The Biggest Malpractice Risks

Vol. 28 No. 2

By

Daniel E. Pinnington is director of practicePRO, a claims prevention initiative at the Lawyers’ Professional Indemnity Company (LawPRO) in Toronto.

 

Here’s a quick pop quiz. Of all the malpractice errors that lawyers can commit, what is the most common one? If your answer is a failure to know or apply substantive law, you are correct. However, if you also believe that this particular error accounts for the majority of legal malpractice claims, you would be wrong. In fact, no one single error accounts for the majority of claims, although as a general category, the substantive-related kind are your best bet for falling on the wrong side of the malpractice line. Other major categories of lawyer errors? Administrative errors, client-relations errors, and intentional wrongs. Understanding where and why claims happen can help you proactively take steps to reduce the likelihood that a claim will be made against you.

A true picture of malpractice errors. Getting good across-the-profession data on legal malpractice errors in the United States is virtually impossible for two reasons: There are multiple legal professional liability insurance carriers operating in all but one state, and many U.S. lawyers don’t have any malpractice insurance at all. In contrast, in Canada it is possible to get a complete picture of malpractice errors because all lawyers in private practice must have malpractice coverage. The Lawyers’ Professional Indemnity Company (LawPRO) provides coverage to Ontario lawyers. The comments in this article result from both LawPRO claims data and combined data and comments in the ABA’s 2004–2007 and 2000–2003 Profile of Legal Malpractice Claims studies of the Standing Committee on Lawyers’ Professional Liability (the LPL studies). Although there are some differences in law practice between the United States and Canada, it clear that the reasons for malpractice claims—and the steps that can be taken to avoid them—are more or less identical in both countries.

Substantive errors. When grouped together, substantive errors account for more than 46 percent of reported claims. The most obvious error in this category is a failure to know or properly apply substantive law. Another rather obvious error is the failure to know or ascertain a deadline. It is essential that lawyers regularly participate in continuing legal education programs to maintain a current knowledge of the substantive law so they can avoid errors. Claims further indicate that “dabblers,” or lawyers acting outside of their usual practice area, are far more likely to fail to know or apply the law. Likewise, lawyers should tread carefully when giving advice or working on matters relating to law for a state where they are not admitted or for non–U.S. law. Inadequate investigation or discovery of facts is another substantive error that deserves special attention—it’s the second-most-common error in LawPRO’s claims portfolio (at 14.1 percent) and third in the combined LPL studies (at 8.8 percent).

Administrative errors. Taken together, administrative errors—which include tickler system errors, clerical and delegation errors, lost file or document errors, and procrastination—account for 28.5 percent of reported claims in the LPL studies. A failure to file documents is the top administrative error in the studies (at 8.6 percent). A failure to calendar is the fifth-most-common error in the LPL studies. A related, but less common error is the failure to react to a calendar system. Clerical and delegation errors include things such as simple clerical errors, errors in mathematical calculations, and work delegated to an employee that is not checked. Delegation of tasks to knowledgeable support staff is an essential part of the operation of every practice, although, ultimately, the lawyer is responsible for the delegated work and has to take steps to ensure that delegated work is reviewed appropriately. Beyond that, with good time management skills and the proper use of tickler systems, administrative errors are probably the easiest to prevent.

Intentional wrongs. In the LPL studies, intentional wrongs constitute 12.3 percent of claims. Intentional wrongs include fraudulent acts by the lawyer, malicious prosecution or abuse of process, libel or slander, and violations of civil rights. As a category, these types of claims may be the most shocking.

On a percent-of-claims basis, fraud ranks tenth in the LPL studies and 11th in LawPRO’s data. Regardless of firm size, it is important that every firm implement appropriate internal controls to ensure that funds in trust accounts are handled properly and that all transactions involving client monies are properly documented.

Client-relations errors. Our final category is client-relations errors, which constitute 12.3 percent of claims in the LPL studies. There are several types of these claims, which all tend to arise from lawyer-client communication problems.

The first type is failure to follow the client’s instructions. Often these claims arise because the client says one thing about what was said or done, or not said or done, and the lawyer says another. These claims tend to come down to credibility, and they can be very difficult to successfully defend if the lawyer has not documented the instructions in the file.

The second type is failure to obtain the client’s consent or to inform the client. These claims involve the lawyer’s allegedly doing work or taking steps on a matter without client consent. Such claims also involve the lawyer’s failing to advise the client of all the implications or possible outcomes when decisions are made to follow a certain course of action.

The third type is poor communications with the client, which involves a failure to explain to the client information about administrative procedures such as the timing of steps on the matter or fees and disbursements. This type of error also arises when there is confusion over whether the lawyer or client is responsible for taking a certain action during or after the matter—for example, sending a lease renewal notice to a landlord or renewing a registration or filing.

You can significantly reduce exposure to client-relations errors simply by controlling client expectations from the very start of the matter, actively communicating with the client at all stages of the matter, creating a paper trail that carefully documents instructions and advice, and confirming what work was done on a matter at each step along the way.

Conflicts of interest. There are basically two types of conflicts malpractice claims. The first arises when conflicts occur between multiple current or past clients represented by the same lawyer or firm. The second type arises when a lawyer has a personal interest in the matter. Because real estate and corporate commercial lawyers regularly act for multiple clients or entities, these lawyers experience more conflicts claims than those in other areas of law. Litigators, however, seem better able to recognize conflicts and have a relatively lower rate of conflicts claims.

To avoid conflicts of interest, make sure your firm has procedures in place for checking conflicts at the earliest possible point in time. This should, ideally, involve an electronic system that includes not only client names but also individuals and entities related to the client, including corporations and affiliates, officers and directors, partners, trade names, and the like.

Another hot-button issue is a rise in conflicts relating to the lateral hirings of partners and associates. Unfortunately, such conflicts are often addressed very late in the process, when the transfer is all but done. At this late stage, all parties have such a strong desire to complete the transfer that potential conflicts are often ignored or overlooked. But beware: An all-too-frequent result is that the firm will have to part with two clients—an existing client and one that came to the firm with the new lawyer—and in this case, the firm faces the potential of two malpractice claims.

 

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- This article is an abridged and edited version of one that originally appeared on page 29 of Law Practice, July/August 2010 (36:4).

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