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Published: 2008-03-26

Thinking About Law Firm Risk Management



If you're a good lawyer, you won't get sued for malpractice. This belief may be comforting, but it's a myth. Good (and bad) lawyers get sued. There is no simple way to predict if your client will sue you for malpractice. In order to prepare for the likelihood of malpractice claims, it is necessary to actively engage in risk management. Risk management involves the use of a comprehensive risk management policy.

"Hiring" Clients

Risk management begins as soon as a person becomes a potential client.

Every lawyer approached by a potential client must first ascertain if they have the necessary expertise for the matter. An eager lawyer may be tempted to take on every client, expecting to learn the area of law. This is dangerous behavior in most cases. While it is acceptable for a family lawyer to take on a trust and estates matter that is new to them, it would be foolish to take on a securities matter. Every attorney must identify areas of expertise and interest and "hire" clients in these areas.

Having identified the matter as one in which you have expertise, the attorney must then assess available resources. If the attorney's calendar is full or if the matter will take too much time, it is best to not take on the client. By taking on the client when you are too busy, you would expose yourself to double the risk, from the client you are short-changing to take on the new matter and from the new client.

Assuming the matter is within your area of expertise and you have the time to take on the client, you must engage in formal checking for potential conflicts of interest. Lawyers must have stringent conflict checks. This is not only a risk management consideration, but also a major factor in ethics rules. Conflicts checking involves not only knowing and applying ethics rules, but also setting up a formal system. Ideally, a computerized system should be used to maintain client and matter lists. Even if the lawyer is a solo practitioner, it is important to set up these systems, not only in anticipation of future growth, but also in realization that your memory will fail you in this crucial area of risk management. There are various off-the-shelf software programs that are appropriate for conflicts checks. While the expense may seem needless in the outset of your practice, in this area it is far better to be overly-cautious.

Once a person has passed the conflicts check and you are ready to take them on as a client, the engagement letter and/or fee agreement may also serve as a risk management tool. In addition to clearly setting out the terms of service, the agreement can potentially include fee arbitration and mediation clauses. It is very important to check with your state bar to determine whether these clauses are permissible and the limits on the use of each clause. However, if permitted, lawyers should use these clauses to manage risk. In addition, as clients are often emotional and full of expectations, a law firm should use both dis-engagement and non-engagement letters. It is very important that the client know and understand when you refuse or conclude service.

Handling Cases

Studies consistently show that missed deadlines are a major cause of malpractice claims. Considering the ready availability of electronic tools, caseload management is much easier today. Research the automated docket and calendaring systems available and invest in one that will grow with your practice. In using the system, one person should have specialized knowledge of the available tools. While every attorney does not need to understand the intricacies of the technology, this is one area in which employing an expert is advisable.

Insurance Policies

While every lawyer in the firm should read the policy and be familiar with its general provisions, one person should be tasked with maintaining it. This person should know the policy extremely well and he or she should handle all purchase decisions. This person should be the main point of contact with the insurance company. It might be advisable for this person to receive additional training in identifying risks and advising on a recommended course of action.

Finances

Every jurisdiction has clear rules regarding the handling of client finances. The mishandling of client finances is one of the primary causes of malpractice claims. Learn the rules, but make sure you have someone who has specific expertise in this matter. Often, different types of cases allow for different types of financial handling.