The Solicitor

Protecting Yourself From the 'Costs' of Malpractice
By Nancy Byerly Jones
Reprinted from Lawyers Weekly USA, November 21, 2005, with permission

Managing Your Office and Staff

Practicing attorneys are more likely than not to be slapped with at least three malpractice claims during the course of their careers. Many of these claims have no merit and are ultimately dismissed. Even the frivolous ones, however, incur “costs” for lawyers and their firms, including:

Disgruntled and angry clients spreading their version of what went wrong;
Anger, frustration and aggravation for the attorney sued, partners and staff;
Financial losses – insurance deductibles and higher rates, lost billable hours, etc.;
Professional and personal schedule interruptions;
Potential for related ethical grievances being filed; and
Damaged reputations within the legal profession and the community.

In most jurisdictions the majority of malpractice claims fall in two areas: litigation (e.g., statute of limitation problems, substantive legal errors, service of process errors, failure to properly or thoroughly investigate, conflicts of interest, failure to give adequate notice of non-engagement, etc.); and real property matters (e.g., title search errors, improperly handled closings, erroneously prepared and proofed documents, etc.)

Family law is another “high hazard” area of practice when it comes to client complaints, malpractice claims and ethical grievances. And conflict of interest allegations in most areas of the law continue to grow. Equally disturbing is that an alarming number of legal malpractice claims arise from clerical errors, which usually are the result of poor training and supervision.

The moral is that malpractice claims are not limited to any certain type of lawyer. No one is immune to the possibility of a malpractice claim. The best of the best get sued, as do the inexperienced and the specialist, the young and the old, the big firm attorney and the solo practitioner, the urban counselor and the rural.

Risk Management Safeguards

The bad news is clearly spelled out above. The good news is that most malpractice errors are avoidable when appropriate risk management systems are established, maintained and religiously utilized by all attorneys and staff. (It only takes one “You can’t make me do this” attitude to put the entire firm at high risk of a malpractice claim or claims.) At a minimum, your risk management systems should include:

Docket/Work Control
Confidentiality Safeguards – Internal and External
Conflicts Checking Systems
Client Relations and Servicing
Trust Account Management
File and Record Management
File Documentation/Organization
Training and Supervising Associates
Training and Supervising Staff
Partner Peer Review
Engagement/Non-engagement/Disengagement Letters
Firm Security/Internet Policies
Timekeeping/Billing/Collections
Disaster/Emergency Plans
Stress and Time Management
Continuing Legal Education
Marketing Ethics and Guidelines

Hopefully, risk management awareness and prevention is alive and well at your office. If so, are your office’s systems kept up-to-date? Are they reviewed on a regular basis? Are they utilized correctly and faithfully by all firm employees, partners included?

Unfortunately, some attorneys have to be hit by a malpractice claim (or two) before they wise up to how easy it is to avoid most of the traps and how painfully costly it is to practice without risk management safeguards in place. If you’re lucky enough to have avoided a malpractice claim so far and think that it’s someone else’s job in your office to worry about risk management, please read on a bit further. Perhaps some of the following war stories (names and facts have been changed to protect confidentiality) will encourage you to discard that dangerous attitude so that you can minimize the risks to your clients, yourself and your firm.

Just Being The 'Nice Guy'

“Sam,” a highly respected attorney well liked by all who knew him, was about to wrap up his initial conference with Mr. and Mrs. X. They were meeting with him for the first time to have their wills updated. Before leaving, they asked if he had the time to answer a few questions about a car accident Mrs. X had been in the previous year, which explained why she was wheelchair-bound. Sam explained he rarely did any personal injury cases, but would try to answer their questions. They spent about 10 minutes on the subject and he answered their questions as best he could. Before they left, he asked his secretary to make a follow-up appointment for the following week when their wills should be ready for them to review and execute. Nothing further was ever discussed regarding the accident.

Eighteen months or so later court papers were filed on behalf of Mrs. X, naming Sam as the defendant attorney in a malpractice action. Her primary claim – he missed the statute of limitations deadline for filing a personal injury complaint against the other driver and his employer.

Sam was flabbergasted, but not overly concerned about the lawsuit itself as he knew that he was not their attorney on that matter. The problem was, however, that Mr. and Mrs. X sincerely thought he was their attorney for all their legal affairs. Unfortunately, when his professional liability insurer requested a written response from Sam, he had no documentation whatsoever to prove he was not the attorney on the personal injury case. When it came down to his word against Mrs. X’s, without the benefit of clear and undisputed documentation, Sam lost the case. The financial and other costs were quite high.

What went wrong? First, the short statute of limitations in this case didn’t help matters. Second, the clients assumed that since Sam did their wills and answered their questions about Mrs. X’s injuries that he would also be taking care of collecting whatever compensatory damages which she might be entitled to. Third, the X's were not sophisticated legal service consumers; they had only needed an attorney twice before – for the purchase of their home where they had lived for thirty-six years, and for the preparation of their original wills.

Sam never intended to represent Mrs. X on the personal injury matter, nor had she specifically asked him to do so, based on his recollections. He was just trying to be helpful. But, no engagement letter or attorney/client agreement had been written regarding exactly what work he was doing for them, and no disengagement letter had been sent to clarify that he was not representing them on any personal injury claims Mrs. X may have.

Most attorneys can’t stand doing engagement agreements, much less non-engagement ones. And yet Sam’s story is repeated many times each year around the country because it provides a grim warning of what can happen if attorneys fail to document the final outcome of meetings with individuals who are not accepted as clients. Such documentation can be as simple as the following:

Non-Engagement Acknowledgement

No attorney/client relationship has been established;
[Client] was reminded that statutes(s) of limitations(s) may apply (although no specific dates have been stated) which limit the time in which [client] could take legal action; and
It is highly recommended that [client] seek other legal counsel immediately.

READ, UNDERSTOOD & AGREED:

____________________________
[Name and Date]

____________________________
Attorney

'Best Staff in the World'

“Ellen” could be a real grump to work around, especially under the deadline pressures of a busy real estate practice. She took good care of her staff, however, with fair salaries, regular bonuses and flexibility in their schedules when needed. And, the staff took good care of Ellen. They were self-starters, loyal, dependable, worked well together (most days) and rarely, if ever, griped about going the distance when asked to stay beyond regular office hours.

They were so good that Ellen rarely, if ever, reviewed the paperwork they prepared for closings. She trusted them to do it right and would sign whatever they put in front of her without question. That habit cost her dearly when she was faced with three malpractice claims within just months of each other.

First, a typo in a deed resulted in the purchasers being the proud owners of a non-existent parcel. The second claim involved a crooked seller who continued using his old equity line and got away with it for a significant period of time after he sold his home. How did this happen? Ellen’s staff only gave verbal instructions to the lender for the line to be cancelled when the property was sold. Following through with the bank to ensure the deed of trust had indeed been cancelled just never got done. The third claim involved Ellen’s failure to carefully read the restrictive covenants prior to a closing so that she could ensure there was no conflict with the actual contract for her clients. What went wrong? A failure to supervise the most senior, trusted and experienced of staff is still a failure to supervise. The responsibility of supervision lies squarely and solely in the attorney’s lap. Just ask the multitude of lawyers who have lived the nightmare of having a long-term and highly trusted employee embezzle from law firm funds.

Likewise, it is foolhardy of us to not take the time to build in safeguard backups for our various systems to ensure things don’t fall between the cracks (e.g., computer-generated calendar reminders to follow through with lenders on the actual cancellation of notes, etc.) Failing to review relevant documents in a timely and thorough manner eventually comes back to bite us. An overload of cases and the revenues they bring into a firm – no matter how much – does not outweigh the many “costs” of malpractice actions.

In Closing

Both Sam and Ellen were (and still are) good attorneys and very well liked by their clients, co-workers and others. Being an excellent lawyer with excellent people skills, however, just isn’t enough when it comes to minimizing our risks and maximizing the quality of our work product.

If we were the client, would we want our legal affairs and money entrusted to attorneys without such safeguards in place? The bottom line on risk management is that we must respect the priority it should have in our firms each and every day. We owe it to our clients, ourselves, our firms and our profession: the “costs” of not doing so are far too high for all concerned.

About the Author: Nancy Byerly Jones works with attorneys and legal staff members as a management consultant, retreat facilitator, coach and mediator. She is also a practicing attorney, mediator and arbitrator. Nancy is a regular contributor to Lawyers Weekly USA. For more information, please visit her website at www.nbjconsulting.com. To suggest topic ideas of this column of Lawyers Weekly USA or for electronic copies of the forms related to this article please call (828) 264-1448 or e-mail nbj@nbjconsulting.com.