Introduction to Risk Management Managing the risk of a Professional Liability claim

What we mean by Professional Liability risk management

What you need to do to manage these risks

How is this presentation going to work?

What practically should I do? What will Law Mutual do?

What is it? Why it matters How Law Mutual supports you

PROFESSIONAL LIABILITY RISK

1 PROFESSIONAL LIABILITY RISK MANAGEMENT

2

3

What is it? What are my key risks? What should my firm be doing about them?

NEXT STEPS

What is this Gadget?

Do not swap devices

Responses are anonymous (characteristics only)

1. 1 2. 2 3. 3 4. 4 5. 5

Who would you like to see live?

1. 2. 3. 4. 5.

52%

22%

9%

17%

0%1 2 3 4 5

• Why it matters • How do firms protect themselves • How Law Mutual supports you

What do we mean by Professional Liability risk?

Professional Liability Risk

The chance that a claim will be brought against you for breach of your professional duty to a client

Types of Allegations

8

23%

18%

15%

11%

11%

11%

11%

9%

8%

7%

MISSED LIMITATION PERIODS

NON TRIAL DOCUMENTATION ERROR

LEGAL IMPLICATIONS NOT CONSIDERED

NOT EXERCISING RIGHTS

CONFLICT OF INTEREST

FIDUCIARY DUTY BREACHED

TRIAL PREPARATION OR CONDUCT DEFECT

INVESTIGATION OR DISCOVERY DEFECT

POOR ADVICE ON PURSUIT OR SETTLEMENT

TAX OR FINANCIAL IMPLICATION ERROR

0% 5% 10% 15% 20% 25%

How many claims?

Claims lodged

9

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

*per policy year not including mortgage broker related claims

.

Cost of claims

Average Cost Per Claim*

10

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

* Average Costs are Net Present Value and do not include mortgage broker related claims

Claims by size of practice?

11

0

5

10

15

20

25

30

35

Sole practitoner 2-5 practitioners 6-9 practitioners 10-15 practitoners >15 practitioners

% Insureds v % claims by firm size

% Law Mutual insureds % Law Mutual claims

Why should you care?

• Cost of premiums • Fairness among insureds • Reputation of the profession

Why should Law Mutual care?

Law Mutual (WA) | 13

• Risk polling and claims analysis • Management Guidelines • Risk management training • In firm advisory

Law Mutual support for risk management

Law Mutual (WA) | 14

• Risk polling of 2 200 Western Australian lawyers • What risks are most likely to lead to a professional liability claim? • What is your firm currently doing to prevent a professional liability claim?

• Analysis of + 200 claims

• Allegation • Firm size • Firm area of speciality

• Next step – what caused each claim? What could the firm have done

differently to prevent the claim arising?

Risk polling and claims analysis

Law Mutual (WA) | 15

• Most claims arise from a failure to do fundamental activities • Screen clients • Identify and manage conflicts • Document instructions and terms of engagement • Properly supervise • Manage deadlines

• Structured requirements

• Flexibility over how firms meet them

Management Guidelines

Law Mutual (WA) | 16

• Aligned with Guidelines • Structured • Targeted • Usable outcomes

Training

Law Mutual (WA) | 17

• Lessons learned • Control gap analysis • Control development

In firm advisory

Law Mutual (WA) | 18

• What is it? • What are my key risks? • What should my firm be doing about them?

Managing professional indemnity risk

22

How a firm manages future events that may or may not happen The profitability of any business depends on it taking risks and managing them well • Financial risks • Reputational risks • Health and safety risks • Professional liability risks

What is Risk Management?

23

Risk Control

What measures should we take

to reduce them?

Risk Management Process

24

What could

lead to a claim?

Risk Identification

Risk Analysis

What should

we prioritise?

Control Monitoring

Have we actually

implemented these controls?

Are they working?

• Four phases of a matter

Structure

Where do we start and where do we finish?

25

Screen client

Engage client

Provide services

Complete matter

1. Prospective client is given wrong information/ impression about law practice capability or services

2. Firm fails to identify a high risk client/matter or fails to manage the risks

3. Premature, unauthorized or inadvertent triggering of duty of care or professional obligation

Select the single risk from Screening Phase that is of greatest concern to you personally?

27%

60%

13%

1

2

3

Polling outcomes – 2 200 lawyers

27

16%

63%

21%

Screening Matter

Miscomunicate practice capability

Accept unsuitable matter

Duty triggered prematurely

1. Firm fails to properly identify actual client

2. Client representative lacks authority to engage lawyers

3. Client or matter is accepted without authority or before completion of screening & clearance

4. Inadequate/incomplete scope of work creates wider than intended obligations to client

5. Conflict of interest is not recognised

6. Firm accepts unacceptably high risk factors

Select the single risk from the Engagement Phase that is of greatest concern to you personally?

9%

17%

50%

11%

4%

9%1

2

3

4

5

6

Polling outcomes – 2 200 lawyers

29

6% 4%

12%

47%

14%

17%

Engaging client

Unclear who acting for

Authority of client rep

Matter accepted prematurely

Unclear service scope

Conflict not recognised

Onerous terms of engagement

1. Incorrect legal advice or documents; failure to manage the legal issues or identify relevant options

2. Missed limitation periods or deadlines

3. Failure to obtain, follow or update instructions

4. Failure to identify and respond to emerging conflicts of interest

Select the single risk from Service Phase that is of greatest concern to you personally?

9%

26%

26%

39%

1

2

3

4

39%

40%

14%

7%

Providing Service

Substandard legal work

Failure to meet deadlines

Acting without clear instruction

Poor conflict management

Polling outcomes – 2 200 lawyers

31

1. Matter not completed, services not fully performed, steps still to be taken result in unrecognised ongoing duty of care

2. Failure to perform duties when matter is ended prematurely

3. Firm does not have or retain records to defend a PL claim, complaint or fee dispute

4. Action or advice after closure triggers new obligations

5. Mismanagement of complaint/claim (e.g. attempt to resolve prejudices a client’s interest)

Select the single risk from Close Out Phase that is of greatest concern to you personally?

13%

16%

16%

13%

42%

1

2

3

4

5

Polling outcomes – 2 200 lawyers

33

45%

15%

12%

17%

11%

Closing out

Matter not completed

Premature close out - duties

Inadequate matter records

New obligations triggered

Mismanagement of complaint

Risk Control

What measures should we take

to reduce them?

Now that you have identified your priority risks?

What should you do to prevent them?

34

What could

lead to a claim?

Risk Identification

Risk Analysis

What should

we prioritise?

Control Monitoring

Have we actually

implemented these controls?

Are they working?

• Focus on professional liability risk management • All requirements for good management of a matter and a legal practice, to

prevent professional liability claims

Law Mutual Management Guidelines

Law Mutual has catalogued what you need to do in its Management Guidelines

Law Mutual (WA) | 35

Matter management • Requirements for 4 phases of legal service delivery

How are the guidelines structured?

Law Mutual (WA) | 36

Screen Engage Provide Complete

Practice management • Requirements grouped around 5 elements of a management system

How are the guidelines structured?

Law Mutual (WA) | 37

Practice management

Leadership

People

Information management

Activity management

Assurance

The things a law practice or lawyer need do to prevent claims

What do you mean by requirements?

Law Mutual (WA) | 39

Activity Requirement

Ensure ongoing supervision

Ensure supervisor regularly meets with and reviews the work of the practitioner who conducts

the matter Ensure supervisor reviews any legal advice prior

to communicating it with the client.

Not all requirements are mandatory for all firms

What do you mean by requirements?

Law Mutual (WA) | 40

Activity Requirement Mandatory Sole Practitioner

Ensure ongoing

supervision

Ensure supervisor regularly meets with and reviews the work of the practitioner

who conducts the matter

Ensure supervisor reviews any legal advice prior to communicating it with the

client.

Matter and Practice Guidelines

How does a firm ensure that requirements are always met?

Law Mutual (WA) | 41

“It’s the vibe…”

Law Mutual (WA)

“It’s not the vibe…”

Law Mutual (WA)

Through “controls”. Controls are the mechanisms used to ensure that certain activities are done to the required standard e.g. • A client confidentiality policy • A conflict checking procedure • Firm precedents • Firm training program • Supervision procedure

Matter and Practice Guidelines

How does a firm ensure that requirements are always met?

Law Mutual (WA) | 44

• So long as the controls ensure that requirements are met

Matter and Practice Guidelines

The question as to what controls are appropriate is usually left to the firm

Law Mutual (WA) | 45

Activity Requirement Potential Control Mandatory Sole Practitioner

Ensure ongoing

supervision

Ensure supervisor regularly meets with and reviews the work of the

practitioner who conducts the matter

Supervision procedure, guidance

or checklist addressing correspondence, meetings, matter

review, authorities, availability and work

allocation.

What is the “appropriate control” for your firm?

Law Mutual (WA) | 46

It may not be a procedure!

• Roles • Accountabilities

• Training • Performance

• Measures • Supervision • QA • Audit

•Policies •Procedures •Guidelines

• Information management

systems

• Commitment • Expectations • Values • Culture

Leadership control Formal control

Capability control

Assurance control

The sole practitioner might The mid tier practice might also

The larger practice might also

Use checklists Use core procedures and basic systems to aid decision making and checking

Use policies and procedures and systems for consistent delivery

Maintain good general precedents and forms

Maintain good specialist precedents and forms

Research and draft position papers

Engage external legal and practice reviewers

Have strong supervision requirements

Implement peer review and/or internal audit review

What is the “appropriate control” for your practice?

Law Mutual (WA) | 47

Will vary depending on practice size, matter complexity etc.

Do we always meet this requirement? If yes - how do we ensure this? (what are our controls?) If no - what would be the “appropriate controls” for our practice?

Matter Management - Screen

Law Mutual (WA) | 50

Consider whether the Practice has any potential conflict of interest and communicate the nature of the conflict and approach to resolving it to the client

Do we always meet this requirement? If yes - how do we ensure this? (what are our controls?) If no - what would be the “appropriate controls” for our practice?

Matter Management – All

Law Mutual (WA) | 51

Supervisor always reviews any legal advice prior to communicating it to client

52

RISK AND CHANGE

53

• Availability of Flight Training

• Technical Sophistication

• Suicide Bombers

54

PAST

Claims & Lessons Learned

PRESENT

Gaps & Weaknesses

FUTURE

Change & Trends

55

CHANGES & TRENDS

Structure Personnel Client Acquisition Process Client Profile Service Delivery Processes Service Delivery Partners Service Streams (Non-legal, new areas of law)

• Client empowerment • New competitors • Alternate business structures • Digital marketing and delivery • Virtual law firms and AI • Demographic trends, career prospects and expectations

(*Canadian Bar Association Futures Initiative 2013)

Risk and change

Current changes and trends*

56

What do I need to do? Next steps

57

What do I need to do?

58

Comply with firm’s administrative practices Look for opportunities to improve controls where risks are high Attend further risk management seminars and training as your career progresses

Effectiveness of this session

Thank you!