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
• 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
• 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
• 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
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
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?
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
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