Lawyers Professional Liability Insurance Conflicts of Interest Risk Management
Conflicts of interest claims continue as a leading loss cause for lawyers Professional Liability Insurance (LPL). For that reason LPL applications ask the firm whether the firm has a conflicts of interest system/process, that little check box on the application determines whether the firm gets preferred rates or even a malpractice quote from certain insurers. Beyond representing both parties in a proceeding such as a divorce, there are many hidden conflicts that can cause problems for law firms. Transactional law firms are especially vulnerable to hidden conflicts of interest. The New York Bar issued “FORMAL OPINION 2024-1: ETHICAL ISSUES ARISING FROM THE REPRESENTATION OF TWO OR MORE BIDDERS COMPETING FOR THE SAME ASSET” for law firms. Your jurisdiction may have different views for this conflict type. Plaintiff’s lawyers actively look for transactional lawyers, dealmakers by nature, struggling to identify and properly resolve conflicts of interest.
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.
If you feel that there might be a conflict or potential but are comfortable that it would not result in how you address the matter and does not violate the rules of professional conduct, at a minimum make sure to get informed consent from all impacted parties. But certain things are a definite “no no,” i.e., representing both parties in litigation.
Client intake procedures should check conflicts before even 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 pertinent facts regarding the potential parties in the matter, making sure that you do not have any conflicts of interest with other parties or potential parties should a litigation matter result in third-party claims, counterclaims or crossclaims. Utilize a conflict checking software program to ensure that the engagement is proper.
It is good practice to create and maintain the following file opening procedures:
- Prepare a file-opening form.
- Do not assign a file/billing number without first performing conflicts check.
- When adding new parties, update file-opening forms for the matter and 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 to enter all relevant client information into the conflict system, frequently updated and adequately backed up in the event of system failure.
Conflicts of interest are among the most common and complex malpractice errors, producing a substantial number of claims each year. Conflicts can come in all shapes and sizes, so despite the best efforts of lawyers, they can be hard to identify. Attorneys that do not perform adequate conflicts of interest checks can expect malpractice claims, disciplinary issues, and higher attorney malpractice premiums.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
