Whoops—Legal Malpractice Prevention

Legal malpractice claims are bad enough. Unfortunately, many attorneys respond in a way that makes them worse, transforming legal malpractice claims into litigation nightmares. A straightforward claim that might have been resolved early instead becomes expensive and complex, with significant exposure and high defense costs.

To prevent this from happening, attorneys should avoid these five common mistakes upon learning they are the subject of a legal malpractice claim.

Assuming a Claim Will Become a Lawsuit

Contrary to public perception, the filing and prosecution of a legal malpractice lawsuit is not easy. In contrast, the mere assertion of a legal malpractice claim requires little. The difference between a lawsuit and a claim is important.1

Data confirm that most legal malpractice claims lack merit.2 Sometimes, a client will threaten to bring a legal malpractice claim to avoid paying a bill or because he is unhappy with an outcome of his matter. However, neither scenario necessarily supports a viable legal malpractice lawsuit.

Moreover, the fact that a claim arises from an actual mistake by the attorney, without more, is insufficient to support a legal malpractice lawsuit. To prove malpractice, the plaintiff must establish that the mistake proximately caused him damage.3

Even then, financial or other pressures may prevent a client from filing suit. A lawsuit involves fixed costs, including filing fees. In Colorado, within 60 days of commencing a legal malpractice lawsuit, the plaintiff must file a certificate of review stating that she has conferred with a legal professional who, after reviewing the known facts, has concluded that the filing of the malpractice claim does not lack substantial justification.4 These requirements impose costs on anyone seeking to pursue a malpractice lawsuit in Colorado.

A plaintiff in a malpractice case faces other burdens. Putting aside the out-of-pocket expenses, a client who sues his attorney waives all attorney–client privilege protections.5 This typically means that everything the client told the attorney can be disclosed. In addition, the client must spend time on litigation, which may further discourage him from filing a legal malpractice lawsuit.

Finally, a client must determine that a claim is worth the risk and hire counsel to file suit. Moreover, after hiring counsel, the client and her legal malpractice attorney must decide that the return on investment is worth the money and time necessary to litigate the claim.

Admitting Legal Malpractice

The duty to keep clients informed includes self-reporting when mistakes happen.6 However, there is a fine line between the duty to report facts material to the representation and admitting legal malpractice, which significantly increases the likelihood that the client will file suit.

Attorneys who fail to timely report mistakes face significant risks. These can include tolling of the statute of limitation and exposure to a conflict of interest claim based on the conflict between the client’s interests and the attorney’s interests.7 Failure to report an error increases the likelihood that a malpractice claim will become a legal malpractice lawsuit.8

One factor that can motivate a client to file a lawsuit is the concealment of a mistake from the client. In those circumstances, juries do not react well. On the other hand, not all mistakes constitute legal malpractice.

There are serious consequences for admitting malpractice when legal malpractice has not occurred. Obviously, such admissions can make defending the issue of liability very difficult. Less obvious, however, is that an admission can constitute a violation of the “no admissions” clause of the typical legal malpractice insurance policy, and can negate insurance coverage.9

In practice, if there is an adverse development in a representation, the best and safest approach is to timely report the material facts to the impacted client. If the adverse development arises out of the attorney’s action or inaction, the report should include that fact as well.

The best practice is to stop short of concluding or conceding that the mistake and any resulting adverse developments constitute legal malpractice. Indeed, the attorney may erroneously characterize a mistake as “legal malpractice” regardless of the facts and the substantive defenses that could establish the absence of malpractice.

Because this line is so fine, an attorney should promptly consult with another attorney, such as her firm’s in-house general counsel or outside counsel, before reporting an error to the client. Typically, attorneys are the worst second-guessers of themselves. As a result, an objective view from a disinterested attorney can save a significant amount of defense costs and minimize legal exposure.

Ignoring the Problem

While some attorneys overreact to potential claims, others will simply ignore the problem and hope it goes away. This strategy rarely works. If a client is convinced that an attorney has committed legal malpractice, the client is unlikely to let it go. Instead, emotions take over, which is why so many unmeritorious legal malpractice claims are filed.

A better approach is to address the issue by providing the client with a copy of the file and by responding to client inquiries. If any issues need to be addressed, address them. Of course, it is equally important that attorneys ensure that all appropriate notices are provided to their legal malpractice insurance company. Providing timely notice of a claim to the attorney’s malpractice carrier is vital, even though providing late notice may not automatically result in denial of the claim. Under the notice-prejudice rule, which the Colorado Supreme Court adopted in 2005, late notice of a claim to the insurer is generally not fatal to the policyholder’s claim unless the insurer proves, by a preponderance of the evidence, that it was prejudiced as a result of the late notice.10

As a matter of first impression, the Colorado Supreme Court recently limited the notice-prejudice rule and held that it does not apply to a date-certain notice requirement set forth in a claims made insurance policy.11 There are two types of insurance policies: (1) occurrence and (2) claims-made. An occurrence policy provides coverage for “occurrences” during the policy term, regardless of when the policyholder makes a claim arising from the occurrence.12 In contrast, a claims-made policy provides coverage for only those claims made during the policy term or any applicable extended reporting period.13

[O]ccurrence policies and claims-made policies are almost the mirror image of each other: an occurrence policy provides coverage for events that happen during the policy period, even if the claim is brought many years in the future; a claims-made policy provides potential coverage for claims brought against the insured during the policy period, even if the underlying event giving rise to the liability occurred many years in the past.14

Regardless of whether an attorney has purchased an occurrence or a claims-made policy, the best practice is to provide the insurer with prompt notice of a claim to avoid any possibility of denial of coverage on grounds of untimeliness.

Suing to Get Ahead

In many instances, clients with potential legal malpractice claims owe the attorney unpaid fees or expenses. Some attorneys see this as an opportunity to get ahead of the curve by filing their own lawsuit against the client first to recover the unpaid fees. In doing so, the attorney’s goal is to dictate the timing of the proceedings or secure a favorable forum. This “first to file” approach, however, makes a potential legal malpractice claim into a reality, complete with the initial out-of-pocket expenses associated with filing the lawsuit.

Certainly, there may be reasons unique to a particular situation to justify preemptively filing a lawsuit against a client. However, those circumstances are rare and inapplicable to most attorneys. Unless the client’s claim is little more than an excuse to avoid paying fees, and the attorney has concluded that the likelihood of success on the fee claim far outweighs the risk of a malpractice counterclaim, attorneys should not commence litigation against a client with a potential malpractice claim.

Making Settlement Offers Without Insurer Consent

Some claims merit early settlement attempts. Attorneys should not ignore those opportunities, especially if the amount required to settle is small compared to the costs and exposure associated with the claim.

The typical legal malpractice policy, however, prohibits an attorney from making a settlement offer without the insurance company’s consent. It is critically important that any efforts to settle be coordinated with the insurance company. The risks of failing to do so are significant. Most notably, settlement offers without the insurer’s consent can jeopardize coverage for the entire claim, even if the proposed settlement is within the policy deductible.15 Attempts to settle without involving the insurer are just too risky.

Conclusion

Not every claim becomes a lawsuit. Attorneys who receive notice of a claim should avoid making the five mistakes listed above to reduce the likelihood of malpractice litigation.