Think Early Resolution of Disputes
by Andrew Waxler
(County Bar Update, May 2004, Vol. 24, No. 5)

 

Think Early Resolution of Disputes

 

By Andrew Waxler of Waxler, Carner Weinreb & Brodsky, LLP. The firm specializes in defending professionals in malpractice actions and the representation of insurers in professional liability coverage disputes.

 

Think early resolution of disputes. Whether the dispute arises from an unpaid fee, a claim of malpractice, or a misguided attempt to hold the attorney responsible for another person's conduct -- think early resolution of disputes.

 

Let's start with the anatomy of a malpractice claim. The first phone call between the attorney that has been sued and the defense counsel goes something like this:

 

Attorney: "I cannot believe this no good client whom I supported for years has the audacity to sue me. I knew I should have billed every minute that I worked for that client. Here are your instructions: No extensions, no professional courtesy to opposing counsel, and write a letter to counsel immediately promising we will sue them, their clients, and their client's kids all for malicious prosecution and sanctions. Make sure they know I will come after them."

 

Six months later -- Attorney: "I know the plaintiff is entitled to take my deposition, but I don't have time. Can't you ask them to delay it? I don't have time to let you prepare me for my deposition. I have been practicing for 20 years. I know how a deposition works. As for seeking my help with the discovery responses, just answer all the questions the best you can. I am sure the answers you draft will be accurate. No, I don't have time to review my files. I'm not the one getting paid here. You review the materials."

 

Two months before trial -- Attorney: "I just received your letter. I can't believe you expect me to devote so much time preparing for trial. Just tell the carrier to settle. I don't care what it takes. I will not give up one week of my time to sit at trial. Settle it!"

 

Thirty days before trial -- Attorney: "What do you mean the action has not settled. Tell your client, my insurer, to settle the action now and pay the demand. Otherwise, I will sue the insurer for bad faith."

 

As farfetched as this dialogue may sound, ask anyone who represents attorneys in legal malpractice actions to verify that they have heard this story before.

 

Think early resolution of disputes.

 

An early resolution occurs before the litigation commences. Many legal malpractice claims begin with a fee dispute. Recognize the client's failure to timely pay fees while the representation is ongoing. Discuss payment issues with clients before the receivable gets out of hand. A client that does not pay a bill after 100 days is not likely to pay an even larger receivable after 200 days! Cut your losses early, and seek finality in billing questions and non-payment issues before the conclusion of the proceeding when all that remains is a large outstanding receivable.

 

Before instituting non-binding fee arbitration or commencing an action for fees, consider the non-monetary costs associated with litigation. The time dealing with fee disputes is time away from the practice. The time spent in depositions, assisting counsel, appearing for hearings, mediations, or trial is all time that one could be spending working for other clients.

 

Moreover, consider the insurance ramifications. Today's post-September 11 insurance picture is somewhat bleak. Numerous insurers have pulled away from California and in particular from smaller law firms. Most importantly, rates are going up, and insurers are increasing premiums for firms with a loss history.

 

Consider all these factors before instituting a fee action. Think early resolution of disputes.

 

Should litigation commence, continue to seek an early resolution of disputes. Malpractice claims are not like wine -- They do not get better with time.

 

Consider again the insurance picture. Underwriters do not look only at the indemnity dollars paid. They look at dollars out the door. Thus, from an underwriting perspective, the firm is far better off having incurred $10,000 in defense costs and $25,000 to indemnify for a total pay out of $35,000 than $100,000 in defense fees and $5,000 for indemnity.

 

Moreover, working with the insurer to advocate, not suffocate, an early settlement opportunity protects the attorney defendant. Most lawyers' professional liability policies contain a "consent to settle" clause that often provides the insured with an election when it comes to the settlement of claims. If there is a settlement amount that the plaintiff is willing to accept and the insurer is willing to pay, then the insured can either consent to that settlement amount or withhold consent. If consent is provided, the settlement goes forward. If the insured refuses to consent, the insurer cannot settle. However, by refusing to provide consent, the insurer's potential exposure from that day forward may be capped at the amount of the proposed settlement. Thus, even though the policy limit may be $1 million, if the insured refuses to consent to a settlement of $100,000, the insurer's obligation under the policy for defense costs and indemnity, following the refusal to consent, may be reduced to only $100,000. Understand the risk before walking away from a settlement opportunity.

 

There are many reasons to think positively toward achieving an early resolution of disputes. Most attorneys frankly advocate this approach in providing sage advice to their clients -- What is good for the client is equally if not more advantageous for the attorney.

 

As noted, there are many reasons to reject the manner in which our attorney friend described above dealt with being sued -- lower insurance premiums, putting a lid on a known risk, avoiding potential personal exposure if consent is withheld, and eliminating a distraction from what is already a complex profession.

 

There is no substitute for good judgment. Think early resolution of disputes.

 

 

This article is intended to inform the reader of potential liability exposures for attorneys. This article reflects general principles only and does not render legal advice. Readers should consult legal, financial, insurance, and other advisors if they have specific concerns. Neither the Los Angeles County Bar Association, Aon and its affiliates, nor the author assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of the information. Reproduction without written permission is prohibited. This article is made available by Aon Direct Insurance Administrators, administrators of the LACBA Sponsored Aon Insurance Solutions Program, to the LACBA members.   www.aonsolutions.com

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