There is no 'one-size-fits-all' method of preventing legal malpractice claims. The single best tool an attorney has to manage risk and reduce the likelihood of claims is the engagement letter.

When risk managers or insurers audit a law practice for the risk of legal malpractice, they often review the files first to see whether every matter has an executed engagement letter or fee contract. There's a reason for this.

Every open matter at a law firm should have either an executed engagement/retainer letter or a fee contract. This includes new matters for existing clients, and additional clients for existing matters. Effective risk management systems condition an engagement letter on the opening of a new file, the assignment of a client/matter number, or billing.

Some legal malpractice insurers favor law practices that require, without exception, an executed engagement letter or fee contract before a file can be opened. As a result, the question is not whether to have an executed engagement/retainer letter or fee contract. Instead, it's what should go in this most important document?

While every engagement/retainer letter or fee contract will vary depending on the facts and circumstances of the representation, here are five topics that should always be addressed.

Identify the client

Attorneys owe ethical, professional and legal duties to their clients. One of the most important things an attorney can do is identify specifically who the client is. This is simple enough in most situations: There is a single client in a single capacity. But there are other representations when it is not so clear.

In some situations, a single client can have multiple entities or multiple roles. In the estate context, this could involve a person who is both an executor and an heir. In the corporate context, it could mean representing both an officer and the corporation itself. Or it could just mean representing multiple parties to a transaction.

Regardless, the most important goal is to identify each client by name and capacity. (If more than one client or capacity is involved, the lawyer should also address and resolve any potential conflicts of interest that may exist.)

To eliminate any misunderstanding, this section of the letter agreement could also include a disclaimer: "This firm does not represent any person or entity that has not been specifically identified as a client. No duties have been undertaken nor assumed for any person or entity that has not been specifically identified as a client."

Identify the scope of the representation

After identifying who the attorney represents, the next step is to confirm exactly what the attorney has been hired to do. In the absence of some definition or limitation on the representation, it will likely be assumed that the representation is a general one for all purposes.

General representations are fraught with risk. In the absence of some limitation, a general representation can be unlimited in duration and scope. As a result, an attorney hired to represent a client charged with a traffic citation in an accident might be expected to represent the client in all matters arising out of the citation, possibly such as appearing at the hearing on the traffic citation, advising the client about liabilities arising out of the accident, or advising on the statute of limitation for claims the client might have based on the accident. The attorney could have obligations to advise the client to report the matter to the client's insurer and to assist in collection of insurance proceeds for damages incurred as a result of the accident.

For the attorney who wants to represent the client in every aspect of the incident, a general representation might be acceptable. But for the attorney hired to handle only the traffic citation in a criminal proceeding, a general representation would be inappropriate. The key is to define exactly what the attorney has been hired to do and make clear that the attorney has not been retained for anything more.

Similar problems arise if there is no limitation on the duration of the representation. So, absent some limitation (or a file closing letter), an attorney retained to draft a will might have a continuing obligation to advise a client on changes in estate and taxation law long after the will has been executed. Or, in a real estate transaction, the attorney may have a continuing obligation to renew security filings, or take additional steps to protect the client's interest long after the closing.

To address this risk, the engagement letter should contain some limitation on the scope of representation, whether by time or by event. This could be a final resolution by settlement or judgment in the litigation context. It could be the closing in a real estate context. It could be the execution of the will in the estate context. This time component should be backed up by a file closing letter when the event occurs. This means including a definitive statement confirming the termination of the representation and disclaiming any further duties for future legal services absent an additional retention.

Confirm the fee

Attorneys should always negotiate their fee with clients before the attorney-client relationship begins. In the engagement/retainer letter or fee contract, the attorney should confirm exactly what that fee is and how it will be billed, paid and/or collected.

Describe the Process for Withdrawal

While no representation starts with an expectation that it will not work out, every representation should contemplate such a possibility. It could be that a conflict arises requiring the attorney to withdraw. Or the client could fail to pay the bills or refuse to follow the directions of counsel.

Regardless of the reason, attorneys should outline the process by which the attorney may withdraw. This includes confirming the name and address for purposes of communicating an intent to withdraw if necessary. The most important part is an agreement by the client that this is the procedure to which the parties have agreed, including notice for purposes of withdrawal, although withdrawal may also be governed by the rules of court (particularly in an active litigation).

Confirm the Representation Is Not Assignable

States vary regarding whether legal malpractice cases are assignable. Although recent Georgia precedent dictates that such cases are not assignable, the question remains open in some other jurisdictions. The most effective way to address this risk is to expressly state that the representation is for personal services and is not assignable.

Other Provisions

There are other provisions that can be added, including waivers of remote conflicts that do not impair or otherwise adversely affect the independent professional judgment of the attorney. Some attorneys also include fee dispute agreements, including an agreement to either mediate or use fee arbitration procedures.

The most important step for effective risk management is to actually have an engagement/retainer letter or fee contract. Then, have the client execute the engagement/retainer letter or fee contract and return it.

As published by American Lawyer Media