Ethics & Professional Responsibility
At the Law Offices of Daniel J. Siegel, LLC, we help other attorneys avoid being the subject of legal malpractice claims by:
Attorney Daniel J. Siegel, Chair of the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility, also writes and lectures with the goal of helping attorneys improve the legal services they provide, and demonstrating ways to avoid professional negligence/legal malpractice claims. For example, Dan has authored a column in The Legal Intelligencer/Pennsylvania Law Weekly for many years.
Here is Dan’s February 27, 2023 column, “Survey Reveals Increase in Malpractice Claims Payouts—Tips to Avoid Becoming a Statistic,” which includes 17 tips for avoiding being the subject of a legal malpractice claim.
Although lawyers pursue claims and file lawsuits, they do not want to be the subject of claims and lawsuits. Yet malpractice claims happen, and they are not going away. To the contrary, recent studies confirm that malpractice claims rates remain steady but that the payouts are increasing. As payouts increase, so likely do the premiums we all pay.
In this column, I will examine the results and conclusions from one study and then offer 17 practical tips for avoiding legal malpractice claims. The study is the “LPLI 2022 Claims Survey: Malpractice Claim Severity Hits All-Time High as Law Firms Face Rapid Change” by Ames & Gough. The study surveyed 11 insurers that write professional liability insurance policies for lawyers. The companies insure approximately 80% of the AM Law 100 firms.
The survey considered the volume of claims the insurers were experiencing and any specific trends relating to larger claims. The study concluded that although the rate of claims stayed level, the severity of the claims, that is, the amount at issue, spiked.
While, historically, claims arose in practice areas such as personal injury and family law, this study found increases in other practice areas not commonly considered the ones with claims. For example, the study found that the pandemic’s resultant focus on hybrid work models led to claims arising primarily from conflicts of interest and from the lack of quality work review. In other words, it is harder to monitor the quality of work when everyone works remotely.
The study also noted that multiple factors led to increased claims costs, including an increase in legal defense costs, aggressive tactics by plaintiffs’ attorneys, and the complexity of the cases. But the overall findings confirm that lawyers can take more actions to prevent themselves from becoming a statistic.
The report begins by noting that the frequency of claims was generally similar from 2020 to 2021, the period under consideration. Despite the leveling of claims, however, the past several years were the worst on record for legal malpractice claim payouts. The report found that at least five claims had settled for over nine figures in those two years.
Where the report is most enlightening is its summary of the practice areas generating the most claims, with three — trusts and estates, business transactions, and corporate and securities — leading the way. More notable was the growing number of legal malpractice claims filed in the areas of taxation and insurance defense, with the latter area growing from virtually no claims to a significant volume of them.
The report explains that “Although legal malpractice claims have existed for over a century, the large volume of these claims made by an insurer (primary or excess) against counsel retained to defend its insured is relatively new.” To address this aspect of malpractice claims, the report recommends that “defense lawyers have sound risk management practices in place. Defense firms should know and adhere to the outside counsel guidelines they have agreed upon with the insurance companies that hire them. They should also use clear and regular communication with both the insurers and insured clients relying on their advice.”
Surprisingly, plaintiff’s personal injury was not among the highest percentage of claims reported. This finding could be because the number of claims has gone down or the result of the fact that the insurers surveyed have client bases primarily comprised of larger firms. The report does not clarify this issue.
Lawyers, in general, should be mindful of the report’s analysis of the most frequently alleged malpractice errors. Number one is “conflicts of interest,” which it says remains the leading cause of malpractice claims “year over year.” Five of the 11 insurers polled listed “conflicts of interest” as the most frequent type of claim, with two of the remaining six listing it as the second most frequent claim. Other frequently alleged reasons for malpractice claims include the “failure to file timely,” “failure to know or properly apply the law,” “clerical error” and “other/general negligence.”
Although the report offers some practical tips, there are many more that I have compiled. While it is impossible to consider every circumstance or assure that some will not even occur that will trigger a claim, these guidelines should help limit the possibility of a claim.
When a witness has notes that were created contemporaneously with the events they are questioned about, people believe them. On the other hand, when witnesses try to recall events without notes, it is harder to do, and memories fade. The same is true for attorney-client communications. If the event or information is important, or if your conversation with the client is relevant to any aspect of their matter, write it down. That way, if there is a dispute in the future, or the client claims ignorance or has a different recollection, you can refer to the note or letter. If the circumstances warrant it, confirm the details of your conversation with the client in writing, by either letter or email, so there can be no doubt as to what was discussed.
While it is not possible to know which clients may become high maintenance, it is equally true that screening clients is important. When appropriate, you should have a protocol to determine when you will reject or accept matters. The screening process involves a variety of concerns. For example, always verify that there are no conflicts of interest that would prevent you from either taking the case, or that could become a liability later on in the matter. You should have a documented system of conflicts checking that is used consistently with every potential new matter.
It is the rare attorney who has a true general practice. To the contrary, most lawyers have defined areas of practice, and for a good reason. When your practice focuses on specific areas, you are knowledgeable about those areas and less likely to make a mistake that would result in a malpractice claim. On the other hand, when you “dabble,” you are less comfortable with those cases, and, as a result, the chance of making a mistake increases. So don’t dabble.
It is not enough to speak with clients. Lawyers should communicate in writing, confirm in detail any important information provided to or received from a client, and always confirm tactical or other decisions in writing. Whether the confirmation is by letter or email may depend on the nature of the communication, but it should be in a manner that can be saved with the client’s file and produced if a dispute arises.
In many cases, if a claim is presented against you, one of the first documents that your insurance company and your counsel will ask for is your engagement letter/fee agreement to determine how you defined or limited the scope of the legal work you will be performing. Engagement letters should, at a minimum, identify who the client is, specify the nature of the legal services to be provided, confirm the types of services that will not be provided, confirm the fees to paid, including flat fees, hourly rates, expenses, whether fees/retainers are needed, and whether fees will be deposited into the firm’s IOLTA account, specify how and when invoices for services will be prepared, define under what circumstances the firm or client may terminate the relationship, and more.
The best policy is to place all events and deadlines in the firm and the assigned attorney’s calendar as soon as the notice is received or the date is determined. Calendaring errors and the resulting missed deadlines are a common source of malpractice claims. Among the items that must be calendared are statutes of limitations, which should be listed on multiple systems to avoid even the possibility of being overlooked.
Among the many reasons that mistakes happen and claims arise is because lawyers and staff often deal with various stresses, from family issues to medical concerns to being overworked to dependency issues. It is essential to be aware of the signs of these stressors and to try to assist your staff with getting help. There are many resources for attorneys, and it is helpful to proactively be aware of them and address potential challenges.
While at times it is easy to know who your client is, at other times it can be confusing. For example, two individuals contact you to set up a limited partnership where both individuals are limited partners, and a dispute arises. Who is your client, then? Your engagement letter and other communications should specify who the client is and other relevant circumstances.
There is a reason why legal malpractice insurance companies ask on their application if you sue your clients for fees. The reason is that it is easy to file a counterclaim. If you do not want to be a defendant in a lawsuit with your client, then do not file a lawsuit against your client. After all, if you sue the client, the client’s counterclaim is basically a free lawsuit for them.
Under the Rules of Professional Conduct, lawyers must disclose to clients any information relevant to their cases, including any mistakes that would have a material impact on the client’s interests. Thus, you should disclose mistakes that are relevant to their matters. If necessary, consult with your malpractice carrier or an attorney.
Failure to properly maintain an IOLTA/trust account is one of the major reasons that lawyers face disciplinary proceedings. While it is obvious that stealing from an IOLTA account is improper, many disciplinary matters relate to account mismanagement or the failure to reconcile the accounts properly. Pennsylvania’s Rules of Professional Conduct, like those in most states, require lawyers to reconcile their trust accounts monthly. When lawyers ignore this obligation, funds may stay in the account that should be distributed or taken as fees. This type of action—really inaction—can lead to disciplinary action and can also be the basis for malpractice claims. That is why lawyers must balance their IOLTA accounts monthly and comply with all of the provisions of Rule of Professional Conduct 1.15.
All legal malpractice policies have “reporting provisions,” which specify when and what types of information you need to report to the insurance company. Although these provisions differ from policy to policy, almost every policy requires insured attorneys to immediately report when a client or former client demands money or files a lawsuit against you. Other policies require lawyers to report when they learn you become aware of facts that may reasonably give rise to a future claim against you. Be aware of what your coverage requires so that if you need to report, you do. There can be significant consequences if you do not report potential claims, including a denial of coverage.
Rather than dabble, and risk a malpractice claim, refer cases outside your practice areas to lawyers who regularly handle them. Doing so assures that clients will have experienced and competent representation. In many states, including Pennsylvania, you can receive a referral fee even if you do not handle the matter. Plus, you can develop a referral network where other attorneys reciprocate and send matters to you outside their practice areas.
One of the reasons patients are reluctant to sue their family doctors but have less hesitation to sue specialists is because they have developed a relationship with their primary care physician, but the specialist only saw them a couple of times and demonstrated no compassion for their situation. While the law is a business, clients are less likely to bring
claims against you when they know you care about them and acted diligently on their behalf.
Because you have expertise in certain areas of the law, you should maintain that knowledge by attending continuing legal education courses and reading relevant publications to remain up-to-date on those topics. Avoid making easily avoidable mistakes.
There are rules for everything. Rules of Civil Procedure. Rules of Criminal Procedure. Rules of Appellate Procedure. Rules of Professional Conduct. Rules of Evidence. Rules, rules, rules. They are important, and it is critical for you to know the rules relevant to your practice areas. If you are going to trial, you should know the evidentiary rules relevant to the case. If you are handling an appeal, you should know the rules that apply to the content of your briefs. Procedural errors can be the difference between winning and losing a case and having to notify the carrier about your loss.
Buying the lowest-priced coverage is not always the best decision. Legal malpractice insurance policies differ in the types of coverage they provide and in other ways. In addition to the limits of liability coverage, consider the types of other services or benefits the policy provides. Some policies, for example, will pay for all or some of the cost of the defense of a disciplinary complaint, while others will provide counsel if you are subpoenaed relating to a matter you previously handled. Others provide educational benefits or will allow you to obtain advice from on-staff or outside counsel. In sum, policies differ, and it may be prudent to spend a little more to obtain the coverage you need.
Lawyers cannot avoid the reality that clients will assert legal malpractice claims. There is a corresponding reality that lawyers who act prudently and take appropriate precautions can avoid or limit the claims against them. To prevent claims or reduce the risk of a substantial claim, lawyers must adopt best practices, including many outlined here. After all, an ounce of prevention is worth a pound of cure.
Daniel J. Siegel, principal of the Law Offices of Daniel J. Siegel and chair of the Pennsylvania Bar Association committee on legal ethics and professional responsibility, provides ethical guidance and Disciplinary Board representation for attorneys and law firms; he is the editor of “Fee Agreements in Pennsylvania” (6th Edition) and author of ”Leaving a Law Practice: Practical and Ethical Issues for Lawyers and Law Firms” (Second Edition), published by the Pennsylvania Bar Institute. He can be reached at firstname.lastname@example.org.