Category: Professional Liability

As Texans continue cleaning up the destruction of Hurricane Harvey and Floridians brace for Hurricane Irma bearing down on them, many lawyers in the regions will be seduced by the money to be made from the sheer number of insurance claims and lawsuits soon to be filed.

Unfortunately, many of these lawyers will instead find themselves professionally devastated by a legal malpractice claim because they chose to “dabble” in an unfamiliar area of law into which they never should have ventured.

We already have seen several law firms ramping up on social media and in news reports to grab a piece of the inevitable FEMA, inverse condemnation, and first-party insurance claims to come.

Both massive storms, however, will spur other kinds of complex litigation as well.

We will inevitably see an uptick in claims involving professional negligence against architects, engineers, and design professionals; director and officer liability; building owners, real estate development and management companies; and landlord-tenant disputes just to name a few.

None of these types of claims are any place for a novice. Unfortunately, attorneys unfamiliar with an area of practice often simply don’t know what they don’t know.

Each of these areas of law are exceedingly complex and nuanced. Issues relating to liability, defense, and damages often are not easily identifiable by an inexperienced attorney. A single misstep can lead to disaster for the client and attorney.

The American Bar Association Rules and every other state impose a duty that “a lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” ABA Model Rules 1.1.

“Dabbling” in an area of law in which an attorney is not familiar, however, remains among the top five reasons for legal malpractice claims nationwide despite the ABA model rules, state bar rules, and the legal and insurance professions’ constant warnings.

The ABA “Profile of Legal Malpractice Claims: 2012-2015” reports that 46 percent of all legal malpractice claims involve “substantive errors,” including a failure to know or apply the law, failure to know or calculate deadlines, inadequate discovery, and errors in procedure strategy.

The ABA report found that more than 60 percent of all malpractice claims involve an area of the law in which the subject attorney works less than 20 percent of the time. Attorneys who practice in a single area of the law account for less than 7 percent of all legal malpractice claims.

According to panelist on a recent ABA webinar, “Avoiding Common Malpractice Missteps: What Every Lawyer Needs to Know (On-Demand CLE),” 13 percent of legal malpractice claims arose specifically because the attorney did not know the area of law.

A recent 2017 study by professional liability insurance leader Ames & Gough reveals that the number of new legal malpractice claims is stabilizing. Claims, however, remain well above historical experience in years preceding the 2007 – 2009 recession that forced many attorneys to expand into unfamiliar areas of practice.

Any lawyer considering assuming the representation or defense of a claim outside the lawyer’s ordinary practice area should answer several basic questions before taking on the client.

• How complicated is the matter and area of law?
• What is the amount in controversy?
• Are the potential fees recoverable worth the risk?
• How familiar are you with the jurisdiction or venue?
• Can you spend the additional time necessary to get up to speed on the area of law?
• Do you have the financial resources to take on the representation in an area where you will need to spend considerable time to learn the law?
• Can you associate with or turn to experienced attorney for help on the matter?
• How difficult will the client to be, and does the client have unreasonable pre-claim expectations?
• Do you have adequate professional liability insurance coverage?
• How devastating will a legal malpractice claim on the case in question be on your overall law practice and personal life.

If an attorney decides to take on a case outside their regular practice area, the attorney can take a few simple steps to help minimize the risk of a future legal malpractice claim such as:

• Draft a clear engagement agreement signed by the client.
• Engage experienced co-counsel early.
• Research the law and procedure thoroughly upfront before taking on the case.
• Designate time each day or week to continue learning the law and to work on the claim.
• Take advantage of continuing legal education courses available online and from the state and local bar association.
• Participate in networking opportunities with experienced attorneys in the area.
• Prepare internal memorandum and case evaluations on legal issues as they are identified.
• Keep the client thoroughly informed as the case progresses.
• Don’t be afraid to ask for help.
• Withdraw immediately if it becomes clear you’re over your head.

No lawyer should ever be unwilling to expand their scope of practice simply because of the fear of a legal malpractice lawsuit. No lawyer, however, should ever think that circumstances like Hurricane Harvey or Hurricane Irma present an economic windfall simply because of the volume of legal work that can be expected to result.

Now is no time to “dabble” in an unfamiliar area of law.

Attorneys also should resist the temptation to even “do a favor” for a friend or family member because it usually helps no one. The “favor” often gets pushed to the bottom of the attorney’s stack of things to do, and the client ultimately suffers from delays, missed deadlines, or less than competent representation.

If an attorney decides that now presents a unique opportunity to expand into a new area of practice, be willing to commit upfront the substantial time and resources necessary to comply with ABA Model Rule 1.1, or be prepared for the personal and professional devastation that inevitably will come from a legal malpractice claim.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Timothy B. Soefje is the Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

A growing number of professionals routinely share large files via cloud-based, file-sharing technology that puts them at serious risk of waiving claims of privilege, trade secrets, or proprietary information if litigation should arise in the future.

In the recent case of Harleysville Insurance Company v. Holding Funeral Home, Inc., a federal judge ruled that this common practice of sharing documents can be the “cyber world equivalent of leaving [privileged documents] on a bench in a public square and telling its counsel where they could find it.”

The judge went on to state, “It would be hard to imagine an act that would be more contrary to protecting the confidentiality of information than to post the information to the worldwide web.”

The facts of the underlying claim were not uncommon. There, a funeral home and insurance company were involved in litigation over the denial of a fire claim. The insurance company claimed the fire was intentionally set and denied coverage.

The insurance companies’ senior fire investigator sought to share his investigative file with his colleagues at the National Insurance Crime Bureau, and uploaded it to a common file-sharing program on the internet. He then sent an email to the NICB containing a hyperlink to the folder.

The cloud-based, internet folder was not password encrypted. Anyone with the hyperlink could access the entire contents of the folder. The investigator, however, included the following commonly-used statement in his email, presumably believing it was sufficient to maintain the confidentiality of his investigative file:

CONFIDENTIALITY NOTICE: This email contains information that is privileged and confidential, and subject to legal restrictions and penalties regarding it unauthorized disclosure and other use. You are prohibited from copying, distributing or otherwise using this information if you are not the intended recipient. If you received this email in error, please notify me immediately by return email, and delete this e-mail and all of its attachments from your system.

The investigator, thereafter, chose to upload the insurance companies’ entire claim and investigative file to the same Box, Inc. folder so that it could be accessed by the insurance companies’ litigation attorneys. The insurance companies’ attorney downloaded the entire file, including the senior investigator’s original email to NICB that contained the original hyperlink.

In response to written discovery requests from the defendant, the insurance companies’ attorneys produced the senior investigator’s email to the NICB as part of written disclosures. The email, of course, contained the hyperlink to what now included the insurance companies’ entire claim and investigative file. Defense counsel used the hyperlink to access the folder and downloaded the insurance company entire claim and investigative file, which included arguably privileged information.

After discovering the inadvertent disclosure, the insurance company sought to disqualify defense counsel and obtain a court ruling that its claim and investigative file as protected by the attorney-client privilege and the work product doctrine. The defendant argued that the insurance company had waived any privilege by disclosing the hyperlink to the folder in the senior investigator’s email.

The court first addressed whether the privilege was waived under state law, ruling the insurance companies’ disclosure was “inadvertent,” but nonetheless, any privilege was waived because the insurance carrier “knowingly provided access to the information by failing to implement sufficient precautions to maintain the confidentiality.”

The court concluded:

“It does not matter whether this employee believed that this site would function for only a short period of time or that the information uploaded to the site would be accessible for only a short period of time. Because of his previous use of the Box Site, this employee either knew – or should have known – that the information uploaded to the site was not protected in any way and could be accessed by anyone who simply clicked on the hyperlink.”

The court further concluded that the insurance company’s counsel also knew – or should have known, the information was readily available on the internet to anyone with access to the hyperlink.

Applying state law, the court held any privilege was waived because “waiver may occur if the disclosing party failed to take reasonable measures to ensure and maintain the documents confidentiality, or to take prompt and reasonable steps to rectify the error.” Virginia law mirrors many other state jurisdictions.

The court finally concluded the insurance company waived its right under Fed.R.Civ.Evid. 502, that to assert a work product privilege because neither it nor its defense counsel took reasonable steps to prevent its disclosure or rectify the situation.

The court concluded, “the agent’s actions in posting the Claims File where it could be accessed by anyone on the internet is certainly a release of protected information in way that did not limit its future use.”

The court went further, however, to justify its opinion as fostering the better public policy, concluding:

“The technology involved in information sharing is rapidly evolving. Whether a company chooses to use new technology is a decision within that company’s control. If it chooses to use a new technology, however, it should be responsible for ensuring that its employees and agents understand how the technology works, and more importantly, whether the technology allows unwanted access by others to its confidential information.”

As admitted by the court, the outer boundaries of what constitutes a waiver of privilege arising from the use of file-sharing technology is evolving. Few, if any, state or federal courts have specifically addressed the question of waiver or unauthorized access by opposing counsel.

For now, the use of encryption and other password protected, secured portals would seem to be the best practice for professionals who choose to share files that may contain documents that may be protected by privilege, proprietary information, or trade secrets.  At minimum, any documents shared through unencrypted, cloud-based, file-sharing technology should be immediately removed from the internet after shared to prevent unintended disclosure and waiver of any rights to privilege.

Best risk management practice, for now, calls for every professional or firm that chooses to use a cloud-based, file-sharing program to consult with outside legal counsel to develop and implement stringent, internal protocols to protect privileges and other rights, and every professional should insist that all internal risk management teams, insurance carriers, and outside litigation attorneys do the same.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at tsoefje@realclearcounsel.com.

Past experiences support that indemnification clauses can be among the most dangerous terms in a design professional’s contract.

An indemnity contract arises when a design professional takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual such as an owner, contractor, or subcontractor.

Unfortunately, that same past experience tells us these indemnification clauses often are misunderstood or misconstrued by both parties.

Additionally, non-specific indemnification language can lead to enormous, unintended exposure for the design professional.

Typically, indemnification clauses are governed by state law. And each state’s law of indemnity is unique. Always consult with local counsel to be fully informed about indemnity terms you are being asked to agree to.

But generally, for an indemnification provision to be enforceable, it must provide “fair notice” of “a commitment by one party to pay for the damages resulting from another party’s own negligence. Generally, “fair notice” is a question of law for the trial court. But, in layman’s terms, it means the indemnification clause must be conspicuousness.

This requirement is included so that one party can’t “sneak” indemnification language into a contract. Examples might include the use of all capital letter, large or bold-faced type, or anything that calls the reader’s attention to the indemnification language.

Indemnity provisions hidden among unrelated terms and conditions, or on the reverse side of a document, generally won’t satisfy the conspicuousness requirement.

One pitfall for design professionals arises where they agree to a contract that requires them to “defend” another party to the contract, in addition to the duty to “indemnify. The “duty to defend” is contractual in nature, and is separate from the “duty to indemnify.”

Professional liability insurance policies frequently include contractual liability exclusions. In other words, a professional liability insurance policy may not provide coverage if the design professional contractually agrees to “defend” an owner, contractor or other third party.

Design professionals also should be cautious about entering into contracts that hold the design professional to the same terms and conditions as the prime contract between the owner and architect.

At minimum, request a copy of the prime contract and have it reviewed by an attorney. Frequently, the prime contracts may contain indemnification language creating liability for clams the policy holder never intended to assume.

Indemnification clauses are a minefield of potential liability. By exercising “Contract Review Services,”  it may be possible to avoid agreeing to a duty to “defend” or “indemnify”that the design professional never intended to assume, and even avoid resulting claims and lawsuits altogether.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC based in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje. For more information, visit us at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com.

Even for the most cautious and conscientious design professionals, mistakes are made. Things go wrong. Disputes arise.

It’s a sign of the times that design professionals increasingly are becoming targets for claims and lawsuits. Litigious clients. Injured parties. Construction firms with “cost-recovery” programs trying to re-coup lost profits. Claims can come from anywhere and anyone – all hoping to take advantage of a design professional’s assets or professional liability insurance policy. When an issue arises, seek “Pre-claims Assistance” early.

What’s the difference between a pre-claim and a claim you might ask? Every insurance policy is unique. So, always check with your insurance agent to understand your policy terms. But generally, the difference is found in the definitions in your policy.

Typically, an insurance policy defines a claim as a “demand” against the insured for money or services that caused a loss or damages.

A pre-claim is merely an issue or circumstance reported to the insurer that the professional believes could lead to a claim. What kind of issues or circumstances? Obviously, when there’s been an accident or loss on the job, pre-claims assistance should be sought immediately. But it could be something simple. Something much less obvious.

Maybe you’ve encountered unexpected and unique soil conditions on a job site. Or you’ve learned the contractor or a subcontractor is not following specifications.  Maybe it’s an ethical issue involving the contractor or subcontractor. Maybe an inspector, governmental entity or architectural review committee is delaying the project by unreasonably refusing to approve your work.

“Pre-claim Assistance” should be considered when any issue the policyholder believes could lead to a claim. Usually, it’s best to report the issue to the agent or broker first. Let them help you follow the steps set out in the insurance policy to obtain “Pre-claim assistance.”

Again every policy is unique, but typical requirements might include:

• Written notice on how the professional learned of the issue;
• What work the professional is performing;
• A description of what happened;
• Names of the potential claimants; and
• A summary of the potential damages or injuries.

Some professionals make the mistake of not seeking “Pre-claim Assistance” quickly enough because they are concerned that reporting an issue will increase their future premiums. Always check with your agent to clearly understand your policy, but seeking “Pre-claim Assistance” is sound, risk-management best practice regardless of the effect on future premiums. But typically, the expenses for “Pre-claim Assistance” are incurred by the insurer, paid outside of the policy limit, and are not subject to a deductible.

Why would insurers do this? Because experience has proven that early intervention by an experienced, pre-claims specialist may help resolve the claim before it develops into a lawsuit, saving the insurer – and the insured – money. Involving experienced claims professionals during the pre-claims period can help prevent costly mistakes that increase the insurer’s ability to settle a claim later, or make it more difficult to defend a claim that develops into a lawsuit.

Sometimes during “Pre-claim Assistance,” the insurer may pay for legal counsel, experts, testing or mediators if the insurer believes they determine it could mitigate the loss or avoid a claim altogether. The professional also benefits in other ways. By seeking “Pre-claim Assistance,” the design professional can lock in the insurance policy limits in effect when the issue is report. Also, expenses incurred by the insured during “Pre-claim Assistance” may count toward the insured’s deductible.

Design professionals deal with problems and conflicts on projects daily. Fortunately, few will ever lead to a claim. But a design professional should trust their instincts and experience to know when an issue or unusual circumstance could lead to a costly claim or lawsuit. Act quickly and decisively to take advantage of “Pre-claim Assistance,” and hopefully avoid a claim altogether.

To subscribe to the Professional Liability Update, click HERE, provide your contact information, and receive notice of our updates. 

Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC. in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje. For more information, visit us at www.realclearcounsel.com or contact Mr. Soefje at tsoefje@realclearcounsel.com