Imagine this, a client owes you money for the professional services you provided. They refuse to pay. You sue them for said fees and get the money you are owed. While it should be as simple as that, most of the time, it is not. And, in relation to your professional liability insurance, it can cause more headaches than its worth.
Fee suits can be a reason for seeing a higher premium upon renewal, or in some cases, declination from an insurance carrier. The main reason for this is that fee suits can lead to counterclaims from the disgruntled client. Even if this counterclaim is without merit, it will still be reported as a claim to your insurance company.
Guidelines vary from carrier to carrier, but unfortunately one consistency remains, a claim counts as a claim, regardless of its frivolous nature. Most carriers have a cap on how many claims they will accept from a firm over the past several years. If you have three counterclaims filed, all within a year, your firm could be ineligible for renewal or acceptance into a new professional liability program.
Does This Mean You Should Never Sue For Claims?
Of course not. Carriers understand that a small law firm is a business that must be sustained; there are circumstances where it is appropriate to sue for fees. Before it comes to that, it is best to do everything in your power to obtain the money you are owed without filing a fee suit.
Be conscientious of how many fee suits you are filing a year. Like claims, most carriers have restrictions on how many fee suits a firm can file within a certain number of years, as well as a limit on the amount that is sued for.
Unfortunately, also similar to claims, it does not matter how much merit the fee suits have. Even if every single case has a “judgement plaintiff” outcome, you can still be charged an increased premium, or even declined coverage.
It is best to avoid waiting to file all fee suits in one big sweep, as this can make it appear like the firm files more fee suits than it really does. In some cases, while it is frustrating, the best course of action is sometimes to just let it go. If it is $200 that is being sued for, it is probably not worth the billable time, the risk of a claim, or the potential mark on your professional liability application.
How to Avoid Fee Suits?
The best way to avoid fee suits is to make sure your client knows exactly what to expect from the professional relationship. Signing engagement letters and fee agreements with clients can greatly improve your collection rate. Make sure the client knows what the fees are and when they are to be paid prior to working on their case. This agreement should be made in writing and clearly communicated to the client.
Certain areas of law are at less risk for fee suits. For example, a personal injury attorney that is paid a percentage of the settlement, should they win the case, typically sees a higher collection rate. They are paid directly from the money that comes in and are not dependent on the client to come up with the cash. While other areas, such as family law, have a lower collection rate and a much higher fee suit rate. It is important to keep in mind the risks of your specific area of practice when setting up your firm, taking on clients and developing payment plans.
The best way to assess a client's ability to pay for your services is to have a screening process before taking on a case. Not all clients are good clients for your firm; some can end up costing the firm far more money than they bring in. Within reason, do your due diligence before accepting a new client and/or case. If this client has a history of not paying attorneys or is clearly in a position where they would be unable to pay, it might not be a good fit.
The fact of the matter is, some clients will simply not have the means to pay all the fees being asked; maybe the case took longer than expected, and the bills are higher than anticipated. Filing a fee suit won’t magically give them the money. To help both you and the client, discuss a payment plan that works for everyone.
While it can be hard to screen for “personality,” especially when you may only be meeting with a client once before accepting the case, do your best to determine if they are a reasonable individual. Avoid clients that may be prone to hot headedness or that appear temperamental. One reason they may not pay you money that is owed is if they feel they were wronged somehow or that they money was not earned by the attorney. It is also a best practice to have good customer service and be kind to your clients. A few small niceties can go a long way and help protect you from a disgruntled client.
Sometimes fee suits are unavoidable and necessary to the sustainability of a law firm, but be aware that they can lead to claims and can count against you on your professional liability application. Avoid filing them when possible, and only use them as a last resort.