Understanding Professional Liability Risk in Law Firms

1. November 6th, 2009 Eurojuris CongressRisk and the business of lawProfessional liability and risk Sandra Neilson (-Moore) Law firm practice leader Marsh FINPRO

2. Professional Liability Risk Consequences • Small € complaints and claims • Dissatisfied client / lost client • Individual stress and confidence damage • Partner time / cost • Waived fees and free work • Reputational damage / lost client / lost new business / lost referrals

3. Professional Liability Risk Consequence Large € claims • Large client loss / dissatisfaction / loss of reputation / waiver of fees • High profile damage to individual reputation and confidence • Very expensive in cost to firm and increased insurance costs • The media

4. Other Factors • Media more intrusive • Conflict and excessive fees ‘scandals’ • Regulators seeking impressive ‘scalps’ • Current economy worrying – the ‘blame’ culture • International exposures – can you defend yourself in different jurisdictions?

5. Where Do Serious Claims Come From? • Poor choice of client (identifying client, screening client) • Drafting errors in commercial contracts / tax / transactional / math • Scope of engagement – ‘Mission creep’ • Poor note keeping, recording of instructions, managing expectation • Economic failure of client / client’s transaction • Partner fraud / personal disintegration / time pressures

6. How to prevent? • Take risk seriously • Be sure – no cutting corners • Smell test – can you defend your actions objectively • Is it worth it in the long run? • Is it worth the firm’s reputation?

7. When it happens • Identify quickly and act • Damage control (internal and external) • Don’t panic and don’t hide • Control but no arrogance • What is the right answer, legally, morally, publicly?

8. How Do Law Firms Manage Professional Risk? • Culture – induction, manuals, reiteration, open door philosophy • Value and trust before greed and profit • Pride in doing the job well • Good rewards and positive reinforcement • Good people, doing good work

9. Above All • Avoid the avoidable – pay attention to the rules • But when it does happen • Hire good advisers and listen to them • Keep the high ground, manage the media, manage the internal damage

10. Discussion What claims against law firms are you aware of in your jurisdiction? What do you do in your firm, to prevent claims against you? What is your perception of claims activity in your jurisdiction?