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Law Firm Risk Management – Internal Review and Insurance Reporting Obligations

Posted on: August 29th, 2012

By: Seth Kirby

While the practice of law is a profession, managing a law practice is definitely a business. In addition to their primary responsibility of representing their clients, attorneys must actively manage their office. Depending upon the size of the firm, an attorney may take on this role by themselves, or employ an administrative staff to oversee the firm’s operations.  Management of payroll, employee benefits, accounts receivable, and other such areas are essential to a profitable law practice.  But the successful management of a law practice is more than ensuring that administrative responsibilities are met.  The firm must also ensure that it is protecting itself against the risk of a malpractice claim.

Of course, every rational attorney does their best to ensure that they are properly handling their client’s affairs.  Nevertheless, mistakes can happen.  The vast majority of law firms purchase professional liability insurance to provide protection for the firm, and their clients, in the event that their negligence results in harm to their client.  But simply purchasing the insurance is not enough.  For the insurance coverage to be effective, the firm must ensure that claims, or potential claims are promptly reported to their carrier.  Failure to do so may operate to bar coverage for the claim.

How then does a law firm go about ensuring that claims and potential claims are recognized by the firm and properly reported to their insurance carrier?

A potential solution to this problem is outlined in a recent decision issued by the Georgia Court of Appeals in Hunter, Maclean, Exley & Dunn v. St. Simons Waterfront, LLC.  That case concerned an evidentiary issue in a legal malpractice case.  The court considered whether a law firm could properly claim attorney-client privilege over communications with its in-house counsel.  The Court carefully set forth an analysis of how the issue should be considered and remanded the case to the trial court to determine whether the internal communications met the standards necessary for the application of the attorney-client privilege.

In its analysis, the Court laid out a blue print for how a law firm can create the position of in-house counsel on a full-time, part-time or ad hoc basis, which would allow the firm to evaluate and protect itself against client claims.  To obtain the protection of the attorney-client privilege during such reviews, the in-house counsel must be retained for the purpose of examining the firm’s exposure to a real or perceived risk posed by the client and, maintain a separation between themselves and the firm’s ongoing work for the client.

Although creating the full-time position of in-house counsel is not practical for small and mid-size firms, developing a plan for addressing potential client claims through in-house review is warranted.  At least one attorney in a firm should be designated as a point-person for the discussion of client issues.  That person then has the ability to protect their internal review of the issue from future disclosure by compliance with the rules set forth in Hunter.  Perhaps more importantly, that person could also be tasked with the responsibility of alerting the firm’s insurance carrier if appropriate.  Ensuring that potential client claims are affirmatively addressed by a firm, rather than swept under the rug, is often half the battle in resolving a potential claim.

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