The Risk Manager, Summer 2016

We all know that a lawyer’s fiduciary duty to clients and SCR 3.130(1.4), Communication, require prompt client notification of important developments in a representation. This is especially true when an issue of malpractice arises or other problems occur. What is not so clear is what constitutes an adequate notification. How much should you tell a client to meet your ethical obligation? How “prompt” must the notification be? Does every error, no matter how inconsequential, require notification? Is there a conflict between the lawyer’s duty to notify clients of malpractice and the requirement in lawyer liability insurance policies to “promptly” notify the insurer of malpractice claims?

Duty to Notify Clients of Errors

While detailed Kentucky guidance was not found on these questions, the recent North Carolina State Bar Formal Ethics Opinion 4 (7/17/15) is a helpful opinion addressing many of them. What follows is an abstract of the opinion. While this is not Kentucky authority, it makes good sense in evaluating a question of notification of malpractice. (Note: The North Carolina rules cited below are the same as those in the Kentucky Rules of Professional Conduct.)

  • When the lawyer determines that an error that may constitute legal malpractice has occurred, is the lawyer required to disclose the error to the client?
    In the spectrum of possible errors, material errors that prejudice the client’s rights or claims are at one end. These include errors that effectively undermine the achievement of the client’s primary objective for the representation, such as failing to file the complaint before the statute of limitations runs. At the other end of the spectrum are minor, harmless errors that do not prejudice the client’s rights or interests. These include nonsubstantive typographical errors in a pleading or a contract or missing a deadline that causes nothing more than delay. Between the two ends of the spectrum are a range of errors that may or may not materially prejudice the client’s interests.
    Whether the lawyer must disclose an error to a client depends upon where the error falls on the spectrum and the circumstances at the time that the error is discovered. …. Under this analysis, it is clear that material errors that prejudice the client’s rights or interests as well as errors that clearly give rise to a malpractice claim must always be reported to the client. Conversely, if the error is easily corrected or negligible and will not materially prejudice the client’s rights or interests, the error does not have to be disclosed to the client.
    Errors that fall between the two extremes of the spectrum must be analyzed under the duty to keep the client reasonably informed about his legal matter. …. When a lawyer does not know whether disclosure is required, the lawyer should err on the side of disclosure or should seek the advice of outside counsel, the State Bar’s ethics counsel [in Kentucky call the KBA Ethics Hotline], or the lawyer’s malpractice carrier.
  • Applying the analysis in the opinion above, the lawyer has determined that her error must be disclosed to the client. Is the lawyer also required to withdraw from the representation?
    [Not always], …. Rule 1.7(b) allows a lawyer to proceed with a representation burdened by a conflict if the lawyer reasonably believes that she will be able to provide competent and diligent representation to the client and the client gives informed consent, confirmed in writing. If the lawyer reasonably concludes that she is still able to provide the client with competent and diligent representation – that she can exercise independent professional judgment to advance the interests of the client and not solely her own interests – the lawyer may seek the informed consent of the client to continue the representation.
    Of course, when an error is such that the client’s objective can no longer be achieved, as when a claim can no longer be filed because the statute of limitations has passed, the lawyer must disclose the error to the client and terminate the representation.
  • If an error must be disclosed to a client, what must the lawyer tell the client?
    The lawyer must candidly disclose the material facts surrounding the error, including the nature of the error and its effect on the lawyer’s continued representation. If the lawyer believes that she can take steps to remedy the situation or mitigate or avoid a loss, the lawyer should discuss these with the client while informing the client that the client has the right to terminate the representation and seek other counsel.
    The lawyer need not advise the client about whether a claim for malpractice exists, and indeed the lawyer’s conflicting interest in avoiding liability makes it improper for the lawyer to do so. The lawyer need not, and should not, make an admission of liability. What must be disclosed are the facts that surround the error, and the lawyer should inform the client that it might be advisable to consult with an independent lawyer with respect to the potential impact of the error on the client’s rights or claims.
    Under this approach, the lawyer is not required to inform the client of the statute of limitations applicable to legal malpractice actions, nor is she required to give the client information about the lawyer’s malpractice insurance carrier or information about how to file a claim with the carrier. Nevertheless, the lawyer should seek the advice of her malpractice insurance carrier prior to disclosing the error to the client, and should discuss with the carrier what information, if any, should be provided to the client about the lawyer’s malpractice coverage or how to file a claim.
  • Is there any information that the lawyer should not provide to the client when disclosing her error to the client?
    The lawyer should not disclose to the client whether a claim for malpractice exists or provide legal advice about legal malpractice.
  • When is the lawyer required to inform the client of the error?
    The error should be disclosed to the client as soon as possible after the lawyer determines that disclosure of the error to the client is required. See Rule 1.4(a)(1) (lawyer shall promptly inform the client of any decision requiring consent).
  • When disclosing the error to the client, may the lawyer refer the client to another lawyer for advice?
    Yes, if the lawyer concludes that she can exercise impartial, independent professional judgment in recommending other counsel to the client.
  • If the client has paid legal fees to the lawyer, is the lawyer required to return some or all of the fees that she received?
    Rule 1.5(a) prohibits a lawyer from collecting a clearly excessive fee. …. [T]here is always a possibility that a lawyer will have to refund some or all of any type of advance fee, if the client-lawyer relationship ends before the contemplated services are rendered. At the conclusion of the representation, the lawyer must review the entire representation and determine whether, in light of the circumstances, a refund is necessary to avoid a clearly excessive fee.

Reporting Errors to a Malpractice Insurer

All lawyers’ malpractice policies include the requirement to give the insurer notice of claims and to cooperate. This contractual requirement in no way overrides the professional responsibility duties owed the client. The three different types of insurer notice are:

  • Duty to report claims or potential claims on the insurance application;
  • A choice whether to report potential claims – often referred to as incidents;
  • Mandatory duty to report actual claims.

Although there is no requirement to notify the insurance company before notifying the client, it is usually best to do so. Using the insurance company’s claims counsel as a resource in analyzing the merits of suspected malpractice and how best to inform the client can prove highly beneficial. Bar related companies like Lawyers Mutual uniformly encourage early reporting of claims, potential claims and incidents for the purpose of helping in assessing the merits of a claim, assisting in notifying the client, and having the earliest possible opportunity to conduct claims repair.

At Lawyers Mutual incident reporting costs nothing. Neither your deductible nor your annual premium will be affected in any way by reporting incidents in any number. Help from our claims counsel is policy service at no charge to insured lawyers. Your goals when an incident occurs should be to fix the problem, meet ethical requirements of client communication, treat the client fairly, and keep the client with your firm. Incident reporting is a strong first step in meeting all these goals.

All insurance policies contain provisions on when and how to report a claim or incident. While telephonic reports are useful for immediate assistance, claims typically must be reported in writing to invoke coverage. Usual requirements for written reports are names of claimants, date the alleged error was discovered, summary of the circumstances, estimate of the potential liability, copies of relevant documents, and the insured lawyer’s views on defenses or claims repair that may be available. Lawyers Mutual insured lawyers should go to, click on Claims and Incidents, and follow the instructions there for guidance on reporting a claim or incident.

Most policies contain provisions requiring the cooperation of the insured lawyer and specific guidance on appointment of defense counsel. Insured lawyers should not retain defense counsel without prior coordination with their insurance company. Even if the insurance company denies coverage or issues a reservation of rights letter concerning some aspect of the claim, the insurance company may still have a duty to defend the claim.