Tuesday, August 9, 2016

OCG "Shark" Week: "Single Indemnity"

Next up from BNA: "Lessons for Law Firms on Client Intake (Perspective)" --
  • "The increasingly competitive nature of the legal services market has shifted the balance of power between lawyers and clients. A potentially damaging result of this power shift is the now-common client indemnification clause included in many outside counsel guidelines (OCG), requests for proposal (RFP), or client-drafted engagement letters."
  • "These clauses create risk for both lawyer and client. Depending upon the scope of the indemnity and size of the engagement, a law firm’s financial stability can be threatened. Because the indemnification provisions could also compromise insurance coverage, the client risks losing the financial protection presumed to be provided by its law firm’s malpractice insurance."
  • "Despite the obvious drawbacks, it appears that client indemnification clauses are here to stay, so the real question is how to deal with them. In some instances, clients will negotiate the requirement, or change the language. In order to address the concern, though, lawyers must first be aware of the client’s request for indemnification, which brings up perhaps the most troubling issue of all."
  • "Because of the significant risks posed by agreeing to indemnify a client, there are a variety of steps firms should take to identify, screen for, and collect client indemnification provisions as part of the new client intake process and ongoing practice management."
    • "To begin, it’s important that the firm take inventory of what it’s already agreed to. This effort entails a thorough review of existing RFPs, OCGs, and client-drafted engagement documents."
    • "The firm should also ensure that all new engagements receive a thorough review. Partners must be educated on the importance of identifying indemnification requirements, as should staff who work in the client intake system."
    • "Even after files are opened, and the work has commenced, your risk management work is not done. Clients will slip indemnification provisions into outside counsel guidelines or file management procedures that are delivered only after the engagement agreement is signed. If work continues on the file after receipt of the guidelines, the firm could be held to the terms contained in those documents. Accordingly, firms should require ongoing review of all client guidelines or procedures received after the file is opened."
  • "The firm can’t manage a client indemnification request unless the firm knows the request exists. The first step is to institute screening mechanisms to identify the requests, whenever they occur. Only then can the firm work with the client to obtain an outcome that benefits both."
Too much suspense and drama today... Now if there was a mechanism and resource that could help manage the intake risk and ongoing terms of business compliance...

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