Print Edition
September 2010 
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Professional Liability In A Distressed Market |
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Selina Harrison, November 2009 |
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Page 2 of 2 |
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In other cases, the bankruptcy trustee might consider bringing preference or fraudulent conveyance claims to recover fees paid to the attorney prior to bankruptcy – however, failure to disclose a conflict or the disqualification of a lawyer can allow the lawyer to claim a disgorgement of fees earned during the period of representation. This is clearly a difficult period for legal professionals, but there are ways that they can mitigate their exposure to these claims. Legal firms should “implement well-conceived loss prevention practices – for example, providing clients with engagement letters that limit the scope of representation. They should also specifically exclude related services that will not be handled, and if necessary, provide conflict waivers,” says Mr Walker. Any legal opinion issued by the firm should be reviewed by the firm’s opinion committee before issuance to be certain that the firm is comfortable with any representation made, He adds that “law firms must have comprehensive conflict checking policies and procedures, and keep informed of developments in the case law governing conflicts in the relevant jurisdiction.”
With regard to corporate bankruptcies, class action lawsuits are always a risk – it is quite common for shareholder action to be brought against the directors and officers of these firms for failing to properly identify and manage the risks that brought the firm into ruin.
“However, this can be a self-defeating measure, since the bankrupt firm being sued might not have the money to pay what the plaintiffs are seeking. Even so this never stopped class actions before”, observes Mr Coffin. Clearly then, prevention is better than cure when it comes to mitigating liability risk, and the advice of risk managers should be heeded. Prior to the downturn, the opinions of risk managers were often ignored, but now there is a real need for enterprise-wide risk management, and more upper-management opportunities for risk professionals to have their voices heard. “Organisations, especially public ones, would do to establish the position of Chief Risk Officer, so that all risk decisions can be centralised under a single authority. Establishing a board-level risk committee, containing the CRO, CEO and other pertinent decision makers so that risk can be seen from the highest level possible and dealt with strategically, would also be beneficial,” says Mr Coffin.
Ultimately, improving risk practices is the best way to protect against professional liability claims. Solid operational risk management, consistent communication and alternative methods of dispute resolution should be applied as far as is possible. It may seem obvious, but identifying the risks that give rise to a professional liability will dramatically lower the potential for claims. Importantly, this means listening to and enforcing the advice given by risk managers. Even so, once a potential claims situation arises, it can be diffused earlier if the future defendant makes a faithful effort to address the problem directly, honestly and openly. If a claim progresses to formal dispute, the use of legal mediation before the case goes to trial is beneficial for the defendant, as usually resolves the matter quickly and less expensively. It is also worth noting that the US has been very influential on tort litigation, and as a consequence there is now a highly efficient sub-industry of legal professionals dedicated to bringing class actions to bear. This section of the industry ultimately increases exposure to professional liability risk, and both companies and individuals alike will need to bear this in mind.
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