7 Objectives of Risk Management

Implementing an effective risk management strategy–addressing anything that may interfere with the ability to provide quality legal services and generate a profit–is essential to a thriving law practice. The benefits include: improving the quality of legal services and attorney-client relationship, enhancing the firm’s profitability and insurability, and reducing the risk of disciplinary and malpractice complaints, which may cost time and money.

In this article, we discuss some of the most critical objectives of a risk management strategy and some considerations in working to meet those objectives. This article is not a comprehensive discussion of risk management. For a detailed self-assessment, you may consider reviewing the self-assessment checklist available here.

OBJECTIVES OF RISK MANAGEMENT (A NON-EXHAUSTIVE LIST)

COMPETENT WORK PRACTICES

Texas Rule 1.01 requires lawyers to provide clients with competent and diligent representation. This includes having the requisite legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation. Legal malpractice actions are frequently filed against attorneys who decide to venture outside their area of expertise. Lawyers may feel particularly tempted to accept such a case where a lucrative claim is presented, or a family member or friend asks for help and the attorney feels obligated to do so.

Considerations in Meeting This Objective:

When taking on new matters or expanding the scope of representation, assess whether you have the legal knowledge and education to handle the matters.

If you find that you do not have the legal knowledge to handle a matter, consider whether you have (1) the time and resources to obtain the requisite knowledge or education, (2) seek supervision from a lawyer with the relevant knowledge in the particular field, or (3) obtain informed consent in writing from the client to a limited scope of representation and use an engagement letter to communicate the limited scope of representation.

Before taking on new matters, assess whether you have the necessary resources (time, finances, staffing, infrastructure, outside advice, and willingness) available to prepare and provide effective representation.

If you do not have time and resources to acquire the necessary knowledge and expertise, decline the case.

Be careful in taking on matters that may be excluded for coverage under your malpractice policy. Matters involving family members or entities in which you have an ownership interest or serve as an officer or manager may be excluded from coverage if a malpractice claim arises from the representation.

2. EFFECTIVE, TIMELY AND COURTEOUS COMMUNICATION

Texas Rule 1.03 addresses a lawyer’s duties to communicate with the client. Lawyers must communicate with clients about certain things related to the representation and do so in a timely manner. According to the Texas State Bar, most grievances stem from clients who feel their case is being neglected or their calls or emails are not being returned.

Considerations in Meeting This Objective:

Implement a communication policy that promotes regular and timely client contact. The policy should consider: (1) the clients’ preferred methods of communication, (2) the expected response time, (3) when status updates in cases will be communicated to clients, (4) the anticipated frequency of lawyer-initiated updates on the case when there is no activity, (5) ensuring that clients receive copies of important correspondence. These considerations should be communicated to the client, and we’ve recommended including that in your Fee Agreement as a best practice.

Use an engagement letter that sets out (1) anticipated fees, (2) billing procedures, (3) scope of representation, and (4) termination of representation.

Have a termination of attorney-client relationship letter. We’ve previously discussed the importance of effectively terminating a representation, including to avoid inadvertently tolling the statute of limitations for legal malpractice claims, and to minimize potential exposure for events that occur after the attorney-client relationship ends (e.g., missed deadlines).

Ensure that your advertisements are free of false or misleading statements.

3. KEEPING IT CONFIDENTIAL

Under Texas Rule 1.05, attorneys are prohibited from disclosing confidential information of a current or former client. Often, violations of this rule are preventable.

Considerations in Meeting This Objective:

Create written policies regarding the duties to preserve confidential client information, as well as practices for obtaining client consent to disclosure of information related to the representation.

Carefully craft a motion to withdraw that ensures no confidential information is revealed.

Prepare a professional response to any negative online reviews that ensures you do not reveal any confidential information.

Implement a policy regarding technology and avoiding inadvertent disclosures. The policy should include what steps will be taken in the event of an inadvertent disclosure, including the notification of the client.

4. AVOIDING CONFLICTS OF INTEREST

Conflicts of interest are a consistent source of legal malpractice claims. In a study of TLIE’s claims between 1996 and 2001, 16.4% of all claims reflected an allegation of conflict of interest, with 22.5% of all losses and defense costs involving a conflict of interest. In addition to malpractice claims, attorneys may face fee forfeiture, disqualification from litigation, and disciplinary complaints.

Considerations in Meeting This Objective:

Establish a process to identify conflicts, which identifies who is, and who is not, the client. This is particularly important for clients who are business entities.

As referenced above, use engagement letters and disengagement letters.

If you have a matter involving a conflict, or potential conflict, determine whether the conflict is waivable via consent. If it’s consentable, ensure that you’ve obtained written informed consent from the prospective client.

Review our practical tips for avoiding conflicts of interest here.

5. RECORDS MANAGEMENT

Though often overlooked, proper organization and management of client files has a direct impact on the quality of legal services you provide. Additionally, proper documentation may help ward off a legal malpractice claim and help defend against one.

Considerations in Meeting This Objective:

Implement a standardized filing system for all client files, and commit to a file-naming convention to avoid losing files.

Create a file-retention policy that includes the manner in which the file is stored, the process for returning the client file, the length of time the lawyer will maintain the file after the representation ends, and circumstances in which the lawyer intends to destroy the file.

Explain your file retention policy in your fee agreement and your disengagement letter.

Review our Article on When (and How) Can You Destroy Client Files.

6. SUPERVISION OF PRACTICE AND STAFF

Effective office management is critical to competent and ethical representation, and providing quality legal services.

Considerations in Meeting This Objective:

Obtain malpractice insurance that provides adequate coverage and consider whether additional cyber coverage is right for you. We’ve discussed the perils of being underinsured here.

Conduct regular performance reviews of staff, and review each client matter to ensure that you and staff have performed tasks on time and without errors.

7. PROPER HANDLING OF TRUST ACCOUNTS

Under Texas Rule 1.14, lawyers must establish a trust account if they accept fees from clients for work they have not yet performed or for expenses not yet incurred. Misuse of trust accounts is a common source of disciplinary actions.

Considerations in Meeting This Objective:

Keep unearned fees in your client trust account until you’ve earned such funds.

Provide notice to your client of your removal of earned funds within a reasonable time.

Implement policies and procedures to ensure there is no commingling of funds.

Provide a prompt accounting to your clients and/or third parties for whom you have or still are holding funds.

Follow the recommendations in the State Bar of Texas’ Guide to Client Trust Accounts, which includes reconciling your trust account every month. The Texas Bar also recommends reviewing your bank statements and reconciling them with the check register, and establishing an individual ledger for each client. Excel is a particularly helpful program in reconciling your accounts.

CONCLUSION

If you are a TLIE insured and have a firm risk area where you would benefit from further discussion, please contact us. We can review your practice and to help ensure you’ve done as much as you can to avoid surprise grievances and malpractice claims.

By Lauren Bianchini