Risks when facing a legal malpractice claim

The first impulse of an attorney on the receiving end of a legal malpractice claim may be to panic. Attorneys take great pride in their work and the idea that a client is now challenging that work can cause personal and professional distress.

A “claim” can take several forms, including a client’s expression of dissatisfaction, a demand for damages, or even a lawsuit. As difficult as it may be, it is important to think with a level head in the immediate aftermath of a claim. The initial steps taken by attorneys can have important ramifications, including whether the claim can be resolved quickly or whether it turns into a lawsuit with significant exposure.

Typically, the first step in response to a claim is to review any applicable legal malpractice policy to determine whether the firm’s insurer should be involved. From that point on, attorneys can formulate a plan. Below are four tips for attorneys facing a legal malpractice claim.

Mistakes Do Not Equal Malpractice Liability

Lawyers have an ethical duty to keep clients informed as to the status of a representation, which generally includes a duty to self-report material mistakes impacting the representation. There is a distinction, however, between plainly reporting the facts of a mistake and admitting an act of legal malpractice. The former may help meet an ethical obligation, while the latter may simply lead to a claim.

Attorneys who fail to timely report material mistakes to their clients may face significant risks, including the potential tolling of the statute of limitations, possible exposure to a conflict of interest claim (based on the conflict between the client’s interests and the attorney’s interests), and in some cases, bar grievances. Further, if a lawyer conceals a material mistake from a client, that may only give the client greater incentive to react or file suit.

But the duty to disclose facts does not require the lawyer to fall on his or her sword. Indeed, admissions of “malpractice” can make defending any malpractice lawsuit more difficult on the issue of liability. Further, the lawyer may create risk if his or her malpractice policy contains a “no admissions” clause.

This is particularly important because, as a matter of law, a mistake is not the same as legal liability for legal malpractice. Proving a suit for malpractice requires elements of duty and causation, among others, that impose a significant burden on a plaintiff to prove much more than just the existence of a mistake. But a lawyer who tells a client that a mistake constituted malpractice may create liability where none otherwise existed.

In practice, attorneys should typically report any material adverse development in a representation to the impacted client in a timely manner, while also disclosing whether the development arises out of the attorney’s action (or inaction). An attorney can advise that there has been a mistake, but can stop short of conceding any malpractice. Because the line is so fine, attorneys may also consider consulting other counsel before reporting to the client. An objective view from a disinterested attorney can save a lot of defense costs and exposure.

A Lawsuits Is Not Inevitable

While attorneys facing a claim may immediately assume the worst, many claims are resolved relatively quickly without the filing of a suit. A client expressing dissatisfaction with a representation or threatening a suit does not mean that the client will follow through on that threat. Indeed, clients may threaten a claim because they are unhappy with a result or want to avoid paying a bill. Neither scenario necessarily supports a viable legal malpractice lawsuit.

Along with a heavy legal burden, financial and other pressures may also prevent a client from filing suit. One significant consideration is that clients who sue their attorneys generally waive all attorney-client privilege protections.

As a result, it is prudent for attorneys receiving a claim to maintain a level head in assessing the strength of the claim and the likelihood that it will lead to litigation. Outside counsel can assist with this analysis.

Don’t Ignore the Problem

At the other end of the spectrum, hoping that a legal malpractice claim will go away on its own is typically not a good strategy. One significant concern is that failing to report a claim can put the attorney’s legal malpractice coverage at risk, particularly if the policy requires notice of claims or potential claims. Malpractice policies sometimes may require insureds to provide notice of any circumstance that might give rise to a claim. Even if a client has not yet initiated litigation, the threat of a claim may warrant reporting.

Further, many policies provide coverage based on when a claim is reported to the insurer. When the attorney provides that notice could impact whether the claim falls within a policy’s effective dates. This may be significant where there has been a lapse in coverage or where multiple policies could apply.

Consider Whether Insurer Consent Is Necessary

Attorneys can consider early settlement opportunities for a malpractice claim prior to the filing of a lawsuit, especially if the amount required to settle is de minimis compared to the costs and exposure of the claim. However, some legal malpractice insurance policies prohibit an attorney from making a settlement offer without the insurance company’s consent.

If the applicable policy contains such language, efforts to settle a malpractice claim may need to be coordinated with the attorney’s insurance company. The risks of failing to do so are significant and could leave an attorney without coverage for the claim.

While no attorney wants to face a malpractice claim, not every claim is a catastrophe. 