Civil liability and risk management - Civil liability to non...

Learning Outcomes

After reading this article, you will be able to identify when a lawyer may be civilly liable to nonclients, distinguish the circumstances that create such liability, and apply the relevant legal standards to MPRE-style questions. You will understand the concepts of duty, reliance, negligent misrepresentation, and the limits of a lawyer’s liability to third parties.

MPRE Syllabus

For the MPRE, you are required to understand the circumstances under which a lawyer may be subject to civil liability to nonclients. This includes:

• Recognizing when a lawyer owes a duty of care to a nonclient.
• Identifying situations where a lawyer’s opinion or services are intended to benefit a third party.
• Understanding negligent misrepresentation and reliance by nonclients.
• Distinguishing between liability to clients and nonclients.
• Applying the principles of third-party beneficiary and intended reliance.
• Knowing the limits and defenses to civil liability for nonclients.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. A lawyer provides a legal opinion letter to a lender at the client’s request. The lender relies on the letter and suffers a loss due to the lawyer’s negligence. Is the lawyer potentially liable to the lender?
   1. Yes, if the lawyer knew the lender would rely on the opinion.
   2. No, because the lender is not the lawyer’s client.
   3. Yes, if the lawyer received a fee from the lender.
   4. No, unless the lawyer expressly guaranteed the opinion.
2. Which of the following best describes when a lawyer owes a duty of care to a nonclient?
   1. Whenever the nonclient is affected by the lawyer’s work.
   2. Only if the nonclient is a third-party beneficiary of the lawyer’s services.
   3. When the lawyer or client invites the nonclient to rely on the lawyer’s opinion or services.
   4. Never; lawyers owe duties only to clients.
3. A lawyer drafts a will for a client, but due to negligence, an intended beneficiary is omitted. Can the omitted beneficiary sue the lawyer for malpractice?
   1. Yes, if the jurisdiction recognizes liability to intended beneficiaries.
   2. No, because there is no attorney-client relationship.
   3. Yes, if the client consents to the lawsuit.
   4. No, unless the lawyer acted intentionally.

Introduction

Lawyers are generally liable for malpractice to their own clients. However, in some circumstances, a lawyer may also be civilly liable to nonclients—third parties who are not in a direct attorney-client relationship. The MPRE tests your ability to identify when such liability arises, the legal standards that apply, and the limits of a lawyer’s responsibility to nonclients.

Key Term: Civil Liability to Nonclients
The potential for a lawyer to be held legally responsible for damages suffered by a person who is not the lawyer’s client, due to the lawyer’s conduct in providing legal services.

Duty of Care to Nonclients

A lawyer’s primary duty is to the client. However, a duty of care to a nonclient may arise in specific situations, particularly when the lawyer or the client intends or invites a nonclient to rely on the lawyer’s opinion or legal services.

Key Term: Duty of Care
The legal obligation to act with the level of skill and diligence that a reasonable lawyer would exercise under similar circumstances, which may extend to nonclients in certain cases.

When Does a Duty Arise?

A lawyer may owe a duty to a nonclient if:

• The lawyer or client invites the nonclient to rely on the lawyer’s opinion or services, and the nonclient does so.
• The lawyer knows that the client intends the lawyer’s services to benefit a specific nonclient.
• The nonclient is not too remote from the transaction to be entitled to protection under applicable tort law.

If these conditions are met, the lawyer may be liable for negligent misrepresentation or malpractice to the nonclient.

Key Term: Negligent Misrepresentation
A false statement made carelessly by a lawyer, which a nonclient reasonably relies upon to their detriment.

Key Term: Reliance
The act of a nonclient acting or refraining from acting based on the lawyer’s opinion or services, where such reliance is reasonably foreseeable.

Common Scenarios of Liability

• Opinion Letters: When a lawyer provides a legal opinion to a third party (such as a lender or investor) at the client’s request, and the third party relies on it.
• Wills and Estate Planning: When a lawyer’s negligence in drafting a will harms an intended beneficiary, some jurisdictions allow the beneficiary to sue.
• Closing Documents: When a lawyer prepares documents for a transaction and a third party relies on their accuracy.

Limits and Defenses

A lawyer is generally not liable to nonclients who are incidental or remote beneficiaries of the lawyer’s work. Liability is limited to situations where the lawyer or client intended or invited reliance, or where the lawyer knew the nonclient would be harmed if the work was performed negligently.

A lawyer may avoid liability by:

• Clearly stating that their opinion or services are not intended for reliance by nonclients.
• Limiting the scope of their work in writing.
• Ensuring that any third-party reliance is reasonable and foreseeable.

Worked Example 1.1

A lawyer is retained by a corporation to prepare an opinion letter for a bank as part of a loan transaction. The lawyer knows the bank will rely on the letter to decide whether to fund the loan. The opinion letter contains a negligent error, and the bank suffers a financial loss as a result. Is the lawyer liable to the bank?

Answer:
Yes. The lawyer owed a duty of care to the bank because the lawyer knew and intended that the bank would rely on the opinion letter. The bank’s reliance was foreseeable and invited by the lawyer’s conduct.

Worked Example 1.2

A lawyer drafts a will for a client, but due to a drafting error, the client’s intended beneficiary receives nothing. The beneficiary sues the lawyer for negligence. Is the lawyer liable to the beneficiary?

Answer:
Possibly. In some jurisdictions, a lawyer may be liable to an intended beneficiary if the lawyer’s negligence defeats the client’s intent and the beneficiary’s reliance was foreseeable. However, not all jurisdictions recognize such claims.

Exam Warning

On the MPRE, do not assume a lawyer is always liable to nonclients. Liability generally requires that the lawyer or client intended or invited reliance, and that the nonclient’s reliance was reasonable and foreseeable.

Revision Tip

When answering MPRE questions, look for facts showing that the lawyer’s work was intended for a third party’s benefit or that the lawyer knew a nonclient would rely on their opinion or services.

Summary

A lawyer may be civilly liable to nonclients when the lawyer or client invites reliance on the lawyer’s opinion or services, and the nonclient reasonably relies to their detriment. Liability is limited to foreseeable, intended beneficiaries or third parties, and does not extend to incidental or remote nonclients. Defenses include disclaimers, limiting reliance, and lack of foreseeability.

Key Point Checklist

This article has covered the following key knowledge points:

• Lawyers are generally liable to clients, but may also be liable to nonclients in specific situations.
• A duty of care to nonclients arises when reliance is invited or intended.
• Negligent misrepresentation to a foreseeable nonclient can result in liability.
• Liability is limited to nonclients who are not too remote from the transaction.
• Defenses include disclaimers, limiting reliance, and lack of foreseeability.
• Not all jurisdictions allow intended beneficiaries of wills to sue for malpractice.

Key Terms and Concepts

• Civil Liability to Nonclients
• Duty of Care
• Negligent Misrepresentation
• Reliance