One of the leading causes of lawyers professional liability insurance claims are conflicts of interest. Beyond representing both parties in a proceeding such as a divorce, there are many hidden conflicts that can cause law firms problems. Not finding conflicts can lead to loss of clients, loss of fees, disciplinary issues and attorney malpractice claims. Lawyers need to consider not only actual impropriety, but the appearance of impropriety when determining when to engage a client.
Juries are unsympathetic to conflicts of interest—regardless of how they happen. Remember appearances do matter. The mere suggestion of a conflict of interest can, and often does, result in some of the largest legal malpractice verdicts. Juries sometimes ignore the complex facts that mitigate the conflict, and simply conclude that an attorney put his or her own financial or personal interests ahead of a client's.
If you feel that there might be a conflict or potential a conflict, but are comfortable that it would not result in how you address the matter and does not violate the rules of professional conduct, at the very least make sure to get informed consent from all parties that are impacted. But certain things are a definite “no no”, i.e. representing both parties in litigation.
As a minimum, make sure as part of your client intake procedures to check conflicts before engaging the client. A conflict check prior to engagement helps prevent later claims of legal malpractice and/or ethical violations arising from an alleged conflict of interest. Get as many facts as possible regarding the potential parties to the matter to be sure that you do not have any conflicts of interest with any other parties or potential parties should a litigation matter result in third-party claims, counterclaims or cross-claims.
It is good practice to create and maintain the following file opening procedures:
1. Prepare a file-opening form.
2. Establish procedures so that a file/billing number is not assigned without first performing a conflicts check.
3. Update file-opening forms when new parties are added to a matter and make sure to update your conflicts system.
Utilize conflict checking software that can search all active, inactive and closed matters for potential conflicts. Remember conflict checking software is only as good as the information in the system, “garbage in garbage out”. Be sure that all relevant client information is entered into the conflict system, frequently updated and adequately backed up in the event of system failure.
Attorneys that do not perform adequate conflicts of interest checks can expect malpractice claims, disciplinary issues, and higher attorney malpractice premiums. Conduct demonstrating a breach of the duty of loyalty typically results in stiff penalties for attorneys and law firms.
A claim against an attorney arising out of a conflict of interest can also bring enhanced damages, such as punitive damages or awarding of attorney’s fees. In most states and with most Lawyers Professional Liability Insurance policies punitive damages or attorney’s fees are not covered. In many cases these awards can be even larger than the damages awarded for the case itself.