The Economic Downturn and its Effect on Claims Against Attorneys

A declining economy impacts more than just individual and corporate financial interests; in fact, professionals in every field have to adjust to working in an entirely new economic landscape that affects every aspect of their business. Unfortunately, the risk to attorneys is twofold: As the economy turns downward, there is now a statistically verifiable second wave impact where lawyers face increased incidence of claims by disgruntled clients. Lawyers are involved in virtually every aspect of modern society, with a particularly strong presence in financial transactions, and when clients’ deals go bad, or litigation does not achieve the desired outcome, lawyers may be left to shoulder the blame. Since the 2007 mortgage crisis and its ensuing impact on the global economy, the number of claims against lawyers – and the magnitude of those claims – has increased steadily. Lawyers should engage in risk management techniques in order to shield themselves from such claims, and, should they end up in the litigation crosshairs, consider litigation strategies that may eliminate or mitigate exposures.

While attorneys in nearly every practice area are susceptible to the dangers of a shifting economy, some areas are at greater risk than others for legal malpractice claims, such as business transactions and wills, estate and probate work.

Plaintiffs’ personal injury is another historically high-risk practice area, as the business model tends to be high-volume, with some attorneys handling hundreds of cases at a time. Plaintiffs in personal injury cases also tend to be one-off clients, as opposed to clients with whom the attorney has built a close personal or professional rapport over many years. Additionally, clients with personal injury claims often have unrealistic expectations for recovery on their cases and how quickly they expect to see it. These elements combine to make personal injury one of the riskier practice areas for attorneys.

In today’s economic climate, real estate cases account for a substantial number of claims against attorneys. While the cause of many clients’ real estate losses can more realistically be traced back to the readjustment of the housing market, clients nonetheless find it convenient to lay blame on the deal structure or contract wording, thereby placing the attorney in the hot seat.

No matter the type of law an attorney practices, it is wise to adopt certain risk management techniques to minimize exposure. The first step is to select clients with utmost care by thoroughly interviewing them and researching their background and litigation history. Have they been to several different law firms? Do they display a pattern of hiring and firing lawyers? Have they sued other lawyers in the past? Another essential risk management technique involves meticulous documentation of all communication with clients. A strong attorney-client retainer agreement is another necessity for any legal professional.

Ideally, attorney-client retainers should spell out every aspect of the working relationship between the attorney and the client in airtight legal language, beginning with a clear cut definition of who exactly the client is and is not. An attorney retained by a corporate client needs to understand whether he or she is providing legal counsel for the company itself, or whether they are expected to provide representation for the company’s directors, officers, principals, founders or shareholders. The scope of the work should also be clearly delineated: What exactly will the attorney be doing for the client, and for how long? It’s best to meet with the client face to face and discuss the terms of the agreement together to avoid any surprises or communication errors.

An effective calendaring system is another useful tool to help attorneys avoid claims. Keeping tabs on dates ensures that no deadlines are missed or details overlooked. Since conflicts can lead to lawsuits, attorneys also need a method of screening for ethical conflicts so they can avoid ensnarement or situations in which they end up being adverse to a former client. Communication is key when it comes to keeping clients happy; return emails and phone calls in a timely fashion, and regularly inform clients of the latest developments in their case.

Unfortunately, risk management can’t remove risk altogether – and claims do happen. If an attorney is sued for malpractice in the State of California, he or she can take some solace in the fact that the burden of proof falls to the plaintiff. Essentially, the plaintiff has to prove the other side would have agreed on some terms – that the deal would have turned out in their favor if their attorney had taken different actions, and the lawyer’s mistake caused actual measurable damage to the client. A strong defense strategy might therefore include deposing the other side to the transaction in order to determine whether or not they would have agreed to the deal if certain terms had been different.

What are the consequences of professional liability errors and omissions on the attorney’s insurance? More claims increase chances that an attorney’s premium structure will be adjusted upward, making it more difficult to secure insurance in the future, and just one or two claims over the span of a 25-year career can be enough to result in higher premiums.

Attorney malpractice lawsuits are an unfortunate, but predictable consequence of a struggling economic climate. While macroeconomic forces may be beyond individual control, attorneys and law firms can protect themselves to an extent by choosing clients with care, delineating the terms of that professional relationship and keeping in constant communication with clients through every step of the legal process. Regardless of the economy, risk management allows attorneys to maintain a healthy practice free of professionally detrimental malpractice claims.

Randall A. Miller is the managing partner of the Los Angeles-based law firm Miller LLP. His practice focuses on defending and counseling professionals, corporations, directors and officers and insurers. Mr. Miller can be reached at Randy@MillerLLP.com or (213) 493-6401.