Archive for July, 2011


Fee Splitting Decision

A recent Court of Appeals decision held that a law firm was unable to recover a portion of a contingency fee when it was terminated by a number of clients following the principal attorney’s indictment. 

Splitting the fees isn't a puzzle

In The Eichholz Law Firm PC v. Tate Law Group LLC, 2011 Ga. App. LEXIS 671; 2011 Fulton County D. Rep. 2400 (2011), the two named firms entered into a fee sharing agreement in the representation of a number of clients in a group of product liability actions involving oral sodium phosphate (OSP).  The OSP Agreement provided that the two firms would share all fees on a 50-50 basis.  Eichholz was indicted on various Federal charges, and all the clients chose to go with Tate Law Group, LLC (“Tate”).  At this point, no settlement offers had been made and no contingencies had been satisfied. 

After termination, Eichholz assigned its half interest in the fee to Weinstock & Scavo (W&S).  Each firm sought to enforce the assignment and claimed entitled to split the contingency fee earned by Tate after a settlement.  The Court of Appeals held against Eichholz and W&S on the fee agreement, but held that Eichholz could recover in quantum meruit for any work it performed for Tate towards the joint venture.

This case quoted some pretty standard black letter law in support of its holding.  The client must agree to the sharing of fees. Rule 1.5(e)(2).  Given the termination of Eichholz by the client, allowing fees to be split when the contingency was not earned would violate the right to the client to such consent and violate public policy.  Moreover, W&S’s assignment was made by Eichholz who had no right to the fee, and thus could not assign that which it did not own.

The lesson is a standard continuation of basic rules, even in a slightly unusual set of circumstances.


Mind Your Conflicts

As reported earlier here, an Ames & Gough survey reported that legal malpractice cases were on the rise and getting bigger, and the primary cause was the real estate recession.  It is worth making another point about this survey, and that is that conflict of interest claims were either the most common or second most common types of claims reported by all but one of the insurance companies surveyed, and conflict of interest claims were the largest cause of malpractice claims overall.
The most important factor in conflict of interest claims is the very beginning of the representation.  Attorneys have a duty to identify and address conflicts of interest, and sometimes it is important to raise mere potential conflicts of interest, not only for the client but also for the benefit of the attorney.  Raising the issue and identifying the potential conflict may make it more likely to be recognized if the potential becomes the actual. 

Conflicts of interest are best addressed on the front end by carefully screening new clients, seeking advance consent to conflicts to conflict when appropriate, and clarifying the identity of the client in each representation.

The failure to properly advise clients in connection with conflicts of interest may result in subsequent claims of legal malpractice.  Conflict of interest cases can also be the most serious type of legal malpractice claim.  They have the potential to create two claims rather than one (each client in the conflict may bring a claim), and conflict cases will often permit a breach of fiduciary duty claim that may permit the recovery of attorney fees and punitive damages.

So remember – with each new representation, the best defense may be simple due diligence.


Learning Your E & O Coverage – Claims Made Policy

Although it is possible that a lawyer has an E & O policy that is an occurrence policy, but I am unaware of a lawyer E & O policy on the market today that is an occurrence policy.  Thus, chances are any E&O policy a lawyer or law firm might have is a claims made policy.  The distinction is very important.

Timely reporting provides the protection you purchased

The Claims Made v. Occurrence Distinction

The seminal Georgia case describing the difference between claims made policies and occurrence policies is Serrmi Products, Inc. v. Ins. Co. of Penn, 201 Ga. App. 414, 415, 441 S.E.2d 305 (1991).  A claims-made policy is a policy where coverage is effective typically when the allegedly wrongful act is discovered by the insured and brought to the attention of the insurer within the policy period. See e.g., 7A Appleman 312, cited in Gulf Ins. Co. v. Dolan Fertig & Curtis, 433 So.2d 512, 514 (Fla. 1983) (cited with approval in Serrmi, supra.) Changing or giving extensions of time to receive or report claims “negates the inherent difference between the [‘occurrence’ and the ‘claims made’] contract types. Coverage depends on the claim being made and reported to the insurer during the policy period.” Serrmi, 201 Ga. App. at 415. To change the timing of when a claim must be made and reported is “tantamount to an extension of coverage to the insured gratis, something for which the insurer has not bargained.” Id. (emphasis in original). To allow such an extension would not be merely changing a condition but would in effect rewrite the contract between the two parties. Id. (citing Gulf Ins. Co., supra).

What all this means is that if a claim is made or becomes known to the attorney, then the attorney needs to report it to the insurance carrier within the same policy period.  A delay in reporting the claim may result in a loss of coverage.  Thus, by way of example, assume a policy if effective from February 1, 2010 through January 31, 2011.  Under a straight claims made policy, if a claim is made or the attorney becomes aware of facts that reasonably could be expected to result in a claim (this langauge may vary policy to policy) during the policy period, AND if the claim is then reported to the insurance company during the same policy period, then the claim will be covered by that policy, even if the alleged wrongful conduct happened prior to the policy period.  

The Retroactive Date

The policy may contain any number of terms or conditions affecting this general description.  For example, the policy may have what is known as a “retroactive date.”  That date serves as a limit to how far back the wrongful conduct may go back.  This date may be negotiable with the carrier, obviously costing more the further back in the time the retroactive date.  When an attorney begins coverage with a new insurance carrier, the carrier may have a recent retroactive date.  Usually, the retroactive date will not change as the policy is renewed since the carrier has already agreed to cover risks for the time period in question.  For an increased premium, the retroactive date may be eliminated or moved back in time.  Obviously, it becomes advantageous to the attorney to stay with a carrier with an extended period of time.  The longer with the carrier, the less of concern the retroactive date becomes.

The Extended Reporting Period

The policy may also have what is known extended reporting period.  This will allow the attorney to report a claim that is made during the policy period for some time frame after the end of the policy period.  Sometimes these terms will allow a 30 to 60 day extended period to report a claim.  Sometimes the extended reporting period will only apply if the claim is made towards the end of the policy period in order to allow an attorney a reasonable amount of time to report the claim.  In the absence of an extended reporting period, however, the claim must be reported within the policy period in which it is made.  That means that a claim made on the last day of the policy period will have to be reported that very day.

What Is A Claim

A claim is typically defined as an oral or written demand for monetary or non-monetary damages, including any judicial or administrative proceeding.  Not all policies have this exact language.  If the claim arguably arises out of or is related to legal services, the claim will need to be reported timely.  There is often a provision in the definition of a claim or the insuring agreement that requires reporting knowledge by the attorney of facts that would reasonably be expected to support a claim.  

Report Claims, And When In Doubt, Report Claims

Having a claims made policy means knowing your policy period and not procrastinating on reporting claims when they become known or the facts that would support a claim become known, even if they are not in suit, and sometimes even if the claim has not been asserted by the potential claimant.  Many attorneys risk or lose their coverage because they wait to report claims, hoping they will somehow be resolved or simply go away.  Optimism in this case is the attorney’s enemy.  Some attorneys will also delay reporting a claim or potential claim due to fear of a premium increase or later non-renewal. 

Reporting a claim is seldom the wrong choice.  The stringent reporting requirements of claims made policies makes ignorance of what to do when a claim arises a potential disaster for an insured.

The insured is obligated to report a claim or potential claim to the carrier.  Many professionals, and lawyers especially, often try to handle claims internally to avoid reporting to the carrier.  This delay in reporting jeopardizes coverage.  Professional liability polices are very explicit on how and where to report a claim.  The reporting requirements cannot be stressed enough because the failure to comply with the policy provisions can bar coverage for an insured.  This happens all too often. 

One uncovered claim could cost the firm hundreds of thousands of dollars in defense costs alone.  Carriers will not typically punish a firm for reporting a potential claim that is not acted upon, and if the claim is made and pursued, then coverage for that claim will almost always be better than a few dollars saved on later premiums.

For additional information on claims made policies, try reading this or this.


Learning Your E & O Coverage – Application

A gecko? A rock? An insurance ad?

In an effort to keep attorneys educated on issues of attorney liability and ethics issues, I include within the scope of this blog issues concerning errors and omissions insurance coverage (“E&O”).  In addition to representing attorneys, I also have a significant insurance coverage practice.  That coverage practice includes dealing with coverage issues of claims made E&O policies that are typically provided to attorneys.  The need for this inclusion is made clear by my practice.  Many attorneys either do not understand their own insurance coverage or act in ways that undermines their own coverage when they need it.  This post will begin a series of posts on various issues and aspects of E&O coverage of which every attorney should be aware.  


Let’s start with the first step in getting E&O coverage, the application.  Taking the time to accurately complete your application (and any renewal applications) must be a priority.  It is easy to overlook important details about your practice or your knowledge of potential claims.  Misrepresenting those facts in a policy application is much riskier to your future coverage needs than not disclosing these facts, even if it means a higher premium.  All too often, insureds fail to disclose a known risk or simply quickly complete the application and forget to provide necessary information.  Either mistake can be costly when a claim comes.  

Don't Let Your Coverage Disappear

The most common misrepresentations in an attorney E&O policy application include not disclosing a risky practice area, not disclosing a prior claim, or not disclosing knowledge of facts that could support a claim in the future.  These withheld facts often come to light after a claim arises.  The risk of a voided policy is simply not worth a potential increased premium price. 

Under Georgia law, an insurance policy may be rescinded (voided from its inception) due to a material misrepresentation in the policy application.  It matters not if the misrepresentation was intentional or mere oversight.  Thus, an insurer would not need to prove that the misrepresentation in the policy application was intentional.  This means that the application process should not be treated lightly.  

Rescission is a much more serious remedy for the insurance company than mere denial.  When a policy is rescinded, the policy becomes void and “never existed.”  This is significant for two very important reasons.  First, under rescission, there is no longer a policy and thus no claims will be covered, whether related to the policy misrepresentation or not.  Second, although many policies cover “innocent insureds,” a rescinded policy will not cover anyone in the firm.  

Rescission is best avoided by fully disclosing all facts requested in a policy application.  Attorneys should be careful to not take the policy application lightly, and should never intentionally hold back information with high hopes that a known potential claim will not surface.  

Next week I will discuss the difference between “occurrence” and “claims made” policies.  Every policy I have seen covering attorneys is a “claims made” policy, and many people do not appreciate this important distinction.


Interesting Recent Discipline Cases

Voluntary Petition for Review Panel Reprimand Successful

Where is my GPS?

The Supreme Court unanimously held that a Review Panel Reprimand was appropriate discipline despite several findings of violations. 

The attorney in question defended the client in a lawsuit and filed a third-party complaint.  When a summary judgment was filed, the attorney misaddressed a letter to the client about the motion.  When the client did not receive the letters and thus did not contact the attorney, the attorney did not respond to the motion.  A judgment was entered against the client, which the attorney did not tell the client about.  The attorney then “effectively withdrew” from the case, but did not tell the client or withdraw formally with the court.  The attorney then did not provide the file to the replacement attorney in a timely manner.  The attorney was found in violation of Rule 1.3 (diligence), 1.4 (communication) and 1.16(c) and (d) (declining and terminating representation). 

As with any bar violation, the key evidence is the mitigating factors.  The attorney argued that he had only one prior Investigative Panel  Reprimand, the client did not have a defense to the claim (though that did not excuse the conduct), and the client has a third-party claim that remains viable.  The attorney has also provided his E&O carrier information to his client’s new counsel, is remorseful and cooperated in the disciplinary matter.

The attorney submitted a voluntary discipline for Review Panel Reprimand.  Although the violation of Rule 1.3 had a maximum penalty of disbarment, the Court accepted the voluntary petition.  If there is a lesson, it is that the attorney has a better chance of avoiding suspension or disbarment by cooperating with the disciplinary process and making the claim a civil matter as much as possible.

Continue reading ‘Interesting Recent Discipline Cases’


Legal Mal Cases On Rise Nationally

Approximately 72.4% of all statistics are made up on the spot

A recent survey by Ames & Gough indicates that legal malpractice cases are on the rise.  This is not a surprise to most in the legal malpractice litigation industry.

The culprit is, not surprisingly, the real estate market.  In fact, I could not have better summarized the trend than as follows:

The survey cited real estate practices as the most likely to be sued, with “conflict of interest” and “failure to file timely” as the most common claims. Real estate claims, Ames & Gough notes, have been on the rise for the past three years, thanks to the large volume of transactions that occurred between 2005 and 2008 and the collapse in property values that followed amid the country’s broader financial collapse. The twin forces have prompted many parties to try to recoup real estate losses any way they can, according to Ames & Gough.

Further analysis suggests that the claims are not only more numerous, but also bigger.

On the flip side, however, the survey found a significant uptick in the number of claims with reserves over $500,000 (including loss and expense). Three insurers saw an 11 to 20 percent increase in these claims this year and two pegged their growth at six to 10 percent.

This has resulted in some carriers increasing premiums.

The good news?  Well, there is hope.  If the real estate market rebounds, then the claims could level off and start reducing.  One can hope.


Supreme Court Imposes Middle Ground Between Special Master and Bar Recommendations

The Court splits the baby.

The Supreme Court continued to show that it would independently analyze attorney discipline cases.  The Supreme Court will usually, when it deviates from the State Bar or the Special Master’s recommendation, impose a harsher discipline than recommended.  In this unusual case, the Supreme Court found middle ground between two different recommendations from the State Bar and the special master.

In this recent case, an attorney plead guilty under the first offender act to tampering with evidence and obstruction of a law enforcement officer, both misdemeanors.  The criminal acts arose out of an employment dispute between the attorney and one of her employees.  A trial was held before a special master, who recommended a review panel reprimand as requested by the attorney.  The State Bar sought disbarment.

The Supreme Court discussed an array of mitigating factors, which are often the best tool to overcoming harsh discipline.  Mitigation findings included no prior discipline, a non-recurring emotional issue at the time (divorce), the attorney was the sole provider for two children, negotiated in good faith in the related civil dispute, followed the civil contempt order and made restitution to the aggrieved party in excess of $55,000.

The Supreme Court imposed a three-month suspension.  The disagreement between the special master and the State Bar offered the Supreme Court the rare opportunity to split the disciplinary baby.

Kim Jackson Cleans Up The Mess

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