While securing a new client is a positive thing for your law firm, it also comes with risks. Like any professional service offered, there are potential liabilities to consider. Risk isn’t all bad. As the saying goes, no risk, no reward. However, law firms must take the appropriate steps to mitigate negative consequences as much as possible with every client and service offered.
Attorney engagement letters are a key tool to reduce the risk of malpractice claims.
As the Assistant Vice President of Underwriting at Protexure Insurance Agency, I have seen many claims arise because attorneys elect not to use engagement letters. Engagement letters are so crucial to the protection of law firms that insurance carriers will often give law firms a discount on their insurance for using them.
Before implementing engagement letters, you must fully understand what they are, how they are used, and why they are critical to your firm's smooth operations.
What is an attorney engagement letter?
An attorney engagement letter defines the legal relationship between a law firm and a client. It states the terms, conditions, and scope of the attorney/client relationship and the terms of compensation.
After initially meeting with a new client, if you decide to offer representation as the attorney, the next step should be to draft an engagement letter—the first step in formally representing a client. The terms of an engagement letter should be in writing, not just because many states require it, but because it is a critical component of management best practices.
Update an attorney engagement letter any time the scope, fee, or conditions of the services provided change, then send your revisions to the client for approval.
Writing the engagement letter
Like any contract, the language used in an attorney engagement letter is extremely important. Explicitly defining the legal services provided can be the difference between being liable for a claim or not. The more detailed and specific you can make your engagement letter, the better. Generally, engagement letters are written in plain English with terms covering the following categories:
Scope: Define the scope of your representation as narrowly as possible. The more you do this, the more clarity your clients will have about what your representation will include. Explain that the attorney and law firm will not be obligated to offer legal services outside the scope of the engagement letter.
Define the client: Specify who your client is and which attorney(s) will represent them. Defining which party is represented is essential for avoiding liability. For instance, when handling an estate, failing to define the client may expose the law firm to claims from non-represented individuals related to the estate.
Fees and fee structure: Delineating fees will make it easier to defend against any claims and avoid confusion with the client.
Dispute resolution and termination clauses: Some lawyers like to include third-party mediation or arbitration should a dispute arise. Regardless of whether you include this language, outline the terms under which the client or the attorney may terminate the agreement.
Communications policy: This section outlines how and when the attorney will communicate with the client and any confidentiality concerns.
Technology: Emerging technology increasingly inserts itself into our historically technology-resistant field. For example, electronic signatures are now common and legally binding in most situations. Additionally, generative artificial intelligence (gen AI) is growing in adoption among attorneys. While no statutes exist on the federal level (at the time of writing), many state and local ordinances prohibit the use of gen AI or require its disclosure. The best practice is to err on the side of disclosure and let the client opt out of AI usage if they so choose.
Learn more: Responsibly Adopting AI in Law Firms
How engagement letters save you money
When applying for a legal malpractice insurance quote for your law firm, whether from your current carrier or new carrier(s), you are subject to specific underwriting characteristics that can affect your premium.
Typically, a carrier already has specifically defined rates based on the location of your practice, your firm's areas of practice, the number of attorneys, policy limits, and your firm's retroactive date. Once those are rated, one of the most prominent characteristics of a firm that underwriters review is the management protocols in place.
Engagement letter usage is a critical part of that for attorneys. The better your firm management processes look to the underwriter, the lower your premium will be. Ultimately, engagement letters will help your law firm save money on malpractice insurance.
Don’t be tempted by “handshake agreements” with clients you may already know or the ease of reusing pre-existing letters with former clients. These all-too-common shortcuts increase the risk to the law firm and the insurance carrier, no matter how familiar the client is. Engagement letters must be used consistently to save on insurance and maximize your protections.
The attorney engagement letter as risk management
Improve your firm’s risk management practices by requiring engagement letter usage for all clients. Most legal malpractice insurance carriers, like Protexure, provide a risk management hotline. These hotlines have many valuable functions for insureds. Risk management hotlines are a good source of information about engagement letters and other risk management protocols. The hotline can provide basic outlines and the best language for an engagement letter and potentially contour it to the specific area of practice.
Protexure provides various insurance solutions, such as Professional Liability Insurance, to help attorneys manage risks. We focus on supporting small and solo law firms with insurance and expert guidance.
If you have questions about attorney engagement letters, contact one of our specialists to assess potential risks. Existing clients may call our risk management helpline.
Disclaimer: This article is not a substitute for legal advice. Always consult with a qualified attorney to address the unique details of your case and stay informed about the latest legal developments.
