The threat of malpractice looms larger now than when the country’s financial picture was less gloomy.
The poor economy is bringing more and different types of suits, says one malpractice insurance carrier.
It’s due to several reasons, starting with the fact that attorneys are accepting work today that in better times they would have turned down.
Swimming in unknown waters
Taking on work outside the firm’s experience and legal competence is a tremendous claim cause, says Vernon Barclay, founder of the Thaxton Barclay Group, a Tampa professional liability insurance provider.
Yet with business slow and competition high, attorneys are doing exactly that. Defense firms are dabbling in plaintiff’s work, and general practice firms are delving into specialized areas such as estate planning and bankruptcy.
The word of advice his company gives most often is “learn to turn things down.” That’s admittedly hard when a firm needs business, “but there’s a reason for specialty practices.” The laws are constantly changing, and the work requires ongoing familiarity with those changes.
An alternative to accepting work of a foreign nature, he says, is to set up a mutual exchange of referrals with other firms specializing in different areas. That gives all the participants access to clients who need their expertise while minimizing everybody’s risk. And many states allow firms to share fees for referred work.
But whatever the firm does, there needs to be a central approval system for new matters so the attorneys don’t bring in clients the firm would not have represented in better revenue days – clients outside an attorney’s practice experience, clients with potential conflicts, clients with poor payment histories, and clients who have sued other attorneys.
Whether by committee or by managing partner, client acceptance needs to be the decision of the firm, not of the individual attorney.
Here’s a client; got insurance
Referrals are another risk today.
Don’t refer work out without making sure the other attorney carries liability insurance. If not, and if a malpractice claim arises, the firm can get caught in the suit.
Barclay cites a case where an attorney referred a matter to a Georgia firm and didn’t follow up on it. The Georgia firm, which did not have malpractice coverage, didn’t file the case on time. So the client, realizing there was little to be won from the uninsured firm, sued both firms.
“People assume all attorneys carry liability insurance,” he says, but the majority don’t. It’s not even a requirement in most states.
Don’t send a client to another firm without a written referral agreement outlining who’s taking on the case and who’s responsible for handling what and whether there is a division of fees – and whether each firm has liability coverage.
Then get the agreement signed by both attorneys and also by the client.
No, we don’t represent you
Another malpractice prevention: When the firm turns down work, “make it clear to the potential client that it is not taking the case.”
Many a prospect meets with a lawyer “and thinks all hunky-dory and that there’s representation, and then a statute runs.”
A lot of claims come out of that.
Claims come too from people who search a website and ask for representation and think they have a lawyer. The site needs to say clearly that web correspondence does not establish an attorney-client relationship.
What’s your risk, new lawyer?
Lateral hires are another malpractice risk, again much because of the poor economy, says Thaxton Barclay’s president Michael P. Shea. Firms are anxious to bring new business and new revenues and in the rush for work, they overlook the fact that a lateral could also be bringing in new malpractice exposure.
Go beyond the conflict checking.
Go through the entire background and verify education and work history.
Check out disciplinary actions, reprimands, grievances, and pending suspensions. “Believe it or not, lawyers have been hired who have had disciplinary actions pending against them.”
It’s also good practice to go through the new client list and ask what type of work the lateral has done for each client and also “how was your relationship with this client?”
All sorts of risks can pop up, Shea says.
There could be an ongoing fee arrangement where a client is paying the attorney on the side. Or the attorney might be planning to run fees through the firm’s trust account. There could also be a fee dispute in progress.
Along with the background checking, verify that the firm’s malpractice policy applies to the lateral only in matters going forward, not in matters previous to the hire. There’s no need to expose the firm’s own insurance to work the attorneys didn’t do and didn’t get paid for.
The real danger, he says, usually comes when a lateral is leaving a dissolving firm or has been “a big name partner” at another firm. Many times incoming attorneys are financially appealing to the extent that they can demand coverage for past work.
Asking for trouble
Another necessary claim avoidance tactic today is a policy against suing for fees.
Fee suits “have spiked tremendously in the last 26 months,” and once again, it’s the poor economy at blame.
Firms can’t afford to lose fees, so they sue for them. And they do so without thinking that a suit is an invitation to “an immediate counterclaim of malpractice.” Money fights are the number-one cause of malpractice claims.
Don’t sue under any circumstances, Shea says. Even a counterclaim that’s found meritless carries repercussions, not the least of which is that it can affect the insurability of the firm.
Avoid the problem from the start. Make sure the client can pay the bill, and do that by collecting a retainer.
If a prospect can’t or won’t pay the retainer, count on it that the firm won’t get paid later.