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THE V-8 MOMENT WITH REGARD TO INSURANCE

8/5/2014

 



 



 

 

     Wow, I should have had professional liability coverage.  I remain amazed at how many lawyers forego such coverage.  I do not understand that rationale since they would never risk their assets with an uninsured car or house.  Yet, they think this cost of doing business is too high or it somehow is not needed.

     Even a totally bogus claim costs real money to defend.  It takes time and work to get these dismissed, with no return of the costs.  Lawyers always seem surprised at the legal costs for such work when they send out similar bills each day.  Then if there is a meritorious claim or even a colorable claim, coverage is very much needed.

     When I last looked, only one state required legal malpractice coverage as a condition of licensing.  Many states annually require you to disclose whether or not you have such coverage for consumer knowledge.  I wonder how many clients ever really check that, or if they even care.  If you err in their case, they will sue you regardless.  Do not think they will not, just because you have no insurance.  You certainly do not want to explain to family members that they now need to take the bus, since your cars were attached to pay a malpractice judgment.  Just treat this like a business expense and get coverage, and get the right coverage.

     You should shop for coverage with brokers and agents as well as Bar groups.  Be totally forthcoming in any applications so there is no reason for any carrier to later deny coverage.  Price varies with the amount of risk you are willing to take by way of the deductible.  Sometimes that is just cost pricing with lower annual premiums for higher retention levels by you.  Sometimes in order to get big policy limits for some specialty work, you are required to have a big deductible.  Bigger firms are used to that, but smaller firms must always be mindful of the amount of risk they can absorb and how much they can promptly pay for a defense.  Usually the deductibles are for both losses and for the defense of the claim.

     At one time, professional liability policies were like your auto policy — occurrence based.  Were you insured when you had the wreck or act of malpractice, or not?  By the 1970’s, that type of coverage disappeared and all are usually claims-made, eliminating the open-ended coverage concerns.  So, now a lawyer needs to be covered when a claim is made and must therefore avoid any gaps in coverage.

     Since claims can arise well after the act or occurrence, prior acts coverage was needed to cover such matters forward when changing carriers or policies.  A tail (extended reporting endorsement) or an endorsement for prior acts must be considered carefully when charging firms.  Someone either closing a firm or making a lateral move needs to consider this carefully.  See, “A Primer on Prior Acts Coverage”, Mark Bassingthwrighte, ALPS 411, May 27, 2014.

     For example, working in a mid-size regional firm, it made no sense to take in a lateral lawyer and provide them with prior acts coverage under the firm’s policy.  There had been no quality control by the firm and there were totally unknown risks involved with the lateral’s prior work.  With a large deductible, it was just bad business to assume that liability.  Accordingly, all laterals were told to look to their prior carriers or firms for coverage up to the day that they just started at our new firm.  Going forward they were covered, even when they left, as long as our firm was viable and still covered.  A tail may be needed by them from their prior work, but if they were likewise leaving a viable ongoing firm with good coverage, maybe nothing was needed.

     Complicated to some degree, but it is just a part of doing business as a lawyer.  You need certain things to practice and this certainly is one of them.  Just like paying the rent on the office, paying for the coverage in a timely manner, and getting the right coverage is kind of important.  Don’t be the person who thinks they will not be sued by their clients.

     Be advised that most are loss and claim deductibles for any expended fees and costs, as well as claims payouts.  Also, it is customary for you to have to pay your full deductible before any carrier pays anything.  So pick a deductible you can afford and then escrow the funds for it as soon as a claim surfaces.  By the way, give notice of claims promptly, again to avoid coverage issues.  See ALPS 411, Claims-Made Reporting Requirement, February 15, 2012.

 

 

 

 

Those Pesky Clients- Part Deux

7/7/2014

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     You may have heard me say how much fun the practice of law would be without dealing with clients.  (See June 2013 Post).  They always seem to need something from you right now and, by the way, don’t always want to pay full price for on-demand services.  Well, perhaps clients as the consumers of legal services have a point.  Currently there are plenty of good lawyers around, even more than there is of good legal work to do.  Perhaps there are now more lawyers than there is demand and the clients have experienced a shift in this balance.

     More companies use inside General Counsel who act as the new trusted advisors to the companies, but with a business budget line to control.  So, many trends and changes are afoot in the delivery of legal services and firms need to adapt.  Things that can be done cheaper than using lawyers are simply outsourced.  Young lawyers cannot be billed in some cases until they have some experience.  More and more technology is required by clients to meet their needs, and the costs of that are not recoverable by the law firms.  As they say, “it is what it is” and lawyers who want to be successful in the future must adapt and improve the delivery of their services to be competitive.

     Routinely advocating change and the ability to adapt, I still push back at the commodity procurement driven approach of many companies — buying legal services like buying pipes.  Cost cutting driven by the Finance and HR portions of companies sometimes result in “guidelines” that seem written by non-lawyers and have more restrictions than the professional rules.  Caution is urged at this point, regardless of the market. 

     One speaker at the 40th ABA National Conference on Professional Responsibility referred to these company-imposed guidelines as a source of private regulation.  He pointed out two main areas of concern:  (1) client identity and (2) conflicts of interest.  Some corporate guidelines say you will represent all of our affiliates and a conflict would exist as to each.  Often we lawyers do not know and cannot determine who these hundreds of related parties may be.  The guidelines views of what they say is a conflict may exceed both the case law and the professional rules. 

     Watch also these corporate guidelines for other hefty duties such as:

          •  Data security audits and other type random audits.

          •  Different file destruction requirements.

          •  Disaster recovery plans for firms.

          •  Breach notifications procedures and damages.

          •  Personnel background checks on all employees.

          •  Indemnity clauses that can cause coverage issues.

     There is no cookie cutter response to these.  I very much advocate a measured discussion and written exceptions to the guidelines when needed and possible.  Some will throw their weight around and put the firm in a take-or-no take situation.  Generally however, reasonable discussions can produce workable exceptions.  Since the firm’s engagement letter is intended to meet its professional responsibility where it practices, a procedure that states the General Counsel and the firm’s designated lawyer agree to resolve any differences between the guidelines and the engagement letter seems fair.  Placing the various affiliates in the firm conflict base for information and discussion purposes, but only representing the defined client in this matter may be a good compromise on the one-equals-all problem with regard to conflicts.

     Despite being an advocate of law firms changing to adapt, there have been times when the guidelines were just so bad or unreasonable that I have said:  “We do not deserve to be your lawyers.”  Most however are workable.  Just be very aware of what you are agreeing to by way of guidelines since a court may well conclude they were contract terms, despite being more than required in the law or rules. 

 

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Who is your Client?

5/5/2014

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Pretty basic legal stuff you might say.  If so, why do so many legal malpractice claims involve lawyers who lost sight of their clients.  The wandering off of true client north leads to conflict of interest claims.  Those can cause you some distress since juries just do not see your point when you say there was no conflict.  They think bible verses about having only one master.  You will make it a little rough on your defense counsel if you get mission creep from your initial engagement by the loss of the identity of your real client.

Believe me, this happens to good lawyers.  They have represented Fred and his company for years, but in a business deal or in litigation they forget they represent only the company — and not good old Fred’s interests.  What about a partnership or a 50/50 stock ownership and you focus only upon one of them for guidance?  Take a joint representation and fail to disclose the same information to both and see where you end.

A solid way to deal with the issue is to take the pain at the file opening stage.  Define your client and your terms of engagement without fail.  Do it in writing.  To do that, prevent any files from being opened until that engagement letter is prepared.  Sure the clients can then change and the engagement mission changes.  It is real easy to just send an e-mail to document that you have also asked us to also represent the treasurer of the company and we have explained to you any risk of conflict and both of you consent, etc.  You can do the same simple approach for your new tasks: In addition to our engagement letter of January 1, 2014, you have asked to also do X and represent Y in the same litigation.  Believe me, when a claim is made, you need to be able to hand over a writing that says who you were to represent and what you were to do.  It also forces the lawyer to remember who his client is at all stages.

Of course, when you get one of these course corrections after the engagement letter, you better also think of it like opening a new file and do a conflicts check on any new client or new adverse party.  What was clear of conflicts yesterday may not be so today.

These are simple things.  They should be a matter of routine.  Yet lawyers lose their way on who their real client is at times.  Make it a simple process of a full stop until an engagement letter is done specifically stating (1) who the client is; and (2) what is to be done.  Then require, insist and harass until another writing to the client(s) is done when there are changes.  Exhibits “A” and “B” of these will be your friends later when the client’s memory fades, or it is more convenient to remember it differently.  Some lawyers do not make very good defendants or witnesses because of non-lawyer’s perceptions on conflicts.  Clear writings and identity of client and engagement sure help them look good.

 

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SITUATIONAL AWARENESS

4/9/2014

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                   In a recent car commercial, the driver accelerates some new style engine in the car in order to bring the three passengers’ heads up from their devices to make them discuss where to go to lunch.  Everywhere you go, you see people preoccupied with something and not paying attention.  We all go about our pattern behavior without really looking around and seeing our situation.  Lots of trips and slips of all types can be avoided by effectively looking, a concept long recognized in negligence case law.

                    For fun, I took a handgun safety class once.  During all nine hours of the class, the former Marine captain made us do every maneuver only after first looking around us to develop “situational awareness”.  I had never made myself regularly do that as a habit.  I now look around parking areas and walkways, as a habit, because his comments made real sense.  Be aware of where you are and what is around you.  You will see things quite literally and avoid many issues by having your head up and looking around.

                    This same concept really applies in law offices where you want to avoid personnel or client problems.  When there is a big issue of these types, you usually find after the fact that someone had knowledge, or was generally aware that something was not right.  They just did nothing about it.  They did not pay enough attention.  So, I am now preaching situational awareness to you in the loss prevention business for lawyers.  (See November 2013 Post for examples to look for and consider.)

                    A lawyer from Ames & Gough, an insurance broker specializing in law firm coverage, recently shared with me their article on Enterprise Risk Management (ERM), a recognized method of evaluating and eliminating risk in an organization.  They argue that its use in the law firm setting starts with the education of senior leadership and management acceptance and then moves out in the firm.  A group within the firm organizes the effort to list their known risks and keeps track of them and how they deal with them.  They suggest a formal approach to accomplish this and to evaluate the risks, manage, and measure them. 

                    In many modern larger law firms this is done through the General Counsel function.  If you are not to that point in your firm, you may want to consider forming a small group to do this on a formal basis.  I submit it is worth your time and will then allow you to use basic situational awareness to avoid problems.  Paying attention to developing problems will save you later grief, as well as money.

 

See Ames & Gough Winter 2014 Information Alert,

citing Fraser and Simpkins Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives

Wiley & Sons, Inc. 2010

 

 

 

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    Author

    Steve Crislip was the General Counsel and Loss Prevention Member to a 11 office and 7 jurisdiction law firm for 10 years and has been defending lawyers and firms for more than 25 years and litigating for 40 years.
    These articles reflect lessons learned for Law Firms.

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