stock in a client's business in lieu of cash payment, and should not put themselves in a potential conflict-of-interest situation by becoming a director or officer in a client's company.

They should also think carefully through any other potential areas of conflict before taking a case. In one case, a lawyer who represented both the husband and wife in a separation agreement saw that agreement tossed out when the judge ruled that representing both was a conflict of interest. This is another area where it pays to listen to one's gut -- if a lawyer thinks a case may represent a conflict, it probably does.

Lawyers should stay current and informed about malpractice lawsuits through knowledge sharing with bar associations, Internet message boards and other peer groups.

Many state bars offer conference workshops about avoiding malpractice suits. The ABA also sponsors two national legal malpractice conferences a year.

Even casual networking at local bar meetings or alumni events can be useful. Since any group of lawyers will almost certainly get around to sharing war stories after spending some time together, lawyers can casually learn about some of the more difficult cases their colleagues have endured -- and about mistakes that must be avoided.

When time is short, online chatrooms and message boards can be excellent resources to discuss difficult cases and situations with peers (as long as one maintains client confidentiality, of course). Martindale-Hubbell and FindLaw offer message boards on their Web sites, and many other message boards and chat rooms focus on specific areas of the law. There are also legal sites that will automatically e-mail subscribers when there is a development in an area of law they have indicated they are interested in.

Particularly in small firms, personnel duties tend to overlap. Unlike big firms, where work roles are often clearly defined, in a smaller office everyone tends to pitch in to help. Therefore, it is particularly important to train staff to recognize their roles and responsibilities regarding malpractice safeguards.

Lawyers should make sure that someone in the office, other than themselves, knows the general status of their cases, the contact information for all of their current clients and where they keep other critical information about cases. After all, if a solo has a sudden medical crisis, someone at his or her firm needs to be able to step in and take care of the clients. Solos might want to develop a backup emergency plan with a temporary lawyer in case there is an unavoidable crisis. However, first they should be sure to clarify indemnity agreements and verify that there are no gaps in malpractice insurance.

In a recent case in New York, a small law firm tried to explain why it missed a court deadline: One partner was serving in Iraq, the other was overseas adopting a baby and their secretary had gone into labor prematurely. The court didn't agree that the situation added up to "excusable neglect," and several claimants lost their chance to obtain recompense for damages.

Lawyers should also train everyone in the office to be aware of their physical environment. Someone at the firm could be violating attorney-client privilege without even realizing it. Conversations in the reception area may be overheard, important files can be left in plain sight and wastepaper may not be disposed of properly. All of these can leave lawyers open to a malpractice claim.

Lawyers must also learn to identify personal problems and teach their personnel to do the same. According to the ABA, stress and substance abuse are leading reasons why firms are vulnerable to malpractice suits. So lawyers need to improve communication among members of the firm to help recognize when someone is near the breaking point or has a serious problem with drugs or alcohol and keep an "open door" policy so that personnel feel comfortable bringing their concerns to them.

It is especially important to keep the workload of everyone at the firm -- including the attorneys -- manageable, so no one feels overwhelmed or becomes so overworked that they let easily avoidable errors slip into cases.

Legal assistants must also be trained to calculate deadlines properly. Unfortunately, that can be a trial and error process. Legal assistants may only learn that a deadline date has changed when they go to file a document with the court. That could leave the firm in danger of missing a critical court date.

Small firm and solo practitioners seeking to guard against such situations as conflicts of interest and missing court dates should look into software and services designed to limit malpractice liability.

Most lawyers have probably at least considered case-management software, if they haven't actually invested in it. Some of those software programs will automatically run checks of potential conflicts of interest, by comparing newly entered names with those that already exist in the database. Others also include time tracking and billing software. According to the ABA, lack of adequate documentation of work and fee billing disputes are also among the leading causes of malpractice suits.

There are also software programs designed specifically for billing hours and to run checks on potential conflicts of interest. While these programs tend to require an investment of money, training and ongoing technical support, lawyers may want to at least look into such programs, as more safeguards against potential malpractice suits -- or as a defense if a suit is filed.

According to the ABA, missed deadlines are another leading cause of malpractice suits. In a recent case, a San Francisco law firm missed a court deadline by a full month. The firm's calendaring clerk mistakenly thought the deadline to file an appeal was 60 days, when it was actually only 30. In this case, the court excused the missed deadline, but not all courts are so forgiving.

For years, legal assistants at large law firms have had the luxury of expensive calendaring systems. These programs often require a substantial software investment, training and support fees, which limit their use to large firms with IT staff that can manage them.

But now, there are alternatives that are available to smaller law firms, including Web-based court-deadline calculation services. Since these programs are Internet-based and can be used on any computer with Web access, they are cost-effective, with no additional software required. With these new programs, lawyers and legal assistants can stay on top of changing court calendars and immediately access accurate rules-based deadlines. This greatly reduces the chance of missing deadlines, keeping solos and small firm lawyers out of trouble with judges and their clients.

Strategies to limit liability must be flexible and able to change with the firm's practice, technology and the industry.

Lawyers should stay abreast of current malpractice case law: State bar association newsletters are often a good source of such information. They should consider new technologies as they become available, but should not make investments that will be quickly outdated.

If the worst does happen and a firm is sued for malpractice, the first step is not to panic. As one's clients can attest, getting sued is usually a shock. A firm should be sure to keep its insurance company informed and try not to get overly involved in its own case.

Of course, the ideal situation would be to avoid getting sued altogether. For solos and small firm practitioners, being proactive and using available technology can help ensure they are among the few lawyers who dodge the malpractice bullet.


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