Our friends at Paragon have recently published an update worth noting, an article from Gilda T. Russell, noted risk expert: "Risk Management and Potential Malpractice Liability to Third Parties" --
- "A growing concern for law firm risk management is potential malpractice liability to third parties. Historically, a firm could be potentially liable only to 'clients' for claimed malpractice. Clients are those persons or entities with whom a firm has an express attorney‐client relationship or one that can be implied from the circumstances. However, over the years, a number of jurisdictions have allowed claims against firms by non‐client third parties in certain limited circumstances. While it may be difficult to prevent claims in this area, some measures firms can employ in an attempt to reduce risk are briefly discussed below."
- "A firm must be clear at the outset of a representation, as well as throughout its duration, who is and who is not the client. The best way to demonstrate an express attorney‐client relationship is through an Engagement Letter."
- "Consequently, one way in which a firm can insure against third party malpractice claims based on allegations of an express or implied attorney client‐relationship is through the use of a Declined Client Letter or a 'You Are Not Our Client Letter.'"
- "At the end of a representation, a firm should send the client a Disengagement Letter. The Disengagement Letter should state that the matter has been concluded and the firm’s representation of the client completed."
- "Even if a third party is neither an express or implied client of a firm, certain circumstances can give rise to a firm owing a duty to the third party and potential malpractice liability depending on the jurisdiction. It is important for firm lawyers to have an awareness of these circumstances and how to minimize the risk of liability when dealing with them."
- "Lawyer represented Borrower in a loan transaction. One of loan documents provided clearly and unambiguously that Lawyer, who was preparing the loan documents, was representing only Borrower. The document went on to urge Lender to seek other counsel. When things went bad, Lender sued Lawyer for malpractice. Both the trial court and appellate court, in this opinion, found against Lender, thus showing the value of documents stating expressly who is, and who is not, a client. The courts also dealt with securities law issues probably not relevant to this audience."
Conveniently, we've included questions about engagement letters in the risk survey still underway. Looking forward to an update regarding how well practice is aligning with theory in real-world environments.
For those that missed it, the participation window for the 2016 Law Firm Risk Surveys remains open for a few short days (closing end of week). I'm informed that nearly 200 firms have participated, so there are sure to be intriguing results to review.
And, as also noted, reports will be provided only to those organizations that participate or attend the upcoming Inception user conference. (More detail on the exciting risk-focused content at the conference coming soon...)
So law firm readers, check you brimming inboxes for links to the survey, or email email@example.com for help. Don't risk missing out...