Civil liability and risk management - Limiting liability for...

Learning Outcomes

After studying this article, you will be able to identify when a lawyer may limit liability for malpractice, explain the requirements for valid prospective waivers and settlements of malpractice claims, and recognize the role of malpractice insurance and risk management. You will be prepared to answer MPRE questions on limiting liability for malpractice and related risk prevention.

MPRE Syllabus

For the MPRE, you are required to understand the ethical and civil liability rules governing a lawyer’s attempts to limit malpractice liability. This includes:

• The prohibition on prospectively limiting malpractice liability except in narrow circumstances.
• The requirements for settling actual or potential malpractice claims with clients.
• The role and limitations of malpractice insurance and risk management.
• The distinction between professional discipline and civil liability for malpractice.
• The obligations to advise clients regarding independent counsel in these contexts.

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 wishes to include a clause in a retainer agreement stating that the client waives any future malpractice claims. Under what circumstances is this permitted?
   1. Always, if the client signs the agreement.
   2. Only if the client is independently represented in making the agreement.
   3. Never, such clauses are always prohibited.
   4. Only if the lawyer reasonably believes the client understands the risks.
2. When settling a malpractice claim with a former client who is not represented by counsel, the lawyer must:
   1. Obtain the client’s oral consent.
   2. Advise the client in writing of the desirability of seeking independent legal advice and give a reasonable opportunity to do so.
   3. Only ensure the settlement is fair.
   4. Require the client to sign a release of all claims.
3. Which of the following is true regarding malpractice insurance?
   1. All states require lawyers to carry malpractice insurance.
   2. Lawyers are subject to discipline for failing to have insurance.
   3. Insurance is not required, but may be required to be disclosed to clients or authorities.
   4. Insurance eliminates the need for risk management procedures.
4. A lawyer settles a potential malpractice claim with a client but does not advise the client to seek independent counsel. Is this proper?
   1. Yes, if the lawyer believes the settlement is fair.
   2. Yes, if the client does not request independent advice.
   3. No, the lawyer must advise the client in writing of the desirability of seeking independent legal counsel.
   4. No, unless the client is a lawyer.

Introduction

Lawyers face both professional discipline and civil liability for malpractice. To manage risk, some lawyers seek to limit their liability through agreements with clients or by settling claims. However, the Model Rules of Professional Conduct strictly regulate when and how a lawyer may limit or settle malpractice liability. Understanding these rules is essential for MPRE success and for ethical legal practice.

Key Term: Malpractice
A lawyer’s civil liability to a client or, in some cases, a non-client, for professional negligence, breach of fiduciary duty, or other wrongful acts in the course of legal representation.

Limiting Liability for Malpractice: Prospective Waivers

Lawyers may be tempted to include clauses in engagement letters or retainer agreements that limit their liability for future malpractice. The Model Rules generally prohibit such prospective waivers.

Key Term: Prospective Limitation of Liability
An agreement made before any malpractice occurs that seeks to limit or eliminate a lawyer’s liability for future professional negligence.

A lawyer may not make an agreement prospectively limiting malpractice liability to a client unless the client is independently represented in making the agreement. This means:

• The client must have separate legal counsel (not just be advised to seek it).
• Merely advising the client to consult another lawyer is not enough.
• If the client is not independently represented, any such waiver is unenforceable and the lawyer is subject to discipline.

Key Term: Independent Representation
The client is represented by another lawyer, not associated with the original lawyer or their firm, when entering into an agreement limiting malpractice liability.

Worked Example 1.1

A lawyer includes a clause in a standard retainer agreement stating, “Client agrees not to sue the lawyer for any mistakes made during the representation.” The client is not represented by another lawyer in this transaction. Is this clause valid?

Answer:
No. The Model Rules prohibit a lawyer from prospectively limiting malpractice liability unless the client is independently represented in making the agreement. This clause is unenforceable and subjects the lawyer to discipline.

Settling Malpractice Claims with Clients

When a lawyer seeks to settle an actual or potential malpractice claim with a current or former client, special requirements apply. The lawyer must:

• Advise the client in writing of the desirability of seeking independent legal counsel regarding the settlement.
• Give the client a reasonable opportunity to consult such counsel.

This rule applies even if the client does not ultimately seek independent advice. The lawyer must provide written notice and allow time for the client to consider the advice.

Key Term: Settlement of Malpractice Claim
An agreement resolving an actual or potential malpractice claim between a lawyer and a current or former client.

Worked Example 1.2

A lawyer discovers an error in a client’s case and offers to settle any potential claim by refunding part of the fee. The lawyer sends a letter advising the client to consult independent counsel before accepting the settlement and gives the client a week to consider. The client signs the agreement without consulting another lawyer. Is this proper?

Answer:
Yes. The lawyer advised the client in writing of the desirability of seeking independent legal counsel and gave a reasonable opportunity to do so. The client’s decision not to seek advice does not make the settlement improper.

Exam Warning

Be careful: If a lawyer settles a malpractice claim with an unrepresented client without advising the client in writing to seek independent legal counsel, the lawyer is subject to discipline—even if the settlement is fair.

Malpractice Insurance and Risk Management

Most states do not require lawyers to carry malpractice insurance, but some require disclosure of insurance status to clients or regulatory authorities. Insurance does not shield a lawyer from discipline or civil liability for unethical conduct, but it is an important risk management tool.

Key Term: Malpractice Insurance
A policy that covers a lawyer’s civil liability for professional negligence, but does not affect ethical duties or disciplinary exposure.

Lawyers should also implement risk management procedures, such as maintaining clear engagement letters, documenting advice, and using conflict-checking systems, to reduce the likelihood of malpractice claims.

Worked Example 1.3

A lawyer does not carry malpractice insurance and fails to inform a new client of this fact, even though state rules require disclosure. Is the lawyer subject to discipline?

Answer:
Yes, if the jurisdiction requires disclosure of insurance status to clients or authorities, failure to do so is a disciplinary violation—even though insurance itself is not mandatory in most states.

Key Point Checklist

This article has covered the following key knowledge points:

• Prospective waivers of malpractice liability are generally prohibited unless the client is independently represented.
• Settlements of malpractice claims with clients require written advice to seek independent legal counsel and a reasonable opportunity to do so.
• Failure to follow these requirements subjects the lawyer to discipline, regardless of the fairness of the agreement.
• Malpractice insurance is not required in most states but may be subject to disclosure rules.
• Risk management procedures are essential to minimize malpractice exposure.

Key Terms and Concepts

• Malpractice
• Prospective Limitation of Liability
• Independent Representation
• Settlement of Malpractice Claim
• Malpractice Insurance