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All lawyers live in dread of a malpractice claim. This feeling is understandable. My company's statistics show that four out of five lawyers will have at least one claim during their legal careers. Even the most experienced lawyers are not immune. The good news is that by understanding where the risks are, you can easily reduce your risk of a malpractice claim. The articles in this issue of LawPracticeToday will show you where your greatest risks of a malpractice claim are, and more importantly, the proactive steps and strategies you can take to reduce your exposure claims.
Unique Insights From a Wealth of Malpractice Claims Statistics
Ontario lawyers in private practice are required to have professional malpractice coverage. Liability insurance is mandatory to protect the public and to ensure that all lawyers have equal access to liability insurance. My employer, the Lawyers' Professional Liability Company (www.lawpro.ca) is the sole provider of this coverage, at present to just over 20,000 Ontario lawyers.
The fact that we insure every lawyer, at every firm, in every area of the law gives us unique insights into where and why malpractice claims are happening. From many presentations in the United States, and my dealings with US malpractice carriers and State Bar Association Practice Management Advisors, it appears that malpractice claims in the US are very similar in nature, cause, and frequency to those in Ontario.
As mentioned above, our statistics indicated that 4 out of 5 lawyers will have at least one claim during their legal careers. An analysis of LAWPRO's statistics also reveals some other interesting claims trends:
- On average, it takes two to three years after legal services are provided for a claim that stems from these services to be reported. In other words, lawyers have to be aware of both the risk associated with their present practice, and with their exposure from legal services provided in the past.
- Most claims activity occurs after lawyers have been in practice for 6 years and tails off after about 25 years. Clearly, risk increases the longer a lawyer is in practice.
- New lawyers generate fewer claims: Those in practice for less than three years generally have a better claims experience than those in practice for a longer period. As well, errors made by new lawyers tend to be more of an administrative nature rather than with respect to conflicts of interest or client relations.
- Causes of loss are consistent for all lawyer groupings: The most significant causes of loss are the same in all lawyer groupings, no matter whether they are sole practitioners, lawyers in small firms or lawyers in large firms.
- No region (urban, suburban or rural) is more or less prone to claims. Generally, claims statistics track a region's membership base. The more lawyers there are in any given geographical region, the higher the overall claims experience.
- Firms with a high ratio of support staff to lawyers are more claims-prone.
- Lawyers who dabble in practice areas outside their usual area of expertise are significantly more claims-prone, in particular those who dabble for family members. <link: See this article for more information on the dangers of dabbling and doing work for family members>
- Specialists have significantly less exposure per additional hour of work in their area of specialty.
- Lawyers with multiple claims tend to commit the same or similar error in each claim.
What types of claims are happening?
Under the LAWPRO program, all claims are categorized with a description of loss representing the type of error that was made. This information makes it instantly apparent where the most common mistakes are being made.
Although knowing black-letter law is important, in most areas of practice, a law-related mistake is not even close to your greatest risk of a malpractice claim. A review of the 9,221 LAWPRO claims made between 1999-2004, covering all practice areas, shows that only nine percent of all claims involved a failure to know or apply the law. This figure surprises most lawyers and Continuing Legal Education providers, who expect this type of error to be among the most common that lawyers make. Less than one in ten claims involves a substantive law mistake.
So where are your greatest risks?
From the five years of claims data mentioned in the previous paragraph, lawyer/client communication and relationship issues accounted for 46 percent of claims by count, and 51 percent of claims costs (defence and indemnity). This is the area of greatest risk. Basic time, deadline and calendaring issues was next, accounted for 14 percent of claims by count, and 11 percent of claims costs. Third up was a failure to know or apply the law, which accounted for 9.0 percent of claims by count, and 9.6 percent of claims costs. Fourth up, conflicts of interest accounted for 6.0 percent of claims by count, and 8.3 percent of claims by cost. Let's look at these in more depth.
Lawyer/Client Communications and Relationships
As mentioned above, lawyer/client communication and relationship issues are the most significant causes of malpractice claims. They accounted for an amazing 46 percent of LawPRO 's claims over the last five years, and 51 percent or our costs. The types of errors on these claims can be grouped into one of four categories:
- Failure to follow client’s instructions (13.7 percent of claims, 13.6 percent of costs);
- Inadequate discovery of facts or inadequate investigation (12.9 percent of claims, 15.0 percent of costs);
- Failure to obtain client's consent or to inform client (11.6 percent of claims, 13.4 percent of costs); and
- Poor communication with client (8.0 percent of claims, 9.0 percent of costs).
What is a failure to follow client’s instructions? It can truly be a simple failure to follow the instructions of a client. However, on many of these matters it is unclear what instructions were given or not given by a client, and what steps were taken or not taken by the lawyer. In many of these types of claims, there are limited, or even no notes in the lawyer’s file, and/or no letter to the client confirming what instructions were given, and what steps were taken. Often the client’s recollection is different from the lawyer’s recollection as to what was said or done, or not said or not done; and too often the client’s recollection is much more specific that the lawyer's.
Consider, for example, a real estate deal. Most clients buy or sell only one or two properties in their lifetimes, whereas a real estate lawyer may act on thousands of real estate deals. It should be clear who will have the better recollection of the details on any specific real estate matter. These types of claims are very difficult for us to defend because they come down to credibility, and very often the client’s more specific evidence wins out over the lawyer’s more general recollection. This most common and most costly error is also one of the easiest to prevent. How? Write it down.
Send something in writing to the client confirming what instructions were given, and what steps were taken or not taken further to those instructions. Your communication can be a letter, a fax, or even an e-mail. No matter what form it takes, this confirmation serves to confirm, in a contemporaneous manner, exactly what was said and done. Having such a confirmation can be of great assistance in the event of a malpractice claim.
As a backup, consider creating a detailed docket. For example, don’t just docket “telephone call with client, 0.3 hours.” Add more details to the docket such as: “telephone call with client re don’t bother writing to City Hall for a clarification of the interpretation of By-Law 345, client feels it is clear, and the deal must go through, 0.3 hours.”
The other three types of lawyer/client communication errors are variations on the same theme. An inadequate discovery of facts or inadequate investigation error usually involves a failure to dig a bit deeper and recognize facts or issues that are relevant to the matter the lawyer is working on. The next communication related error is exactly what it says: a failure to obtain client's consent or to inform client. Poor communication with client frequently involves a failure to advise a client as to timing, process, costs, options, and possible outcomes etc.
Be proactive in your efforts to communicate with your clients. At the time of retainer make sure they understand the terms of the retainer, and the process, procedure and timing for the matter you are to handle for them. Make sure you keep the client informed at all stages as the matter proceeds. In your file, make sure you carefully document client communications and instructions. All these things are easy to do, and will help significantly reduce your exposure to a malpractice claim.
Time, Deadline and Calendaring Issues
The second most frequent cause of errors, which over the last five years accounted for 14 percent of LawPRO 's claims by count, is also the second most costly at 11 percent of claims costs. These claims involve time, deadline and calendaring issues and fall into four categories:
- Failure to know or ascertain a deadline correctly (not knowing a limitation or notice period, or filing deadline)
- Failure to calendar properly (the deadline was known but was not in a calendar or tickler system)
- Procrastination in performance of services or lack of follow-up, and
- Failure to react to calendar (the deadline made it into a calendar or tickler system but was missed).
Basic practice and time management is all that is required to avoid these errors. WE all get busy and can't keep track or keep up on everything we should. Make sure you keep an up-to-date calendar, and properly manage your time and priorities. Any of the practice management software products (Amicus Attorney, Time Matters, ProLaw etc.) can help you be far more efficient and productive in tracking deadlines, setting priorities and managing your practice. Not only will they help you avoid a malpractice claim, they will help your bottom line too.
Errors Related to Substantive Law
Over the last five years a failure to know or apply the law accounted for 9.0 percent of LawPRO claims by count, and 9.6 percent of our claims costs. This makes it the third most frequent and third most costly error over the last five years, and far less significant that the over sixty percent of errors that involve communication and time management issues. Keep this in mind when you are taking CLE programs and other self-improvement course. Don't solely focus on substantive law. Take some course that will help improve your communication and time management skills. Legal CLE provides should take note of this and include more of this type of content in their programs.
Conflicts of Interest
Conflicts of interest accounted for 6.0 percent of claims by count and 8.3 percent of claims by cost. The fourth most frequent and fourth most costly error over the last five years.
What is a conflict of interest? It is a compromising influence that is likely to negatively affect the advice, which a lawyer would otherwise give to a client. A conflict of interest can adversely affect a lawyer’s judgment, loyalty, and ability to safeguard the interests of a client or prospective client.
What is it about a conflict of interest that is so bad? The answer is quite simple. Loyalty and independence of judgment are essential to the effective representation of a client. They are also fundamental to the health of the lawyer/client relationship. A conflict of interest may make it impossible to exercise loyal and independent judgment. The following passage from the judgment of Wilson, J.A. in Davey v. Woolley, Hames, Dale & Dingwall (1982) 35 O.R. (2d) 599 (Ont.C.A.) is worth remembering [yes it is Canadian law, but the sentiment will ring loud and true]:
“…In any event, the lawyer unquestionably assumes a dual role at his own risk, the onus being on him in any lawsuit that ensures to establish that the client has had ‘the best professional assistance which, if he had been engaged in a transaction with a third party, he could possibly have afforded’…” (at p. 602).
Therefore, identifying and checking for a conflict of interest needs to be a routine part of every lawyer’s practice. In fact, every time you have a new client or start a new matter for an existing client, you should consider if a real or potential conflict of interest situation exists on that matter. As a matter proceeds, you should continually assess whether any new circumstances give rise to a conflict of interest.
LAWPRO’s data makes it clear that law firms are not catching or recognizing conflict situations. Even in small firms, not to mention much larger firms with offices in separate cities, it is impossible to properly check for conflicts of interest without some kind of electronic database. Most law office accounting or practice management software products now include the ability to quickly search for possible conflicts within the software’s database. To help ensure all possible conflicts are caught, this database should include more than just client data. On litigation matters, witnesses, experts and other involved parties may have to be included in the database. On corporate matters, officers, directors, shareholders and others, including related corporate entities, may have to be included.
The most claims-prone conflicts arise when lawyers act for more than one person or entity on a single matter, and when lawyers act for a client on a matter where the lawyer has a personal interest other than reasonable professional fees. This personal interest is frequently a direct financial stake in a matter, or a client who is a family member or personal friend.
When a conflict of interest situation arises, it is critical that a lawyer handle the matter properly by immediately informing the client, and either withdrawing, or proceeding with the client’s consent. Taking appropriate steps to handle a conflict of interest situation is critical in terms of avoiding a malpractice claim.
The good news is that the four most common types of malpractice claims are all easily preventable. Better client communication is the key. Be proactive in your efforts to communicate with your clients. At the time of retainer make sure they understand the terms of the retainer, and the process, procedure and timing for the matter you are to handle for them. Make sure you keep the client informed at all stages as the matter proceeds, and advise them as to options and potential outcomes. In your file, carefully document client communications and instructions, and the steps take on a matter.
Basic practice management is also essential. Make sure you keep an up-to-date calendar, manage your time and priorities, and systematically check for conflicts. Case management software can help you with these tasks.
Lastly, take CLE courses to keep current on substantive law, but make sure your primary focus remains better communications with your clients, and better time and practice management.
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Dan Pinnington (dan.Pinnington@lawpro.ca) works for the Lawyers' Professional Indemnity Company (www.lawpro.ca) to help the 20,000 practising lawyers in Ontario avoid malpractice claims. He speaks and writes frequently on a variety of risk management and legal technology topics. Through practicePRO (www.practicepro.ca) he provides Ontario lawyers with practical how-to resources aimed at helping them succeed in the practice of law.
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