Mitigating Potential Legal Malpractice Claims Presented by: Brad Barkin, Lemme Insurance Group John Wynn, Lemme Insurance Group Jason E. Fellner, Murphy Pearson Bradley & Feeney Peter L. Weber, Murphy Pearson Bradley & Feeney
Mitigating Potential Legal Malpractice Claims Presented by: Brad Barkin, Lemme Insurance Group John Wynn, Lemme Insurance Group Jason E. Fellner, Murphy
Mitigating Potential Legal Malpractice Claims Presented by:
Brad Barkin, Lemme Insurance Group John Wynn, Lemme Insurance Group
Jason E. Fellner, Murphy Pearson Bradley & Feeney Peter L.
Weber, Murphy Pearson Bradley & Feeney
Slide 2
Opening the file Fee Agreements Scope and Expectations Duties
to Non-Clients Statutory Requirements Conflicts of Interest Closing
the file Client Files Discharge of the Attorney 2
Slide 3
a. Avoiding Malpractice through Detailed Written Engagement
Agreement b. Reasonably restricting the scope of legal services by
contract is permissible (Janik v. Rudy, Exelrod & Zieff (2004)
199 Cal.App. 4 th 930, 940.) c. Legal Services Agreement Should Set
forth clear Scope of Representation d. Money deposited as a
Retainer must be placed in client trust account. (Cal. Rules of
Prof. Conduct, Rule 4-100.) 3
Slide 4
Fee Agreements are Contracts: As a general rule, attorney and
client may agree to the measure and mode of an attorneys
compensation (C.C.P. Section 1021.) Basic principles of contract
law apply and any ambiguity is resolved in favor of the client. Set
Scope and Client Expectations: Reasonably restricting the scope of
legal services by contract is permissible (Janik v. Rudy, Exelrod
& Zieff, (2004) 119 Cal.App.4th 930, 940.) Fee Agreements
establish a date certain for the commencement of the
attorney-client relationship, which set forth the terms and scope
of the relationship. Pursuant to Bus. & Prof. Code Section
6148(a)(2), a written fee agreement must contain the general nature
of the legal services provided. In legal malpractice cases, one of
the most important documents is the fee agreement because it
identifies the client, date that relationship began, and scope of
work agreed to perform. 4
Slide 5
Contingent Fee Agreement Bus. & Prof. Code Section 6147
sets forth requirements for Contingent Fee Agreements. Contingent
Fee Agreements must be in writing to be enforceable, except those
for recovery of workers compensation benefits or certain merchants
claims. The contingent fee agreement must specify: the fee agreed
on; how the costs of prosecuting the case will affect the fee and
the clients recovery; and a statement that the fee is negotiable.
Irrespective of Fee Agreement, good practice dictates to identify
hourly rate of attorney in legal services agreement to specify
reasonable value of services. Noncontingent Fee Agreement Bus.
& Prof. Code Section 6148 sets forth requirements for
Noncontingent Fee Agreements. Noncontingent Fee Agreements must
provide the following in order to be enforceable: the basis of
compensation, including hourly rates, statutory fees, or flat fees;
and other standard rates, including costs. GOOD PRACTICE: Always
have a signed fee agreement before you begin work! Having a fee
agreement limits potential for disagreement and strengthens
attorneys position if and when a fee dispute arises. Absent a fee
agreement, an attorney is only entitled to quantum meruit as
compared to the full value of the contract. Statute of Limitations:
A written agreement is subject to a 4 year statute of limitations
(C.C.P. Section 337) compared with an oral agreement subject to a 2
year statute of limitations (C.C.P. Section 339). 5
Slide 6
GOOD PRACTICES: Attorney and Client should both sign agreement.
Its a mistake to simply send letter memorializing agreement and/or
have the client sign letter accepting terms of legal service. If
the scope of representation changes after execution of the fee
agreement, counsel should amend the agreement to clarify the
revised scope of services. An attorneys standard of care is
oftentimes defined by the scope of work that he/she agreed to
perform for a client. As a result, the scope of work detailed in
the legal services agreement is a critical part in utilizing the
fee agreement as a way to minimize malpractice exposure. 6
Slide 7
Identify your client When representing a minor or disabled
person, the attorney client fee agreement should be entered into
between the attorney and the guardian ad litem or conservator. (See
Fam. Code Section 6710; Prob. Code Section 3603.) Clients
frequently ask other individuals to accompany them when consulting
with a lawyer. Unless you clearly identify who your client is in a
fee agreement, you run the risk that an implied-in-fact
relationship will be found to exist (and all duties owed) to
persons you may not intend to be clients. (Hecht v. Sup. Ct. (1987)
192 Cal.App.3d 560.) If a third party is paying the fees for your
client, make sure that it is clear who your client is in your fee
agreement. 5 of 18 7
Slide 8
Duty to check for Potential Conflicts before accepting
representation: Attorney should check for any potential conflicts
with those who are adverse and potentially adverse, including
reasonably foreseeable parties and witnesses, before accepting
representation of a client in any matter. (Cal. State Bar Form Opn.
2011-182.) GOOD PRACTICE: Run and maintain a conflict check system
that contains a database of former and current clients. A conflict
check should be created and be part of the client intake process. A
file should not be opened until a conflict check is cleared and a
legal services agreement is fully executed. 8
Slide 9
Rule 3-300 Avoiding Interests Adverse to a Client A member
shall not enter into a business transaction with a client; or
knowingly acquire an ownership, possessory, security, or other
pecuniary interest adverse to a client, unless each of the
following requirements has been satisfied: (A) The transaction or
acquisition and its terms are fair and reasonable to the client and
are fully disclosed and transmitted in writing to the client in a
manner which should reasonably have been understood by the client;
and (B) The client is advised in writing that the client may seek
the advice of an independent lawyer of the client's choice and is
given a reasonable opportunity to seek that advice; and (C) The
client thereafter consents in writing to the terms of the
transaction or the terms of the acquisition. 9
Slide 10
Rule 3-310 Avoiding the Representation of Adverse Interests (C)
A member shall not, without the informed written consent of each
client: (1) Accept representation of more than one client in a
matter in which the interests of the clients potentially conflict;
or (2) Accept or continue representation of more than one client in
a matter in which the interests of the clients actually conflict;
or (3) Represent a client in a matter and at the same time in a
separate matter accept as a client a person or entity whose
interest in the first matter is adverse to the client in the first
matter. 10
Slide 11
"Informed written consent" means the client's or former
client's written agreement to the representation following written
disclosure. Examples 11
Slide 12
Client has absolute power to discharge attorney at any time
with or without cause. (Fracasse v. Brent (1972) 6 Cal.3d 784,
790.) Discharged attorney is entitled to recover reasonable value
of services rendered to the time of discharge. (Id.) Attorney may
withdraw at any time as permitted under the Rules of Professional
Conduct, which include: (a) client consents; (b) clients conduct
makes it unreasonably difficult for attorney to carry out the
employment effectively, and (c) client fails to pay attorney fees
or costs as required by the legal services agreement. (Cal. Rule of
Professional Conduct, Rule 3-700.) GOOD PRACTICE: Send closing
letter with final bill to begin clock on any legal malpractice
action. The time for filing a legal malpractice action is one-year
from the date that the plaintiff knew or should have discovered the
malpractice. The statute is tolled for continued representation.
(See C.C.P. Section 340.6.) 12
Slide 13
Attorney is ethically obligated on termination of employment
and at clients request to promptly release client file. (Cal. Rule
of Professional Conduct, Rule 3-700.) Unless the attorney-client
relationship is terminated, a lawyer is required to carry through
to conclusion all matters undertaken for a client. The duration of
the attorney-client relationship depends upon the agreed upon scope
of the relationship. (Matter of Allen (Rev.Dept. 2010) 5 Cal. State
Bar Ct.Rptr. 198, 204.) 13
Slide 14
The first rule of business is to survive and the guiding
principle of business economics is not the maximization of profit,
it is the avoidance of loss. Peter Drucker What are our risk
management strategies: Avoid Just Dont Do It Reduce Reduce the
chance of it happening or the harm caused Share Buy Insurance
Retain Well Take Care of It 14
Slide 15
Buying Your Insurance Policy Lack of insurance coverage for a
significant claim can threaten the existence of a law firm. The
majority of Lawyers Professional Liability (LPL) insurers have
noted an increase in both frequency and severity of claims between
2009 and 2012. LPL Underwriters acknowledge that there are several
claims in the market that will cost in excess of $50mln. The cost
of defending claims continues to rise with several LPL claims
exceeding $20mln in defense cost alone. 15
Slide 16
Most lawyers professional liability policies are claims-made
and reported policies. Claims covered only if the act, error or
omission occurred during the policy period AND is reported to the
insurer during the policy period. Modern policies extend coverage
to claims that occurred prior to the policy period so long as no
insured had knowledge of facts that could support a claim as of the
effective date of the policy. Most policies have Discovery Clause
to lock-in coverage for a Potential Claim Avoid harsh nature of
claims made and reported insurance policy by knowing and
understanding your policy 16
Slide 17
Two of the most common ways insurers deny professional
liability insurance coverage are: 1. Prior Knowledge limitation
clause 2. Failure to properly notify a claim The Policy will show
you the way Understand terminology Understand intent of coverage
Implement policies and procedures to ensure coverage of Claims and
Potential Claims 17
Slide 18
Prior Knowledge Limitation The most used provision by insurers
to deny coverage for a claim and perhaps one of the least
understood provisions by the law firm insured. The provision is in
place to deny coverage for a given claim, if, prior to the policys
inception date or defined retroactive date, a member of the law
firm had actual knowledge of facts or circumstances which a
reasonable lawyer could foresee might result in a claim. 18
Slide 19
19
Slide 20
Positive grant of coverage provided that, no Insured had a
basis to believe that any such act or omission, or Related Act or
Omission, might reasonably be expected to be the basis of a Claim
20
Slide 21
Claim / Incident / Disciplinary Information 35. After inquiry,
is any attorney in the firm aware of: b. an actual or alleged act,
omission, circumstance, or breach of duty that a reasonable
attorney would recognize might reasonably be expected to result in
a claim being made against the firm, any predecessor firm, or
against any attorney currently or formerly affiliated with the firm
or any predecessor firm, regardless of whether any such claim would
be meritorious? Yes No If yes to a, or b above complete a
Claims/Disciplinary Supplemental Application for each claim or
incident. 21
Slide 22
Signature and Representation 3. Applicants failure to report to
its current insurance company, during the current policy period,
either any claim made against any insured, or any act or omission
known to any insured that may reasonably be expected to be the
basis of a claim against any insured may create a lack of coverage.
4. Any attorney currently or formerly affiliated with the firm or
any predecessor firm, has disclosed in this Application any actual
or alleged, act, omission, circumstance or breach of duty that a
reasonable attorney would recognize might reasonably be expected to
result in a claim being made against the firm, any predecessor
firm, or any attorney currently or formerly affiliated with the
firm or any predecessor firm, regardless of whether any such claim
would be meritorious 22
Slide 23
When analyzing apply both subjective/objective standard:
whether an insured had actual knowledge of certain facts upon which
a reasonable attorney would have the basis to believe that the
insured breached a professional duty and that a claim might
reasonably be made based on those facts: It is irrelevant whether a
lawyer believed that the claim lacked merit or was frivolous. It
does not make a difference if the lawyer did not report the matter
because he subjectively believed that due to his excellent client
relationship he didnt think a claim would be made. 23
Slide 24
Abood v. Gulf Group Lloyds, 2008, WL 2641310 Plaintiff firm,
ARPR, represented a woman in her claim to recover damages for
personal injuries arising out of an automobile accident which took
place on Feb. 19, 2001. Statute of limitations on womans claim
expired on Feb. 19, 2003. Due to difficulties demonstrating womans
injuries, ARPR failed to file complaint before statute of
limitation expired. Feb. 26, 2003. ARPR informed woman of their
failure to timely file and advised her to pursue other counsel. In
womans response, she informed ARPR that she would not sue for
malpractice b/c she was still able to pursue her underinsured
motorist claim. 24
Slide 25
In 2004 ARPR purchased a claims-made LPL policy for the period
Jun 17, 2004 to June 17, 2005, which excluded coverage for any
claim related to a negligent act occurring prior to the inception
date of the policy if the insured knew or could have reasonably
foreseen it would be the basis of a claim. On June 8, 2005 new
lawyers representing woman injured in 2001 notified ARPR of their
intent to file a malpractice claim. ARPR advised Insurer of claim
in June 10, 2005 letter. In response Insurer denied coverage b/c
ARPR neglected to inform Insurer of this potential claim before
signing the application despite it being a reasonably foreseeable
claim. 25
Slide 26
In July 2005, ARPR filed declaratory judgment claiming Insurer
owed them indemnification b/c they had no knowledge prior to
signing the application that they would be sued. Court held that
prior knowledge exclusion barred coverage notwithstanding the
underlying plaintiffs initial indication that she did not intend to
file suit. Court concluded that a reasonable attorney in plaintiffs
position would have known that malpractice claim was possible.
Court found that any actions by client/claimant that fall short of
a waiver of future claims against an attorney will not extinguish
prior knowledge exception. Court also ruled that an attorneys
subjective belief, on the basis of his relationship with his client
or his impression of a clients reaction to a situation, have no
bearing on a prior knowledge exception. 26
Slide 27
As LPL policies are written on a claims-made basis and include
a prior knowledge provision, a failure to report a claim or
potential claim under current policy can cause a law firm to lose
coverage. It is essential that all claims or potential claims are
reported pursuant to the requirements of the policy. If an error
has occurred, report the matter as a potential claim, even if your
client has indicated it does not plan to sue. Promote a culture
where it is encouraged to discuss possible client issues. Adopt a
formal policy for the discovery and reporting of claims. Train
staff and attorneys on the reporting requirements of the LPL
policy. Appoint a central point person (managing partner, risk
management partner, etc.) to review all potential claims. 27
Slide 28
Coverage disputes due to a failure to provide timely notice of
claims or potential claims are common Timely notice of a claim to
the insurer during the policy period is a condition precedent to
coverage In addition to requiring that the claim be Reported during
the same policy period in which claims was made, most policies
require notice be made within a specified time period after
learning of the claim, which can be good or bad. Potential Claim
notice provisions are double edged sword providing relief from
prior knowledge limitation, but requiring notice during the policy
period regardless of the Claim notice provision. It is critical for
law firms to understand the reporting requirements of the insurance
contract because notice provisions are strictly construed. 28
Slide 29
I. INSURING AGREEMENT A. Coverage The Company agrees to pay on
behalf of the Insured all sums in excess of the deductible that the
Insured shall become legally obligated to pay as damages and claim
expenses because of a claim that is both first made against the
Insured and reported in writing to the Company during the policy
period by reason of an act or omission in the performance of legal
services by the Insured or by any person for whom the Insured is
legally liable 29
Slide 30
1. Notice of Claims The Insured, as a condition precedent to
the obligations of the Company under this Policy, shall as soon as
reasonably possible after learning of a claim give written notice
to the Company during the policy period of such claim. The Company
agrees that the Insured may have up to, but not to exceed, sixty
(60) days after the Policy expiration to report a claim made
against the Insured during the policy period if the reporting of
such claim is as soon as reasonably possible. 30
Slide 31
Notice provisions vary, depending on the policy, requiring that
notice be given: immediately (particularly upon receipt of demand
letters, legal pleadings and other written information relative to
Claim) no later than a specified period of time after becoming
aware; or, as soon as reasonably possible As soon as reasonably
possible a prejudicially long delay could jeopardize coverage
Notice must be in a manner such that it is clear to the insurer
that a claim is being reported 31
Slide 32
Potential Claim It is not a Claim YET! demand for money or
services arising out of an act or omission in the rendering of
legal advice Act, error or omission that could reasonably become a
claim in the future Objective review Facts indicating act, error or
omission, available at the time Which reasonable attorney believes
may reasonably be expected to be the basis of a claim against the
Insured Provisions require the insured to identify particular
clients, and particular errors or omissions. 32
Slide 33
2. Notice of Potential Claims If during the policy period the
Insured becomes aware of any act or omission that may reasonably be
expected to be the basis of a claim against the Insured and gives
written notice to the Company of such act or omission and the
reasons for anticipating a claim, with full particulars, including
but not limited to: a. the specific act or omission; b. the dates
and persons involved; c. the identity of anticipated or possible
claimants; d. the circumstances by which the Insured first became
aware of the possible claim, then any such claim that arises out of
such reported act or omission and that is subsequently made against
the Insured and reported to the Company shall be deemed to have
been made at the time such written notice was given to the Company.
33
Slide 34
Relying on renewal application to provide notice: LPL policies
provide specific instructions on how to give notice to insurers of
claims or potential claims. Simply including details of a claim or
potential claim in a renewal application does not meet the standard
required by the policy. Relying on insurance broker to provide
notice: While some insurers will accept notice of a claim or
potential claim from an insureds insurance broker, not all will. In
one decision, trial court rejected idea that insured's notice to
broker was sufficient stating, An insurance broker is the agent of
the insured, not the insurance company, and notice to an insurance
brokeris not notice to the insurer Oral notice may not be
sufficient: Oral notice to your insurer about a claim or potential
claim may not suffice reconfirming the importance of understanding
your specific policy requirements. Laundry list of list of clients
and matters as notice of Potential Claim Provisions require that
the insured identify particular clients, and particular errors or
omissions. A letter to insurer merely expressing concern about
potential claim would not trigger coverage if it did not identify
circumstances as to why the insured had a reasonable basis to
foresee a claim. Timing of Notice of Potential Claim is different
than a Claim Notice of Potential Claim is during the policy period
34
Slide 35
Berry & Murphy, P.C. v Carolina Casualty Insurance Company,
586 F.3d 803 Tenth Circuit held that there was no coverage under an
LPL policy where the claim was first made against a former partner
of an insured firm after he left the firm, and he did not
immediately disclose this to his prior firm. Background: Berry
& Murphy, P.C. (B&M) undertook a personal injury client,
the Burkhardts, in January 2005 with Mr. Murphy in the role as lead
lawyer. In March 2006, Mr. Murphy left B&M and joined another
firm, taking personal injury suit with him. Soon after his
departure, he filed motioned to withdraw from Burckhardt's lawsuit,
which district court granted. Burckhardt's claim was dismissed
without prejudice for failure to prosecute in June, 2006.
Burkhardts hired new counsel and case was reinstated but again
dismissed for failure to provide discovery. Burkhardts new attorney
sent Mr. Murphy a letter suggesting a forthcoming claim for
mishandling of the case and demanding he provide notice to his
carrier. Mr. Murphy did send notice to the carrier for his new firm
but did not provide a copy to B&M. 35
Slide 36
January 2008, Burkhardts filed legal malpractice claim against
Murphy and his former firm, B&M. In July 2008, Murphys former
partner Berry accepted service of complaint on behalf of B&M
and gave notice to Carolina Casualty. Mr. Berry had a claims-made
and reported policy effective Feb. 6, 2008 to Feb. 6, 2009.
Carolina Casualty denied coverage on grounds that alleged
malpractice was first made against an insured (Murphy) prior to the
inception date of the policy, therefore falling outside the policy
coverage. In ensuing coverage dispute, Berry argued that b/c policy
was effective when he notified carrier in July 2008, the carrier
improperly denied coverage. 36
Slide 37
District court disagreed and entered summary judgment for
Carolina Casualty reasoning Murphy, an insured, had notice of the
claim and the fact he failed to notify his former co-shareholder
was not a burden that should fall on carrier. Tenth Circuit
affirmed. Court assumed that B&M was a predecessor firm to
Berrys firm and that Murphy was an insured under the terms of the
policy, rejecting Berrys argument that Murphy ceased being an
insured when he left the firm. Court, determining that the wrongful
acts alleged in Burkhardts January 2007 letter related to the acts
alleged in malpractice claim and that Murphy was an insured,
concluded that the claim was not first made against the insured and
reported during the same policy period and there was no coverage.
37
Slide 38
Imperative that law firms report notice of claims and potential
claims to their LPL insurer immediately upon becoming aware of the
matter. Critical to review, and modify if necessary, the knowledge
of claim provision in the policy. Some insurers will agree to
modify language that limits the knowledge of a possible claim to a
small group of partners such as Managing Partner or General
Counsel. Assign responsibility for claim discovery, handling and
reporting to an individual or committee with requisite knowledge
and experience to oversee the process. Train attorneys and staff on
firm policy and insurance requirements regarding discover and
reporting of Claims and Potential Claims Law firms should adopt
policies and procedures that require outgoing lawyers to
acknowledge ongoing responsibility to provide notice of any claim
or potential claim that they become aware of after their departure
from the Firm. 38
Slide 39
LPL claims can: have significant financial impact (exhaustion
of retention, increase in premium at renewal, etc.) become time
consuming damage a firms reputation and morale The negative
implications of claims are dramatically compounded if a claim is
denied for prior knowledge or improper notice of a claim. In
situations where an insurer can legitimately deny coverage, the
financial consequences can threaten the existence of a law firm.
39
Slide 40
Mitigating Potential Legal Malpractice Claims Presented by:
Brad Barkin, Lemme Insurance Group John Wynn, Lemme Insurance Group
Jason E. Fellner, Murphy Pearson Bradley & Feeney Peter L.
Weber, Murphy Pearson Bradley & Feeney