Tips for Avoiding Legal Malpractice Claims in an Uncertain EconomySeptember 21, 2020 – Article
The coronavirus has ushered in a period of economic uncertainty. No one knows how long the economy may lag, how severe it will get, and what a recovery will look like. If there is one certainty that lawyers can take from an economic downturn, it is that legal malpractice claims will increase.
Anecdotally, there are various reasons why this may be the case. At the most basic level, when the economy falters, people lose money. Lawyers are tantalizing targets to recoup losses. In addition to their personal assets, lawyers typically carry malpractice insurance. Lawyers often play a conspicuous role in transactions spawning a loss, and they remain visible after the transaction is complete. For example, a lawyer who unwittingly participated in an investment transaction that turned out to be fraudulent will almost always be targeted in a lawsuit, even if the lawyer played a minor role in the transaction. While the hedge fund manager orchestrating a Ponzi scheme may have since fled the country, the lawyer who drafted the offering documents can be found still plugging away in his (home) office. A ‘deep pocket’ that can be readily served with a complaint makes the lawyer an ideal defendant.
In our experience, another reason to expect more legal malpractice claims in a down economy is that former clients seem more prone to assess blame when they are hurting financially. That blame is sometimes justified against the lawyer and sometimes it is not. Either way, lawyers who once had close relationships with their clients may find themselves on opposite ends of the table.
So what can lawyers do to protect themselves from such claims? Below are some tips to be better prepared for a legal malpractice claim—if not to avoid them entirely.
While Georgia lawyers are not required to hold legal malpractice coverage, you risk both your professional and personal assets without such coverage. Also, many policies provide coverage and will select experienced practitioners to assist in the event of disciplinary grievances.
For those who already have it, now would be a good time to review your policy to make sure you are adequately protected. This obviously varies depending on the law firm and practice areas and should be tailored accordingly. For instance, if your law firm serves as an escrow agent, whether in real-estate or other types of commercial transactions, do not accept and disburse more than your coverage provides. Also, you should ensure your coverage protects against cybercrimes, such as ransomware and phishing attacks. Lawyers are frequent targets of such cybercrimes. Their prevalence has only increased in the wake of remote working.
In terms of other types of coverage, it is fair to expect that some law firms will not survive this financial crisis. We will probably see an uptick in mergers, lateral moves, and maybe more than a few lawyers deciding on early retirement. Before either dissolving a firm or moving on, it is important to remember that malpractice claims may arise years later. Any such claims would likely not be covered by a subsequent insurance policy with, for instance, a new firm. To protect against such a gap, you should obtain “tail” coverage. Tail coverage essentially extends the period for reporting claims beyond the date when a policy was in force.
Regardless of what ultimately happens with this pandemic, law firms should acknowledge that remote working is here to stay. While it may have never crossed your mind when sending a few emails here and there in the past, your home network and computer may not have the level of security that you have come to expect (justifiably or not) at the office. This is doubly true for those who use the public networks at coffee shops and hotels. Whether implementing cyber-security training, updating remote-working policies, requiring virtual privacy networks (VPNs), updating passwords, or numerous other actions geared toward securing information, the days of sticking your head in the sand on technology are coming to an end.
Mergers and Job Changes
As noted, firms may merge to weather an economic downturn. Many lawyers will change jobs. Litigators may switch from the defense to the plaintiff’s bar. All scenarios trigger potential conflict situations. For example, an insurance defense lawyer who switches to a plaintiff’s firm must ensure his new firm is not actively litigating a case against his old firm. Rule 1.9(b) provides that a “lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client: (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 (attorney-client communications) and 1.9 (c) (information related to the representation)” unless the lawyer obtains written consent from the former client. Notably, comment 5 to rule 1.9 confirms the conflict only arises where a lawyer changing firms has actual knowledge of either information related to the representation or attorney-client protected information.
When work dries up and new matters are less frequently coming in the door, there is a tendency to continue representations when the lawyer is not getting adequately paid. This may lead the lawyer to not take certain necessary legal steps during the representation in order to make it profitable. Rule 1.3 of the Georgia Rules of Professional Conduct requires lawyers to act “with reasonable diligence and promptness in representing a client.” Reasonable diligence means “a lawyer shall not without just cause to the detriment of the client in effect willfully abandon or willfully disregard a legal matter entrusted to the lawyer.” Critically, a lack of compensation does not justify a substandard representation. If a matter is not profitable, it is critical to withdraw. As comment 4 to Rule 1.3 cautions: “Unless the relationship is terminated as provided in Rule 1.16, a lawyer should carry through to conclusion all matters undertaken for a client.”
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