Structure Of Law Firm And Its Corporate Culture Critical To Managing Claims Correctly

NEW YORK, May 30 -- Gaps of information, mismanagement of claims handling, poor corporate culture, and potential defenses that are not made apparent to the law firm’s internal counsel, can be a detriment when dealing with significant exposure claims. But firms that have good corporate culture recognize that lawyers make mistakes and address problems early on by managing claims correctly through a shared ownership of the problem, panelists told the Professional Liability Underwriting Society Legal Professional Liability/Employment Practices Liability Symposium.

“When a large claim is made against a firm, there is often times a lawyer failure to take responsibility for involvement in the problem,” said Richard Garrett, partner, Greenberg Traurig, P.A., Miami, FL.

“There needs to be due diligence in the firm to determine the problem and a lot of management inside the law firm to make people take ownership of their particular factual involvement,” he said.

Garrett noted that the first thing that goes on inside a law firm when there is a significant claim is whether negotiations are going to be early on or delayed and whether there will be serious discussions.

“There is also the concern as to whether or not there is going to be a problem in dealing with the insurance company and whether you are going to need outside counsel for coverage questions,” he said. “Depending on the structure of the law firm, it can be handled very smoothly, or it can be delegated to a committee which will slow things up.”

According to Garrett, the committee system is prevalent in many law firms. “The narrower a group of decision-makers, the better the results can only get,” he said. “In law firms, you need a structure for significant claims with one or two decision-makers on how to manage it. The problem is more complicated when the decision-maker is a very senior person involved in the claim. There needs to be a separation of the responsibility. If you’re involved in the claim, you are not the person to manage the claim.”

Garrett said that reputation is one of the key elements a firm has to deal with. “Firms that have good culture recognize that lawyers make mistakes.

They will give lawyers assurances from the very beginning of the claim management that their reputation and the management of that issue for them is forefront in the firm’s mind.”

Problems come into play when a lawyer who has left the firm pretends he or she has had little or no connection with the case. “If you’re not sensitive to this problem, and you let facts just dribble out, you can find out four months after they gave you notice that it isn’t a $300,000 problem, it’s a $30 million problem.

The culture in a law firm has got to be to treat every recognized issue as a very large one, unless proven otherwise.”

Robert Juceam, partner, Fried, Frank, Shriver & Jacobson, New York, NY, noted that relationship with the insurer is very important. “What is the impact of a large claim when it comes to mediation or arbitration? You can’t settle under most policies without the consent of the insurer. How the firm relates to the insurer is key.”

Juceam noted that if the insurer is not playing an active role as the case goes along there will be problems. “If you’re not talking to the broker, not talking to the insurance coverage lawyer, and you’re not talking to the claim underwriter; when there’s no exchange on a regular basis, then when the opportunity to settle comes, there will be impediments.”

According to Juceam, there are consequences to both the defense of the lawyer and law firm in litigating the malpractice case well beyond the money. “It has to do with your license,” he said. “Those who counsel lawyers test ultimate finding and fact in fiduciary duty in malpractice cases and have to have an eye to the after-results of an adverse verdict.”

Edward Mendrzycki, retired partner, Simpson, Thatcher & Barlett, New York, NY, noted that when involved in a large settlement claim, firms need to get the best counsel, the best experts and the best investigators. “Ninety-five percent of law firm malpractice claims every year are settled,” he said. “Half of the cases that go to trial, the lawyers lose. There are consequences to the lawyer or law firm.

Mendryzcki, who specialized in the defense of professional malpractice claims against lawyers, noted that when a law firm must retain a lawyer to defend against a claim, it is important to get the best experts as they can evaluate the situation and determine the optimal defense to use.

“Get a trial lawyer, as you never know if the case may go to trial,” he said. “Good lawyers and investigators cost money,” he added. “Sometimes they have to go a long way to find out what happened.”

Mendryzcki noted that a defense lawyer and insurer must work together to help resolve the claim. “The more communication, the better the chances of a favorable outcome.”

With chapters in the United States, England and Canada, the Professional Liability Underwriting Society is an international, non-profit association providing educational opportunities and programs to enhance the professionalism of its members. Membership is open to anyone interested in promotion and development of the professional liability industry.

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