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4 Ways to Save on Legal Malpractice Insurance

How to save money on professional liability insurance

Back in March of 2018, while at the Legal Malpractice and Risk Management Conference, the risk management director for a major carrier discussed the importance of engagement letters and the severe risks an attorney and/or firm take when not used. He asked for a show of hands from the attorneys in the room regarding who, on a regular, basis requires a client to sign and date an engagement letter before engaging in professional services. In a room of about 150 lawyers, maybe twenty raised their hand. The director stood up and jokingly called the attorneys with their hands not raised idiots.

The director emphasized that in large part, claims made against a firm have nothing to do with the attorney’s ability to be a good lawyer. It has much more to do with the attorneys and firm staying organized and understanding how to run a business. Part of having a law firm is running a business and in too many cases law firms big and small fall short of some simple standards.

These simple standards not only help lawyers and law firms avoid legal malpractice claims, but they also help reduce malpractice insurance costs. Insurance companies determine premium by evaluating their loss experience and determining practice areas and risky behavior that impacts the frequency and severity of those losses.

There is a reason that almost every malpractice insurance application asks about implementation of a central docket system, conflict of interest procedures, engagement letters, and disengagement letters. It is because these four risk management strategies are the primary reasons lawyers file claims.

Implementing these 4 risk management strategies will make your firm less of a “risk” to insure, therefore, saving you money on your legal malpractice insurance policy.

 

1. Implement a Central Docket or Diary System

All law firms should utilize a central docket or diary system to manage deadlines, meetings, court dates, statutes of limitations and any other important date(s) for the firm. This management system is critical in minimizing the firms risk of a professional liability claim. According to the American Bar Association, about 29% of malpractice claims result from administrative errors, such as the firm failing to meet a deadline or a missed Statute of Limitation.

Client billing should also be managed through these systems. Being aware of when a client owes money can eliminate potential conflicts in the future.

Law firms should implement two different central docket or diary systems and cross check on a daily basis. Preferred systems can include a company shared online calendar, ticker system, docketing software, or even a handwritten calendar. Additionally, attorneys should meet with support staff during the week to go over calendars making sure everyone is of important dates and deadlines approaching.

 

2. Follow Conflict of Interest Procedures and Protocols

As a practicing lawyer, you are expected to follow various rules of professional conduct. Rule 1.7 by the American Bar Association states “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” A conflict of interest exists when there is a substantial risk that the lawyer’s representation of the client would be adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, former client, or third person.

Every lawyer and law firm should be, and needs to be, checking all new matters for potential conflicts of interest before providing representation. If the firm determines there is a conflict of interest, representation should either be declined or, if the firm intends to represent the client, a waiver from all parties involved should be required. Both need to be done in writing. Failure to identify conflicts of interest and not handle properly can lead to loss of clients, returned fees, alleged breech of fiduciary duty and malpractice claims.

 

3. Use Engagement and Fee Agreement Letters

Some of the most powerful risk control tools and client service tools available to lawyers are engagement letters. Engagement letters are required by rule in every jurisdiction at some point for certain types of representation arrangements. Additionally, they are effective risk control tools because they can put distinct parameters around your professional obligations to clients.

To represent a client the firm should require the attorney and the client(s) to sign and date an engagement letter. The letter should provide a detailed explanation of the services the firm will and will not provide, including who the firm’s client(s) is. Included in the letter should be the fees associated with the firm’s services and when/how the client is required to pay. If the firm is inclined to put a client on a special payment schedule, this should be outlined in the letter.

Clearly-written engagement letters coupled with a thorough discussion of their contents can be used to help clients understand what they should expect of you and what is expected of them.

 

4. Use Declination/Non-engagement and Disengagement Letters

Along with engagement letters, declination and disengagement letters are of equal importance. Well-structured and well-handled, these documents can be the difference between incurring claim-related expenses and avoiding claims all together.

It is important to distinguish between non-engagement and disengagement letters. Non-engagement letters are used when a law firm never actually undertakes representation of the client in a specific matter, while a disengagement is used when the firm’s representation of the client has concluded.

If a law firm decides not to represent a potential client, an official declination or non-engagement letter needs to be given to the potential client. The firm can have this letter signed by all parties involved or send the letter to the parties mailing address. This letter should also include important dates which the potential client should be aware of regarding their case.

When a firm’s representation has concluded, a disengagement letter should be provided to the client. This letter should include a summary of services provided, advise actions the client must take if needed and detail the final bill which will be issued at a later date.

 

How To Save On Professional Liability Insurance

The business and organization aspect of the practice is very important, but unfortunately, many attorneys fall short of meeting the standards in this area. More and more we are seeing claims that result from poor firm management practices. Implementing these protocols is not difficult and, in most cases, can limit the potential of being sued.

One of the keys to saving money on legal malpractice insurance is by implementing the proper practice management protocols to mitigate potential risk and ultimately create less exposure in the carriers.

 

 

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Posted by Gabe Weiss

Gabe Weiss is the Underwriting Manager at Protexure Insurance Agency, Inc. Gabe is responsible for underwriting decisions made by the underwriting team, underwriting new business applicants, and the growth and development of the companies Sub-Produced Business Book. Gabe graduated from Eastern Illinois University with a Bachelors of Arts in Education.

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