Mitigating Potential Legal
Malpractice Claims
Presented by:
Brad Barkin, Lemme Insurance Group
John Wynn, Lemme Insurance Group
Jason E. Fellner, Murphy Pearson Bradley & Feeney
Peter L. Weber, Murphy Pearson Bradley & Feeney
 Opening
the file –
• Fee Agreements
 Scope and Expectations
 Duties to Non-Clients
 Statutory Requirements
• Conflicts of Interest
 Closing
the file –
• Client Files
• Discharge of the Attorney
2
a. Avoiding Malpractice through Detailed Written
Engagement Agreement
b. Reasonably restricting the scope of legal
services by contract is permissible (Janik v.
Rudy, Exelrod & Zieff (2004) 199 Cal.App. 4th
930, 940.)
c. Legal Services Agreement Should Set forth
clear Scope of Representation
d. Money deposited as a Retainer must be placed
in client trust account. (Cal. Rules of Prof.
Conduct, Rule 4-100.)
3

Fee Agreements are Contracts:
• As a general rule, attorney and client may agree to the measure and mode of an
attorney’s compensation (C.C.P. Section 1021.) Basic principles of contract law apply
and any ambiguity is resolved in favor of the client.

Set Scope and Client Expectations:
• Reasonably restricting the scope of legal services by contract is permissible
(Janik v. Rudy, Exelrod & Zieff, (2004) 119 Cal.App.4th 930, 940.)
Fee Agreements establish a date certain for the commencement of the
attorney-client relationship, which set forth the terms and scope of the
relationship.

Pursuant to Bus. & Prof. Code Section 6148(a)(2), a written fee
agreement must contain the general nature of the legal services provided.

In legal malpractice cases, one of the most important documents is the
fee agreement because it identifies the client, date that relationship
began, and scope of work agreed to perform.

4

Contingent Fee Agreement
Bus. & Prof. Code Section 6147 sets forth requirements for Contingent Fee Agreements.
Contingent Fee Agreements must be in writing to be enforceable, except those for recovery of
worker’s compensation benefits or certain merchant’s claims. The contingent fee agreement must
specify:
 the fee agreed on; how the costs of prosecuting the case will affect the fee and
the client’s recovery; and a statement that the fee is negotiable.
 Irrespective of Fee Agreement, good practice dictates to identify hourly rate of
attorney in legal services agreement to specify reasonable value of services.
•

Noncontingent Fee Agreement
Bus. & Prof. Code Section 6148 sets forth requirements for Noncontingent Fee Agreements.
Noncontingent Fee Agreements must provide the following in order to be enforceable:
 the basis of compensation, including hourly rates, statutory fees, or flat fees; and
other standard rates, including costs.
•

GOOD PRACTICE:
• Always have a signed fee agreement before you begin work! Having a fee
agreement limits potential for disagreement and strengthens attorney’s position if and
when a fee dispute arises. Absent a fee agreement, an attorney is only entitled to quantum
meruit as compared to the full value of the contract.
• Statute of Limitations: A written agreement is subject to a 4 year statute of limitations
(C.C.P. Section 337) compared with an oral agreement subject to a 2 year statute of
limitations (C.C.P. Section 339).
5
 GOOD
PRACTICES:
• Attorney and Client should both sign agreement. It’s a mistake
to simply send letter memorializing agreement and/or have the client sign
letter accepting terms of legal service.
• If the scope of representation changes after execution of the fee
agreement, counsel should amend the agreement to clarify the revised
scope of services.
• An attorney’s standard of care is oftentimes defined by the scope of
work that he/she agreed to perform for a client. As a result, the scope
of work detailed in the legal services agreement is a critical part in
utilizing the fee agreement as a way to minimize malpractice
exposure.
6

Identify your client
When representing a minor or disabled person, the attorney client
fee agreement should be entered into between the attorney and the
guardian ad litem or conservator.
• (See Fam. Code Section 6710; Prob. Code Section 3603.)

Clients frequently ask other individuals to accompany them when
consulting with a lawyer. Unless you clearly identify who your client is in
a fee agreement, you run the risk that an implied-in-fact relationship will
be found to exist (and all duties owed) to persons you may not intend to
be clients. (Hecht v. Sup. Ct. (1987) 192 Cal.App.3d 560.)

If a third party is paying the fees for your client, make sure that it is
clear who your client is in your fee agreement.

7
Duty to check for Potential Conflicts before accepting
representation:

• Attorney should check for any potential conflicts with those who are adverse
and potentially adverse, including reasonably foreseeable parties and
witnesses, before accepting representation of a client in any matter. (Cal. State
Bar Form Opn. 2011-182.)

GOOD PRACTICE: Run and maintain a conflict check system that
contains a database of former and current clients. A conflict check should
be created and be part of the client intake process. A file should not be
opened until a conflict check is cleared and a legal services agreement is
fully executed.
8
Rule 3-300 Avoiding Interests Adverse to a Client
A member shall not enter into a business transaction with a
client; or knowingly acquire an ownership, possessory,
security, or other pecuniary interest adverse to a client, unless
each of the following requirements has been satisfied:
 (A) The transaction or acquisition and its terms are fair and
reasonable to the client and are fully disclosed and
transmitted in writing to the client in a manner which should
reasonably have been understood by the client; and
 (B) The client is advised in writing that the client may seek
the advice of an independent lawyer of the client's choice and
is given a reasonable opportunity to seek that advice; and
 (C) The client thereafter consents in writing to the terms of
the transaction or the terms of the acquisition.


9
• Rule 3-310 Avoiding the Representation of Adverse
Interests
• (C) A member shall not, without the informed
written consent of each client:
• (1) Accept representation of more than one client in
a matter in which the interests of the clients
potentially conflict; or
• (2) Accept or continue representation of more than
one client in a matter in which the interests of the
clients actually conflict; or
• (3) Represent a client in a matter and at the same
time in a separate matter accept as a client a person
or entity whose interest in the first matter is adverse
to the client in the first matter.
10
• "Informed written consent" means the
client's or former client's written agreement
to the representation following written
disclosure.
 Examples
11
Client has absolute power to discharge attorney at any time
with or without cause. (Fracasse v. Brent (1972) 6 Cal.3d 784, 790.)
Discharged attorney is entitled to recover reasonable value of
services rendered to the time of discharge. (Id.)

Attorney may withdraw at any time as permitted under the
Rules of Professional Conduct, which include: (a) client consents;
(b) client’s conduct makes it unreasonably difficult for attorney to
carry out the employment effectively, and (c) client fails to pay
attorney fees or costs as required by the legal services agreement.
(Cal. Rule of Professional Conduct, Rule 3-700.)

GOOD PRACTICE: Send closing letter with final bill to begin
clock on any legal malpractice action. The time for filing a legal
malpractice action is one-year from the date that the plaintiff knew
or should have discovered the malpractice. The statute is tolled
for continued representation. (See C.C.P. Section 340.6.)

12
Attorney is ethically obligated on termination of
employment and at client’s request to promptly
release client file. (Cal. Rule of Professional Conduct,
Rule 3-700.)

Unless the attorney-client relationship is
terminated, a lawyer is required to carry through to
conclusion all matters undertaken for a client. The
duration of the attorney-client relationship depends
upon the agreed upon scope of the relationship.
(Matter of Allen (Rev.Dept. 2010) 5 Cal. State Bar
Ct.Rptr. 198, 204.)

13
The first rule of business is to survive and the
guiding principle of business economics is not the
maximization of profit, it is the avoidance of loss.“
Peter Drucker
 What are our risk management strategies:

• Avoid
 Just Don’t Do It
• Reduce
 Reduce the chance of it happening or the harm caused
• Share
 Buy Insurance
• Retain
 We’ll Take Care of It
14
 Buying Your Insurance Policy
 Lack of insurance coverage for a significant claim can
threaten the existence of a law firm.
 The majority of Lawyers’ Professional Liability (“LPL”)
insurers have noted an increase in both frequency and
severity of claims between 2009 and 2012.
 LPL Underwriters acknowledge that there are several
claims in the market that will cost in excess of $50mln.
 The cost of defending claims continues to rise with
several LPL claims exceeding $20mln in defense cost alone.
15
Most lawyers’ professional liability policies are
“claims-made and reported” policies.
 Claims covered only if the “act, error or omission”
occurred during the policy period AND is reported
to the insurer during the policy period.
 Modern policies extend coverage to claims that
occurred prior to the policy period so long as no
insured had knowledge of facts that could support a
claim as of the effective date of the policy.
 Most policies have Discovery Clause to lock-in
coverage for a Potential Claim
 Avoid harsh nature of claims made and reported
insurance policy by knowing and understanding
your policy

16
 Two
of the most common ways insurers
deny professional liability insurance
coverage are:
1. Prior Knowledge limitation clause
2. Failure to properly notify a claim
 The Policy will show you the way
• Understand terminology
• Understand intent of coverage
• Implement policies and procedures to ensure
coverage of Claims and Potential Claims
17
 Prior
Knowledge Limitation
• The most used provision by insurers to deny
coverage for a claim and perhaps one of the
least understood provisions by the law firm
insured.
• The provision is in place to deny coverage for a
given claim, if, prior to the policy’s inception
date or defined retroactive date, a member of
the law firm had actual knowledge of facts or
circumstances which a reasonable lawyer could
foresee might result in a claim.
18
19
Positive grant of coverage provided
that, “…no Insured had a basis to
believe that any such act or
omission, or Related Act or
Omission, might reasonably be
expected to be the basis of a Claim
20
Claim / Incident / Disciplinary
Information
35. After inquiry, is any attorney in the
firm aware of:
b. an actual or alleged act,
omission, circumstance, or breach
of duty that a reasonable attorney
would recognize might reasonably
be expected to result in a claim
being made against the firm, any
predecessor firm, or against any
attorney currently or formerly
affiliated with the firm or any
predecessor firm, regardless of
whether any such claim would be
meritorious? Yes
No
If “yes” to a, or b above complete a
Claims/Disciplinary Supplemental
Application for each claim or incident.
21
Signature and Representation
3. Applicant’s failure to report to its current
insurance company, during the current policy
period, either any claim made against any
insured, or any act or omission known to any
insured that may reasonably be expected to be
the basis of a claim against any insured may
create a lack of coverage.
4. Any attorney currently or formerly affiliated
with the firm or any predecessor firm, has
disclosed in this Application any actual or
alleged, act, omission, circumstance or breach
of duty that a reasonable attorney would
recognize might reasonably be expected to
result in a claim being made against the firm,
any predecessor firm, or any attorney currently
or formerly affiliated with the firm or any
predecessor firm, regardless of whether any
such claim would be meritorious
22
When analyzing apply both subjective/objective
standard: whether an insured had actual knowledge
of certain facts upon which a reasonable attorney
would have the basis to believe that the insured
breached a professional duty and that a claim might
reasonably be made based on those facts:

• It is irrelevant whether a lawyer believed that the claim
lacked merit or was frivolous.
• It does not make a difference if the lawyer did not report the
matter because he subjectively believed that due to his
excellent client relationship he didn’t think a claim would be
made.
23

Abood v. Gulf Group Lloyd’s, 2008, WL 2641310
• Plaintiff firm, ARPR, represented a woman in her claim to
recover damages for personal injuries arising out of an
automobile accident which took place on Feb. 19, 2001.
• Statute of limitations on woman’s claim expired on Feb.
19, 2003. Due to difficulties demonstrating woman’s
injuries, ARPR failed to file complaint before statute of
limitation expired.
• Feb. 26, 2003. ARPR informed woman of their failure to
timely file and advised her to pursue other counsel.
• In woman’s response, she informed ARPR that she would
not sue for malpractice b/c she was still able to pursue
her underinsured motorist claim.
24
In 2004 ARPR purchased a claims-made LPL policy for the
period Jun 17, 2004 to June 17, 2005, which excluded coverage for
any claim related to a negligent act occurring prior to the
inception date of the policy if the insured knew or could have
reasonably foreseen it would be the basis of a claim.

On June 8, 2005 new lawyers representing woman injured in
2001 notified ARPR of their intent to file a malpractice claim.

ARPR advised Insurer of claim in June 10, 2005 letter. In
response Insurer denied coverage b/c ARPR neglected to inform
Insurer of this potential claim before signing the application
despite it being a reasonably foreseeable claim.

25
In July 2005, ARPR filed declaratory judgment claiming Insurer owed
them indemnification b/c they had no knowledge prior to signing the
application that they would be sued.

Court held that prior knowledge exclusion barred coverage
notwithstanding the underlying plaintiff’s initial indication that she did not
intend to file suit.

Court concluded that a reasonable attorney in plaintiffs’ position would
have known that malpractice claim was possible.

Court found that any actions by client/claimant that fall short of a waiver
of future claims against an attorney will not extinguish prior knowledge
exception.

Court also ruled that an attorney’s subjective belief, on the basis of his
relationship with his client or his impression of a client’s reaction to a
situation, have no bearing on a prior knowledge exception.

26
As LPL policies are written on a claims-made basis and include a prior
knowledge provision, a failure to report a claim or potential claim under current
policy can cause a law firm to lose coverage. It is essential that all claims or
potential claims are reported pursuant to the requirements of the policy.

If an error has occurred, report the matter as a potential claim, even if your client
has indicated it does not plan to sue.


Promote a culture where it is encouraged to discuss possible client issues.

Adopt a formal policy for the discovery and reporting of claims.

Train staff and attorneys on the reporting requirements of the LPL policy.
Appoint a central point person (managing partner, risk management partner,
etc.) to review all potential claims.

27
Coverage disputes due to a failure to provide timely notice of
claims or potential claims are common

Timely notice of a claim to the insurer during the policy period is a
condition precedent to coverage

In addition to requiring that the claim be Reported during the same
policy period in which claims was made, most policies require notice be
made within a specified time period after learning of the claim, which can
be good or bad.

Potential Claim notice provisions are “double edged sword” providing
relief from prior knowledge limitation, but requiring notice during the
policy period regardless of the Claim notice provision.

It is critical for law firms to understand the reporting requirements of
the insurance contract because notice provisions are strictly construed.

28
I. INSURING AGREEMENT
A. Coverage
The Company agrees to pay on
behalf of the Insured all sums in
excess of the deductible that the
Insured shall become legally
obligated to pay as damages and
claim expenses because of a claim
that is both first made against the
Insured and reported in writing to
the Company during the policy
period by reason of an act or
omission in the performance of legal
services by the Insured or by any
person for whom the Insured
is legally liable …
29
1. Notice of Claims
The Insured, as a condition
precedent to the obligations of the
Company under this Policy, shall
as soon as reasonably possible
after learning of a claim give
written notice to the Company
during the policy period of such
claim. The Company agrees that
the Insured may have up to, but
not to exceed, sixty (60) days after
the Policy expiration to report a
claim made against the Insured
during the policy period if the
reporting of such claim is as soon
as reasonably possible.
30
Notice provisions vary, depending on the
policy, requiring that notice be given:

• “immediately” (particularly upon receipt of demand
letters, legal pleadings and other written information
relative to Claim)
• no later than a specified period of time after becoming
aware; or,
• as soon as reasonably possible

As soon as reasonably possible
• a prejudicially long delay could jeopardize coverage
Notice must be in a manner such that it is clear
to the insurer that a claim is being reported

31

Potential Claim
• It is not a Claim – YET!
 demand for money or services arising out of an act or
omission in the rendering of legal advice
• Act, error or omission that could reasonably become a
claim in the future

Objective review
• Facts indicating act, error or omission, available at the
time
• Which reasonable attorney believes may reasonably be
expected to be the basis of a claim against the Insured
Provisions require the insured to identify
particular clients, and particular errors or
omissions.

32
2. Notice of Potential Claims
If during the policy period the Insured
becomes aware of any act or omission that
may reasonably be expected to be the
basis of a claim against the Insured and
gives written notice to the Company of such
act or omission and the reasons for
anticipating a claim, with full particulars,
including but not limited to:
a. the specific act or omission;
b. the dates and persons involved;
c. the identity of anticipated or
possible claimants;
d. the circumstances by which the
Insured first became aware of the
possible claim,
then any such claim that arises out of such
reported act or omission and that is
subsequently made against the Insured
and reported to the Company shall be
deemed to have been made at the time
such written notice was given to the
Company.
33

Relying on renewal application to provide notice:
• LPL policies provide specific instructions on how to give notice to insurers of
claims or potential claims. Simply including details of a claim or potential claim in a
renewal application does not meet the standard required by the policy.

Relying on insurance broker to provide notice:
• While some insurers will accept notice of a claim or potential claim from an
insured’s insurance broker, not all will. In one decision, trial court rejected idea that
insured's notice to broker was sufficient stating, “An insurance broker is the agent of
the insured, not the insurance company, and notice to an insurance broker…is not
notice to the insurer”

Oral notice may not be sufficient:
Oral notice to your insurer about a claim or potential claim may not suffice reconfirming
the importance of understanding your specific policy requirements.
•

Laundry list of list of clients and matters as notice of Potential Claim
• Provisions require that the insured identify particular clients, and particular
errors or omissions. A letter to insurer merely expressing concern about
potential claim would not trigger coverage if it did not identify circumstances
as to why the insured had a reasonable basis to foresee a claim.

Timing of Notice of Potential Claim is different than a Claim
•
Notice of Potential Claim is during the policy period
34


Berry & Murphy, P.C. v Carolina Casualty Insurance Company, 586 F.3d 803
• Tenth Circuit held that there was no coverage under an LPL policy where
the claim was first made against a former partner of an insured firm after
he left the firm, and he did not immediately disclose this to his prior firm.
Background:
Berry & Murphy, P.C. (“B&M”) undertook a personal injury client, the Burkhardts, in
January 2005 with Mr. Murphy in the role as lead lawyer.
• In March 2006, Mr. Murphy left B&M and joined another firm, taking personal injury suit
with him. Soon after his departure, he filed motioned to withdraw from Burckhardt's
lawsuit, which district court granted.
• Burckhardt's claim was dismissed without prejudice for failure to prosecute in June,
2006. Burkhardts hired new counsel and case was reinstated but again dismissed for
failure to provide discovery.
• Burkhardts new attorney sent Mr. Murphy a letter suggesting a forthcoming claim for
mishandling of the case and demanding he provide notice to his carrier. Mr. Murphy did
send notice to the carrier for his new firm but did not provide a copy to B&M.
•
35
• January 2008, Burkhardts filed legal malpractice claim against
Murphy and his former firm, B&M.
• In July 2008, Murphy’s former partner Berry accepted service of
complaint on behalf of B&M and gave notice to Carolina Casualty.
• Mr. Berry had a claims-made and reported policy effective Feb. 6,
2008 to Feb. 6, 2009. Carolina Casualty denied coverage on grounds
that alleged malpractice was first made against an insured (Murphy)
prior to the inception date of the policy, therefore falling outside the
policy coverage.
• In ensuing coverage dispute, Berry argued that b/c policy was
effective when he notified carrier in July 2008, the carrier improperly
denied coverage.
36
District court disagreed and entered summary judgment for
Carolina Casualty reasoning Murphy, an insured, had notice of the
claim and the fact he failed to notify his former co-shareholder
was not a burden that should fall on carrier.

Tenth Circuit affirmed. Court assumed that B&M was a
predecessor firm to Berry’s firm and that Murphy was an insured
under the terms of the policy, rejecting Berry’s argument that
Murphy ceased being an insured when he left the firm.

Court, determining that the wrongful acts alleged in Burkhardts’
January 2007 letter related to the acts alleged in malpractice claim
and that Murphy was an insured, concluded that the claim was not
first made against the insured and reported during the same
policy period and there was no coverage.

37
Imperative that law firms report notice of claims and potential claims to
their LPL insurer immediately upon becoming aware of the matter.

Critical to review, and modify if necessary, the ‘knowledge of claim’
provision in the policy. Some insurers will agree to modify language that
limits the knowledge of a possible claim to a small group of partners such
as Managing Partner or General Counsel.

Assign responsibility for claim discovery, handling and reporting to an
individual or committee with requisite knowledge and experience to
oversee the process.

Train attorneys and staff on firm policy and insurance requirements
regarding discover and reporting of Claims and Potential Claims

Law firms should adopt policies and procedures that require outgoing
lawyers to acknowledge ongoing responsibility to provide notice of any
claim or potential claim that they become aware of after their departure
from the Firm.

38

LPL claims can:
• have significant financial impact (exhaustion of
retention, increase in premium at renewal, etc.)
• become time consuming
• damage a firm’s reputation and morale
The negative implications of claims are
dramatically compounded if a claim is denied for
‘prior knowledge’ or improper notice of a claim.
 In situations where an insurer can legitimately
deny coverage, the financial consequences can
threaten the existence of a law firm.

39
Mitigating Potential Legal
Malpractice Claims
Presented by:
Brad Barkin, Lemme Insurance Group
John Wynn, Lemme Insurance Group
Jason E. Fellner, Murphy Pearson Bradley & Feeney
Peter L. Weber, Murphy Pearson Bradley & Feeney