Civil liability and risk management - Malpractice insurance ...

Learning Outcomes

After studying this article, you will be able to identify the civil liability risks lawyers face, explain the role and limits of malpractice insurance, and apply risk prevention strategies required by the MPRE. You will understand how professional discipline differs from malpractice, how lawyers can limit liability, and the importance of risk management in legal practice.

MPRE Syllabus

For the MPRE, you are required to understand the principles governing civil liability and risk management for lawyers. This article focuses on the following syllabus points:

• Distinguish professional discipline from civil liability (malpractice).
• Identify the elements and theories of legal malpractice.
• Explain the function and limitations of malpractice insurance.
• Recognize permissible and impermissible attempts to limit malpractice liability.
• Apply risk prevention strategies, including competence, supervision, and client communication.
• Understand the responsibilities of law firms and partners in managing risk.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is true regarding a lawyer’s ability to limit malpractice liability?
   1. A lawyer may always require clients to sign a waiver of malpractice claims.
   2. A lawyer may prospectively limit liability only if the client is independently represented in making the agreement.
   3. A lawyer may never settle a malpractice claim with a client.
   4. A lawyer must always carry malpractice insurance.
2. Which is NOT a required element for a client to succeed in a legal malpractice claim based on negligence?
   1. Duty of care
   2. Breach of duty
   3. Actual damages
   4. Proof of professional discipline
3. Which of the following is a permissible risk prevention measure for a law firm?
   1. Failing to supervise non-lawyer staff
   2. Implementing regular conflict checks
   3. Ignoring continuing legal education
   4. Relying solely on malpractice insurance
4. A lawyer settles a potential malpractice claim with a former client who is not represented by counsel. What must the lawyer do?
   1. Nothing special is required.
   2. Advise the client in writing of the desirability of seeking independent legal counsel and give a reasonable opportunity to do so.
   3. Require the client to sign a confidentiality agreement.
   4. Only notify the malpractice insurer.

Introduction

Lawyers are exposed to civil liability in addition to professional discipline. Malpractice insurance and risk prevention are essential for protecting both lawyers and clients. The MPRE requires you to distinguish between professional discipline and civil liability, understand the elements of malpractice, and know how lawyers can manage risk through insurance and preventive practices.

Key Term: Malpractice
A civil claim against a lawyer for professional negligence, breach of fiduciary duty, or intentional wrongdoing, resulting in client harm.

Civil Liability vs. Professional Discipline

Lawyers may face both professional discipline and civil liability. Discipline is imposed by the bar for violating ethical rules, regardless of client harm. Civil liability, such as malpractice, compensates clients for losses caused by a lawyer’s conduct.

Key Term: Professional Discipline
Sanctions imposed by a regulatory authority for violating ethical rules, including censure, suspension, or disbarment.

Key Term: Malpractice Insurance
A contract that covers a lawyer’s liability for claims of professional negligence, subject to policy terms and exclusions.

Elements and Theories of Legal Malpractice

A client may sue a lawyer for malpractice under several theories:

• Negligence: The most common basis. The client must prove:

  • Duty of care (lawyer-client relationship)
  • Breach of duty (failure to meet the standard of care)
  • Causation (the breach caused the harm)
  • Actual damages (financial loss)

• Breach of Fiduciary Duty: The lawyer violates duties of loyalty, confidentiality, or honesty.

• Breach of Contract: The lawyer fails to perform as agreed.

• Intentional Torts: Fraud, misrepresentation, or other intentional wrongdoing.

Key Term: Duty of Care
The obligation of a lawyer to act as a reasonably competent attorney would under similar circumstances.

Limiting Malpractice Liability

Lawyers may not prospectively limit their liability for malpractice unless the client is independently represented in making the agreement. Any attempt to settle a malpractice claim with an unrepresented client or former client requires the lawyer to advise the client in writing of the desirability of seeking independent legal counsel and to give a reasonable opportunity to do so.

Key Term: Limiting Malpractice Liability
Restricting a lawyer’s civil liability for malpractice, only permitted prospectively if the client is independently represented.

Malpractice Insurance: Role and Limits

Malpractice insurance protects lawyers against claims of professional negligence. It is not required in most jurisdictions, but many clients and firms require proof of coverage. Insurance does not cover intentional wrongdoing, criminal acts, or certain types of damages. Lawyers must still comply with ethical duties and cannot rely solely on insurance to avoid liability.

Risk Prevention Strategies

Lawyers and law firms must take active steps to prevent malpractice claims:

• Competence: Maintain legal knowledge and skill through continuing education.
• Diligence: Act promptly and control workload to avoid neglect.
• Supervision: Partners and managers must ensure reasonable procedures for compliance and supervise subordinates and non-lawyers.
• Client Communication: Keep clients informed, explain matters, and document advice and decisions.
• Conflict Checks: Regularly screen for conflicts of interest.
• File Management: Safeguard client property and maintain accurate records.

Key Term: Risk Prevention
Proactive measures taken by lawyers and firms to reduce the likelihood of malpractice claims and client harm.

Worked Example 1.1

A lawyer represents a client in a real estate transaction. The lawyer misses a critical filing deadline, causing the client to lose a valuable property right. The client sues for malpractice. The lawyer’s firm has malpractice insurance, but the policy excludes claims arising from intentional acts. The lawyer’s error was negligent, not intentional.

Answer:
The client may recover damages for malpractice based on negligence. The insurance policy will likely cover the claim, as it was not excluded. However, if the lawyer had intentionally missed the deadline to harm the client, coverage would be denied.

Worked Example 1.2

A law firm includes a clause in its retainer agreement stating, “The client waives all rights to sue the lawyer for malpractice.” The client is not represented by independent counsel.

Answer:
This clause is not enforceable. Prospective limitation of malpractice liability is only permitted if the client is independently represented in making the agreement. Otherwise, the lawyer is subject to discipline.

Worked Example 1.3

A lawyer settles a potential malpractice claim with a former client who is not represented by another lawyer. The lawyer does not advise the client to seek independent legal advice.

Answer:
The lawyer is subject to discipline. When settling a malpractice claim with an unrepresented client or former client, the lawyer must advise the client in writing of the desirability of seeking independent counsel and give a reasonable opportunity to do so.

Exam Warning

Be careful: Malpractice insurance does not protect against intentional misconduct, criminal acts, or violations of ethical rules. Relying solely on insurance is not a substitute for risk prevention.

Revision Tip

Always check whether a client was independently represented before a lawyer attempts to limit malpractice liability or settle a claim. This is a frequent MPRE trap.

Key Point Checklist

This article has covered the following key knowledge points:

• Civil liability (malpractice) is distinct from professional discipline.
• Malpractice claims require duty, breach, causation, and damages.
• Malpractice insurance covers negligence but not intentional or criminal acts.
• Prospective limitation of malpractice liability requires independent client representation.
• Settling malpractice claims with unrepresented clients requires written advice to seek independent counsel.
• Risk prevention includes competence, diligence, supervision, communication, and conflict checks.
• Law firms and partners are responsible for implementing risk management procedures.

Key Terms and Concepts

• Malpractice
• Professional Discipline
• Malpractice Insurance
• Duty of Care
• Limiting Malpractice Liability
• Risk Prevention