Getting Started for New Lawyers October 2021

GETTING STARTED FOR NEW

LAWYERS

Special advertising supplement to

OCTOBER 2021

A DESKTOP REFERENCE FOR NEW ATTORNEYS INSIDE: n

Risk Management Advice

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Trust Accounts

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Cyber Security

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Other Necessary Insurance Coverage for Attorneys

THIS INCLUDED EDITION OF LAWYERS WEEKLY IS BROUGHT TO YOU BY

LAWYERS MUTUAL.

Lawyers Mutual Management and Corporate Staff EXECUTIVE Daniel M. Zureich, President and CEO William R. Stroud, Jr., Senior Vice President Emma Bennett, Receptionist Darlene Harden, Benefits Coordinator and Office Manager CLAIMS Claire Modlin, Vice President, Claims Laura M. Loyek, Claims Counsel Kim O’Hara, Administrative Assistant Warren T. Savage, Senior Claims Counsel Mark Scruggs, Senior Claims Counsel Wayne Stephenson, Claims Counsel Uta Zacharias, Senior Claims Counsel CLIENT SERVICES Julie Beavers, Director, Client Services Sharon Sparrow, Client Services Manager UNDERWRITING Kathy Fisher, Vice President, Underwriting Tammi Kinney, Administrative Assistant Jess McKnight, Underwriter Juan Sosa, Underwriter ENTERPRISE AND OPERATIONAL RISK MANAGEMENT Patrick Brown, Vice President, Enterprise and Operational Risk Management Rachel Powers, Business/Data Analyst Linh Schladweiler, IT Systems Manager FINANCE Robert A. Neal, Senior Vice President, Finance, Treasurer, and CFO Will Batten, Asstistant Controller Kevin Howard, Senior Accountant Katrina Peaco, Accounting Clerk

President’s Message Since my first letter in 2010, we have accomplished much. We have worked hard to ensure that we are well positioned for the future by building a strong balance sheet and have nearly doubled policyholder surplus. At the same time, we’ve rewarded our loyal policyholders with dividends totaling DAN ZUREICH, CEO & PRESIDENT just over $10 million. Those are quantifiable measures of success. However, I want to focus on several other non-quantifiable qualities that have driven us and our success since we were formed over forty years ago.

Strive not to be a success, but rather to be of value. – Albert Einstein The goal of everyone at Lawyers Mutual is to be of value to our insureds. After all, you are the reason we exist. We focus on doing the right thing for you, rather than what might be best for us. This focus is reflected in one of our three core values – integrity.

Being structured as a mutual insurance company (thanks to the vision of our founders) sets the table and allows us to focus on doing what’s right for you, as well as what’s best for the company over the long-term. In contrast to stock companies, we do not have competing shareholder interests or quarterly earnings pressures. Our objective is not to make a profit for stockholders, but rather to ensure that we are financially strong so that we are able to achieve our goals of returning as much capital to our policyholders as is financially prudent and continuing to serve the needs of North Carolina attorneys in the future.

The only way to do great work is to love what you do. – Steve Jobs We love what we do. I mean it, we really do! We love what we do because we strongly believe in you and what we do. We are passionate about working for policyholders, who are focused on helping solve others’ problems. Like you, we too are problem solvers.

Nothing is more satisfying than working with you to solve practice-related questions and issues, whether involving coverage, risk management advice, claim repair or claim resolution. Our passion to serve you is what drives us.

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1001 Winstead Drive, Suite 285 Cary, NC 27513

DISCLAIMER: These tips do not constitute legal advice and do not purport to establish the standard of care for any specific situation. They do not cover all considerations of any given topic.

They are offered only as information to assit you in your risk management efforts.

We know you have options. Our commitment is that we will work hard every day to continue to earn your business. Although, for us, it’s not really work because we love what we do.

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3

RISK MANAGEMENT TIPS

Frauds and Scams that Target Lawyer Trust Accounts

BY PETER BOLAC

While these three types of scams vary in sophistication, all three have the potential to cause significant harm and lawyers must remain vigilant for any fraudulent trust account activity.

The State Bar continues to receive reports of frauds and scams

certified bank check from the supposed debtor who is paying

on lawyer trust accounts resulting in six-figure losses. The three

because they “don’t want to deal with the law.” The lawyer then

major types of scams are 1) Email initiated counterfeit bank

deposits the certified bank check (often from a bank up north

checks 2) Forged trust account checks, and 3) compromised wire

like Chase so the tellers are less familiar with it) into the trust ac-

instructions. The following is a brief summary of each scam.

count. Almost immediately, the client begins demanding his payment via wire. Since the funds are available via provisional credit,

COUNTERFEIT CHECK SCAM

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the lawyer wires out the money to the client minus the lawyer’s share. The client is never heard from again. Three days later, the

By now, all lawyers should know that criminals are using email to

bank tells the lawyer that the check was counterfeit and removes

act like potential clients requesting representation (typically com-

the already wired amount from the trust account. Since the

mercial debt collection or divorce settlement collection). Once

lawyer disbursed on provisional credit, the lawyer is responsible

the lawyer responds with a request for more information, the

for replenishing any trust account deficit. This type of scam has

“client” provides the lawyer with documentation of the “debt,”

cost lawyers hundreds of thousands of dollars and at least one

often including warehouse receipts, contracts, bills of lading,

law license. For tips on detecting and avoiding this scam, view

etc. Shortly after agreeing to pursue the claim and often before

this fact sheet created by Canadian indemnity company, LawPro:

a demand letter is even drafted, the lawyer receives a letter and

http://practicepro.ca/practice/pdf/FraudInfoSheet.pdf.

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GETTING STARTED SERIES FOR NEW LAWYERS

FORGED TRUST ACCOUNT CHECKS The Bar is receiving an increased number of reported thefts via forged trust account checks. In this scenario, a criminal obtains the lawyer’s account information (account number/routing number) and creates a fake check payable to cash. The criminal then negotiates that check at a check cashing company with a forged signature. While the lawyer may have recourse to recover the stolen funds from the bank if it honored the checks, in the interim the lawyer has to deal with a shortage in the trust account and outstanding checks that may bounce. The lawyer may also need to open a new trust account since the old account was compromised. One way to prevent this potential scenario is to enroll in a bank’s positive pay program so only law firm approved checks are

Even law firms with two-level confirmation procedures for wire instructions have been defrauded because the criminal calls the firm as the seller and confirms the wiring instructions. The firm wires the money to the criminal’s account and it is never seen again. Further, the bank denies any liability because it merely followed the lawyer’s instructions. This scheme has caused hundreds of thousands of dollars of losses in the last week alone.

One firm noticed after the fact that the email sent from the “seller” was one letter different than the real seller’s actual email address. To prevent this type of theft, law firms should initiate the phone call to confirm the emailed wire instructions, calling only the number listed in the client file regardless of whether a different number is provided in the email.

honored. Lawyers should review their trust accounts regularly to

While these three types of scams vary in sophistication, all

look for unapproved or unidentified transactions.

three have the potential to cause significant harm and lawyers must remain vigilant for any fraudulent trust account activity. If

COMPROMISED WIRE INSTRUCTIONS The most recent and most alarming type of scam is one where

you or your firm has been subject to any attempted scams, or if you have any questions regarding these scams, please contact me at pbolac@ncbar.gov or (919) 828-4620.

the criminal gains access to the email account of a party to a real estate transaction and initiates a fraudulent wire transfer.

Once an account has been hacked, the criminal learns the details of the real estate transaction and, acting like the seller, emails the lawyer with wiring instructions for the seller’s funds.

Peter Bolac is the current Assistant Director of the North Carolina State Bar and former Trust Account Counsel. In his previous role, Peter oversaw the new trust account compliance program, which helps lawyers improve trust account practices and mitigate disciplinary action. Contact Peter at pbolac@ncbar.gov or 919.828.4620.

COUNTERFEIT CHECK SCAM After depositing a certified check, usually from a bank up north, the lawyer wires “the client” money available via provisional credit. Once the bank realizes the check is counterfeit, it removes the already wired amount from the trust account and the lawyer is responsible for replacing the deficit.

FRAUDS – AND – SCAMS

SAFE PRACTICE: Do not wire money until the check clears your trust account.

FORGED TRUST ACCOUNT CHECKS A criminal gets the trust account information (account number, routing number) and creates a fake check payable to cash.

While you can recover the stolen funds, in the interim you have to deal with the shortage in the trust account and outstanding checks that may bounce.

SAFE PRACTICE: Enroll in a bank’s positive pay program.

COMPROMISED WIRE INSTRUCTIONS A criminal hacks an email account, learns the details of a real estate transaction, and, acting as the seller, emails the lawyer wiring instructions for the sellers funds. The firm wires the money to the criminal’s account and it is never seen again.

SAFE PRACTICE: Initiate a phone call to verify wiring instructions, calling only the number listed in the file (not in the email).

OCTOBER 2021

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5

RISK MANAGEMENT TIPS

20 Questions and Answers for Your Trust Account

BY PETER BOLAC AND KATHY POPE This 20-question checklist will help insure that your trust account is in tip-top shape. Generally speaking, you should be able to

client (e.g., a client check for legal fees and court costs)

answer in the affirmative to each of these questions.

are received, are the funds deposited intact into the trust

We’ve also included some thoughts on how to improve your

account?

score by exploring how each one can help you be prepared in

Lawyers holding client funds must be careful not to commingle

the event of an audit.

those funds with his/her own. Depositing the entire check

1 Are only client funds deposited in the trust account, ex-

cept attorney funds sufficient to open or service the account or funds belonging in part to a client, third party, or lawyer?

into the trust account, then writing a check to the firm for only earned fees or advances made on behalf of the client prevents commingling of funds. Do keep in mind no funds belonging to a lawyer in whole should be deposited into the trust account.

The sum of $100.00 is a common amount used to open the

Earned fees should not remain in the trust account. Once they

account. Ask your bank if they require a minimum balance to

are earned, they should be paid to the firm account.

avoid unexpected service charges. It seems that regardless of how many times you tell the bank not to charge the trust account for any type service charge, checks, deposit tickets, stop payment charges, etc. it happens. It may be helpful to take a look at the

4 Are trust account checks for legal fees or expenses

made payable to you or your firm entered as disbursements on the client’s ledger card?

history of your account to determine what service charges have

The Rules require the attorney to keep the equivalent to a

been assessed. If you accept credit cards make sure you either

ledger card for every client, and that ledger card reflect all

have associated charges paid out of your firm operating account,

receipts and disbursements. While it is not against the Rules

or keep enough money in the IOLTA account to cover them. Do

to write one check containing several payments so long as

remember to deposit additional firm funds if the amount you

the clients are clearly identified, I find it is not best practice. I

put in initially is depleted. It is important to set up a trust account

have seen a lot of reconciling errors as a result of that prac-

ledger to document attorney funds. Be sure to record all deposits

tice. Some trust account software will not allow one check to

and disbursements. Identify the source/payee and purpose of all

contain payments from more than one client. If you do make

deposits and disbursements. Do not put a large amount of firm

the decision to write one check from the trust account to

funds in the trust account for.

the attorney for payment from several clients, make sure you

A common mistake lawyers make when they open a new trust account and transfer funds from an existing account is that they fail to deposit the amount sufficient to open or service the account. That is due to the fact that they are using client funds to open the account, and do not realize if all client funds are disbursed the account would have a $0.00 balance.

identify the clients on the front of the check, and make sure the total combined fees posted to the individual ledger cards total the amount of the check.

5 Are all items drawn on a trust account made payable to

a specific person or entity and not cash or bearer?

Simply put, don’t make checks payable to cash or bearer.

2 Is your general trust account designated as an IOLTA

The whole idea of the trust account is to identify who you

account and located at a bank with branches in North Carolina?

are paying, why you are paying, and whose money you are

Only a dedicated trust account with the written consent of the client, or fiduciary account may be maintained at a bank that does not have offices in North Carolina.

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3 When funds belonging in part to you and in part to the

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GETTING STARTED SERIES FOR NEW LAWYERS

paying with. It does not come up very often, but no cash shall be withdrawn from a trust account or fiduciary account by means of a debit card.

A common mistake lawyers make when they open a new trust account and transfer funds from an existing account is that they fail to deposit the amount sufficient to open or service the account.

6 Has a bank directive been filed with the bank where a

trust account is maintained?

The bank directive instructs the bank to report you to the

9 Have you promptly reported to the State Bar any knowl-

edge or reasonable belief that entrusted property has been misappropriated or misapplied?

Executive Director of the State Bar when any item is presented

It is your duty as an attorney to promptly inform the NC State

for payment against insufficient funds. Not only is it important

Bar if you discover, or reasonably believe that entrusted prop-

to have a copy of the directive on file in your office, it is im-

erty has been misappropriated or misapplied.

portant to know where it is. “Let me see a copy of your Bank Directive,” is one of the first things the auditor will say when paying a visit to your firm.

7 Is the client promptly notified of the receipt of any en-

trusted property belonging in whole or in part to the client?

Examples of entrusted property other than fiduciary funds would be securities, or stock certificates. All entrusted property received by a lawyer that is not deposited in a trust account or fiduciary account shall be promptly identified, labeled as

10 Have you complied with escheat requirements on

abandoned or unidentified property?

Escheating is not a choice, it is a requirement.

11 Are your trust account checks business-sized (greater

than 6 inches in width), and do they contain in Auxiliary On-Us field in the MICR line? (The AOU field is on the bottom left of your check and typically matches the check number on the top right.)

property of the person or entity for whom it is to be held, and

Size matters: checks should be business-sized and include an

placed in a safe deposit box or other suitable place of safekeep-

Auxiliary On-Us field in the MICR line.

ing. The lawyer shall disclose the location of the property to the client or other person for whom it is held. Any safe deposit box or other place of safekeeping shall be located in this state, unless the lawyer has been otherwise authorized in writing by the client or other person for whom it is held. Make sure you,

12 Do bank receipts or deposit slips list the source of

funds and date of deposit? For deposits to the general trust account, do bank receipts or deposit slips also list the name of the client or other person to whom the funds

as the responsible attorney, know where the property is located,

belong and the source of funds if other than personal?

and have access to that place. When all is said and done, the

Many firms are making remote deposits using a scanner pro-

staff is not responsible, the attorney is.

8 Is entrusted property to which the client is entitled

promptly delivered to the client or third persons as directed

vided by the bank. It is possible, and recommended that you print a detailed deposit report at the time of deposit showing the front and back image of the deposited items. Keep in mind

by the client?

the ‘source of funds’ is not the bank it is drawn on, it is the

To avoid being reported to the State Bar, it is important to stay

a copy of the cancelled checks, copies of the deposits are not

in communication with your clients, and follow their directions

included with the bank statement.

person or entity providing the funds. While the bank provides

in a reasonable period of time. Any reasonable person would be suspicious if their request to deliver property being held is unnecessarily delayed without explanation.

OCTOBER 2021

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RISK MANAGEMENT TIPS 13 If records of canceled checks are furnished by the

bank in digital image or CD-ROM format, do the images meet the requirements of Rule 1.15-3(b)(2)(A)?

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Do they show the amount, date, payee, and the client balance against which the item is drawn?

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statement balance for the trust account?

18 Are general trust accounts reconciled at least quarterly in

the following manner: the individual client balances shown on the ledgers are totaled and reconciled with the current

Is the digital image a legible reproduction of front AND back

bank statement balance for the trust account as a whole?

of the original item and not smaller than 1 3/16 x 3 inches?

Review the trust account reports each month. Make sure a

Does the bank maintain, for at least six years, the ability to reproduce electronically additional or enlarged images within a reasonable time?

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shown in your records is reconciled with the current bank

Are you retaining these records for the required six-year period?

Confirm that your bank is in compliance. If not, provide the bank with a copy of Rule 1.15-3(b)(2)(A). If they remain out of compliance, you MUST close the account, and find a bank that follows the Rules. The Rules make it clear that it is the attorney’s duty to make sure the bank is in compliance, not the other way around.

three-way reconciliation report is provided. Keep in mind, you are ultimately responsible, and you cannot delegate this responsibility.

19 Are written accountings provided to the client upon the

final disbursement of funds (i.e, when the balance reaches zero), when reasonably requested by client, and at least annually if funds are retained more than 12 months?

If your accounting (billing) software provides the option to print the trust activity on the client statement, you should use

It is important to keep detailed and accurate records for six years.

that option to provide the client with a detailed statement showing how and when you used their funds.

It is a good practice to ask the client for contact information of someone who will always know where they are.

14 Are you retaining all instructions to transfer, disburse,

or withdraw funds from the trust account including electronic or written transfer records?

15 Are you retaining, for at least six years, all bank

statements and other documents received from the bank regarding the trust account, including any notices of insufficient funds?

Keep all records relating to the trust account for at least six years.

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Are complete and accurate records (deposit slips,

ledgers, reconciliations, etc.) of all entrusted property received by the lawyer retained for six years from the last transaction to which the record pertains?

It is important to keep detailed and accurate records for six years. Keep in mind the six years start from the last transaction to which the record pertains.

If you answered “no” to any of these questions, or if you have

16 Are you maintaining a ledger containing a record of

any questions regarding trust accounting procedures, please re-

receipts and disbursements for each person or entity from

view the Lawyer’s Trust Account Handbook, available on our website

whom or for whom funds are received? Does this ledger

at ncbar.gov/menu/publications.

show the current and accurate balance of funds held in the trust account for each person or entity?

There are several excellent attorney specific software programs available that will make reconciling and printing necessary reports much easier. If you have Microsoft Office, you most likely have Excel.

17 Are general trust accounts reconciled monthly in the

following manner: the balance of the trust account as 8

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GETTING STARTED SERIES FOR NEW LAWYERS

Questions provided by Peter Bolac, Assistant Director of the North Carolina State Bar and former Trust Account Counsel.

Contact Peter at pbolac@ncbar.gov or 919.828.4620 Answers to questions provided by trust account consultant Kathy Pope, who has over 30 years of experience in reconciling trust and operating accounts, as well as conducting trust account audits.

Contact Kathy at kathypopenc@gmail.com or 828.674.8282.

Conflict of Interest Claims Ask any Lawyers Mutual claims attorney, and you will find a con-

Finally, lawyers and staff, including family members, should be

flict of interest turns a typical malpractice claim into a quagmire.

entered. A business relationship with a party in the case can cause

A conflict impedes the ability to exercise loyalty and judgment,

conflicts if personal interests are inconsistent with the client’s in-

crucial elements of the attorney-client relationship. A malpractice

terests. Lateral hires of attorney and staff from firms with a mat-

claim with an associated conflict is more difficult to defend, and

ter pending between the firms can pose a conflicts issue as well.

we are seeing an increase in claims caused by conflicts. However,

To avoid surprise conflicts, closely review relationships between

conflicts can be avoided by knowing the Rules of Professional

lawyers and staff and parties involved with the case.

Conduct and utilizing a conflicts system in your firm.

Conflicts should be checked pre-engagement, before any

Be familiar with Rules 1.7, 1.8, 1.9, 1.10, and 1.18 of the Revised

confidential information has been provided to the attorney.

Rules of Professional Conduct. Understanding what constitutes a

Checking pre-engagement avoids wasting a client’s time and

conflict of interest is helpful in avoiding potentially conflicting situa-

money, as well as your own, should a conflict exist. During the

tions. If any questions remain regarding a conflict situation, contact

initial interview, clients provide more information that triggers

State Bar ethics counsel for advice. Following the advice of ethics

another conflict check. Any change in the matter should also

counsel provides protection against alleged ethics violations.

initiate a conflicts check to help prevent surprise conflicts

Conflicts are NOT limited to litigation practices, regardless of common misconceptions. Conflicts can and do arise in every

from disqualifying the firm or leading to a malpractice claim or ethics violation.

practice area. Real estate practices are potential minefields be-

A thorough conflicts check protects your practice. Check for

cause there is often one attorney involved but a variety of players

alternative spellings for complete accuracy. A memo should be

in the transaction.

circulated to confirm if anyone knows of conflicts regarding a

Every attorney needs a conflicts checking system. Regardless of practice size, you simply can’t remember every interview or representation, nor can you track potential third party conflicts.

Client information is complex and constantly changing, and recall isn’t sufficient to sort through details efficiently.

Although specialized conflicts software contains more features and streamlines the process, you can create a searchable conflicts database in most software programs. The price of software shouldn’t deter you from good office management as alternative solutions can protect your practice.

So what does a good conflicts system look like? It’s one all firm members – lawyers and staff – will use. A conflicts system covers all pertinent information, including business names and subject matter, in addition to the individuals involved. New, current and former clients must be included, as well as related parties. Enter any interviewed potential client, even if not engaged, due to the prob-

prospective new client or matter. For best management, assign one person responsibility to perform checks and maintain records. A copy of the conflicts check record should be kept in the new file if no conflict exists.

It’s advisable to avoid all conflicts, regardless of client consent to the representation after full disclosure. While client waivers can provide protection, it is not unusual for the client to claim they did not understand the full nature of the conflict and how it would impact their case. Visit our website, www. lawyersmutualnc.com, for more risk management advice, including forms and checklists.

CLAIMS ADVICE If you are considering an ‘Of Counsel’ position, both you and the firm must make sure that there are no conflicts of interest that prevent the

ability of exchanging confidential information during the interview.

formation of the ‘Of Counsel’ relationship.”

Also include any party related to the matter, such as adverse parties

– Mark Scruggs, Senior Claims Counsel

or witnesses for litigation or directors of corporate clients.

OCTOBER 2021

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9

RISK MANAGEMENT TIPS. CYBER SECURITY

Understanding Important Cyber Security Issues

BY SAMANTHA CRUFF How well do you understand your data security? If you’re

Use proper security software. Anti-virus and firewall security

confused by all the issues needing to be addressed, you’re

systems should be standard for all computers – personal or

not alone.

business. Additional software that cyber insurance carriers are

Recent events at Sony Entertainment show that anyone is vulnerable if they don’t keep their systems updated. Credit card data theft at large stores such as Target and Home Depot further enforce the dangers inherent in doing business in today’s online market.

Important potential data security risks can be determined by reviewing cyber security insurance applications. Here are few issues that apply to legal business that you should consider:

Loss Prevention system (DLP). An IDS provides notifications of unauthorized access to your network, whether from outside attempts or internal policy violations. A DLP protects sensitive data by monitoring its activity.

Implement employee security measures. It is recommended that employees frequently update their passwords to maintain system security. You can schedule automatic password resets through your security program to ensure this occurs. If an

Maintain written policies and procedures. Having a

employee does not need sensitive data, limit access via user ID

written policy regarding data security provides employees with

controls. In addition, it is imperative that any departing employee

appropriate law office computer activity. Policies should be

is removed from secure access immediately after they leave.

reviewed and updated as technology changes. If you don’t currently have written policies, check out our Data Security Policy practice guide for assistance in drafting one.

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interested in is an Intrusion Detection System (IDS) and a Data

Secure data wherever it is. Many businesses are diligent regarding data security on their internal systems but less stringent for access when away from the office. Mobile and laptop devices should use

Have a security guru, if possible. You should have a

a virtual private network (VPN) access when connecting to your

designated employee to make sure your computer security

internal network. Also, data should be encrypted when accessed

systems are up to date and working properly. This includes

outside of the office on laptops, mobile devices, or USB drives.

making sure software is up to date, testing security controls, and

Require remote wipe on mobile devices and laptops to prevent

keeping up to date on security threats.

data security breaches if these devices should be stolen or lost.

| GETTING STARTED SERIES FOR NEW LAWYERS

Maintaining proper security measures has become increasingly difficult as business becomes more computerized Secure credit card transactions. If you process credit card payments, it is recommended you do not store the data to reduce your exposure. If you do store credit card information for the convenience of regular payments from clients, follow financial institution standards to encrypt and secure this data.

Routinely backup your data. To prevent total loss of data should the unthinkable happen, backup your systems frequently. If possible, nightly backups are recommended. The backup data should be encrypted and stored in a secure location. A redundant backup procedure further ensures availability of data should disaster strike.

Require service providers to include security in their contracts. If you use third-party vendors who have access to your sensitive data, the necessary security procedures should be included in the contract. Also, these vendors should maintain their own insurance that covers the loss if their system is breached.

Regulate social media use. Your firm should have a social media usage policy.

This policy does more than govern what is posted on your firm’s social media accounts. Rules for user access and use of social media should be included. The goal is help prevent employees from clicking on a fake link that would open your network to cybercriminals.

Monitor your website content. One of the most overlooked aspects of cyber security is website content. This includes monitoring your comment section to remove any suspicious links that may be posted. Be sure that proper copyright agreements are in place before posting images, videos, etc. that were not created for your firm.

Maintaining proper security measures has become increasingly difficult as business becomes more computerized. Following the procedures recommended by cyber insurance carriers can help secure your data as best as possible.

If you have any questions regarding the security of your data, please contact Lawyers Mutual.

Samantha Cruff is the former Marketing Communications Coordinator at Lawyers Mutual.

Contact Lawyers Mutual for information regarding our available risk management publications at

MORE SECURITY TIPS! Passwords.

12+ varied characters, no whole words, and unique for every account.

Passphrases.

Even better, use a 30+ character phrase! “Onmydaughter’s14thbirthdays hegotaredbike&lovedit” Password Vaults.

Look for at least 256-bit encryption and “zero knowledge security.” These are helpful but all your eggs are in one basket.

Multi Factor Authentication.

Use it whenever you can! But not all factors are created equal, some research is needed.

Wi-Fi. Restrict access to your internal network to office computers. Use a separate guest network (& unique password) for all others.

Keep systems updated & patched.

You don’t want to be like Equifax!

Does everyone need Admin rights?

Reduces the risk of installing malicious programs or making changes to the system.

Disable removable media drives.

Keep bad stuff out, and good stuff in!

Train. Train. Train!

Everyone. Yes, everyone. At least quarterly. There are many online training solutions available. You can even send test phishing emails and offer tips if they click!

800.662.8843.

OCTOBER 2021

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11

RISK MANAGEMENT TIPS. CLAIMS AVOIDANCE

Malpractice Traps and Tips Nothing keeps a lawyer up at night like thinking about a case in trouble. Solos and small-firm attorneys are particularly vulnerable to client grievances and charges of legal malpractice. According to the American Bar Association, most malpractice lawsuits are filed against lawyers in firms with one to five attorneys. Without the information technology departments, big administrative budgets and large support staffs that large firms may have at their disposal, solos and small firms must be proactive in avoiding common malpractice traps.

otherwise away from the office when the deadline passes, so make sure this important responsibility is delegated to a backup person for emergency situations.

WAITING UNTIL THE LAST MINUTE TO FILE THE COMPLAINT One of the biggest mistakes we see at Lawyers Mutual is the lawyer filing complaints at the eleventh hour – on the eve of the statute of limitation deadline. Although the lawyer believes he is within the “safety zone” because the MISSED DEADLINES limitation period has not yet expired, filing Litigation errors consistently show up at the last minute is often a risky practice. among the top causes of malpractice claims In many cases, the plaintiff ’s lawyer may be If a mistake is made, contact our reported to Lawyers Mutual each year. unable to perfect service of the summons Claims Department immediately.

In 2014, errors arising out of litigation and must file an alias and pluries summons When potential claims are accounted for 20% of all claims reported. to keep the action alive. Sometimes the reported in a timely manner, In the vast majority of cases, the statute lawyer and/or his support staff forget to our claims department has an of limitation on the client’s case expired calendar the date the original summons excellent claims repair rate. and there was nothing left to do but assess expires. As a result, the action is barred the damages. Here’s a look at a few of the because the statute of limitation expires common problems and suggestions to make your office safer. before the summons is renewed.

TOP TIP

FAILING TO MAINTAIN A COMPREHENSIVE CALENDARING/DOCKET CONTROL SYSTEM Lawyers miss deadlines for a variety of reasons, but the most common is the lack of a good calendaring and docket control system. The brand of case management and calendaring system is not as important as assuring that the necessary events are entered and executed. The basis of a well-designed docket system is the use of a central system, i.e., one controlled by someone who is not the person responsible for meeting the deadlines. There is double security when responsibility for compliance rests with both the lawyer or staff person responsible for meeting time limitations and with the person responsible for the central system. Having the person responsible for the central system verify compliance is critical in achieving a well-designed system. Both the person responsible for the central system and the person responsible for meeting the deadline should verify compliance with important deadlines. Lawyers Mutual handles numerous claims every year resulting from missed deadlines caused by the one person in charge of docket control being sick or 12

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Other times, the lawyer inadvertently names the wrong defendant, and the opposing party files a motion to dismiss on that basis. If the complaint is filed at the last minute, the lawyer has little or no time left to investigate and determine the name of the proper party before the deadline passes. For these reasons, we strongly encourage plaintiffs’ attorneys to file the complaint well in advance of the statute of limitation deadline. Filing early will give you more time to fix mistakes such as improper service or naming the wrong party.

FAILING TO KNOW THE CORRECT STATUTE OF LIMITATION Sometimes, even with proper docket control systems, the lawyer fails to determine the correct statute of limitation applicable to the case. For example, the limitation period in North Carolina for bringing an action for personal injuries resulting from an automobile accident is three years, but the limitation period is shorter in other jurisdictions. You should always verify the statute applicable to such actions, especially those that arise outside of North Carolina.

Although the lawyer believes he or she is within the “safety zone” because the limitation period has not yet expired, filing at the last minute is often a risky practice.

For additional information on setting up a calendaring and docketing system, visit our website found at www.lawyersmutualnc.com and click on “risk management handouts.” You will also find a North Carolina Statute of Limitation Index there.

After instituting appropriate risk management practices and procedures, even the most competent, diligent attorneys may still make a mistake. Fortunately, most attorney mistakes are minor, resulting in little consequence to the client. There also may be ways to remedy the mistake before the client is adversely affected.

However, when a material mistake does occur, many attorneys make matters worse by mishandling the matter with their client or their professional liability insurer. What should an attorney do after discovering that a mistake may adversely affect a client?

CALL LAWYERS MUTUAL PROMPTLY AND REPORT A POTENTIAL CLAIM You purchased legal malpractice insurance to protect yourself from personal monetary liability for your mistakes. Make sure that you do not jeopardize your coverage by failing to give prompt notice of a claim to your legal malpractice insurer. By trying to hide a mistake or just hoping that it will magically go away, you may jeopardize your coverage for an otherwise covered claim under your policy.

Promptly reporting mistakes to your professional liability insurer will avoid any uncertainty about timeliness of the claim under your policy. Prompt reporting to Lawyers Mutual may also result in a claims repair opportunity that remedies the situation before a malpractice claim by the client. Remember that the Lawyers Mutual claims attorneys and the outside counsel that we employ have extensive experience in claims repairs that fix attorney errors and mitigate damages to the client from those mistakes. We work with our insured attorneys everyday in claims repair efforts both large and small.

COOPERATE IN YOUR DEFENSE AND BE A GOOD CLIENT After you have reported a claim to Lawyers Mutual, our claims staff will ask you to provide us with a written narrative that summarizes the nature of your representation of the client and the circumstances of the mistake. More than likely, we will also

ask you to provide us with a complete copy of your file so that we may conduct our investigation and determine whether the claim has merit. It is important for you to provide us with the information and materials we request in a prompt manner so that we may determine as soon as possible whether there is a chance for a successful claims repair or mitigation of damages that might be lost after a delay.

Providing the necessary information to Lawyers Mutual quickly also allows us to evaluate claims and determine whether there is a good prospect for settling the matter earlier and before incurring defense costs. In many claims, our claims counsel are dealing directly with your former clients who may want to avoid hiring another attorney if the claim can be settled without litigation. If our claims attorneys cannot adequately investigate and evaluate the claim due to an attorney’s delay in providing the requested file, the likelihood that the case will settle before a malpractice suit is filed is greatly diminished.

Should Lawyers Mutual retain defense counsel to defend you against a legal malpractice action, please remember that you are a client of that attorney, and treat him or her as you would want to be treated by your clients. You best assist in your defense by fully disclosing all available information to your defense counsel and promptly responding to his requests. As a lawyer, you know what makes a good client and what makes a difficult client, so act accordingly.

Also, the lawyer-defendant usually knows the former client better than claims staff or defense counsel and may also have expertise in the area of law for which he or she is being sued. Your insight into the substance of the claim against you may be very helpful in reaching a determination of the validity and value of a claim.

CONCLUSION If you ask our claims attorneys about their favorite part of the job, they will say helping a fellow attorney solve a potential problem. Our claims attorneys achieve a high rate of success in our claim repair efforts. If you have questions for our claims attorneys, call us at 800.662.8843. At Lawyers Mutual we live our motto, “Lawyers helping lawyers.”

OCTOBER 2021

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13

RISK MANAGEMENT TIPS. CLAIMS AVOIDANCE

Top 12 List of Frequently Reported Malpractice Claims

BY JOHN HESTER Each month our claims attorneys have the opportunity to speak with dozens of lawyers about problems they have en-

letters, I concluded he was no longer interested in pursuing

countered while representing their clients. Here is a Top 12

the matter and closed my file. I did not realize that he had

list of frequently reported malpractice concerns.

moved and was not receiving my calls or letters until after

1

I knew that medical malpractice claims had a three year

statute of limitations. I never saw this case as being a wrongful death case with a two year statute of limitations.

2 Every day I represent clients in auto accident cases and

I know our statute of limitations. I always thought I could file this out of state auto accident in North Carolina and use our three year statute, rather than having to file the case in another state with a one year or two year statute of limitations, where the statute has already expired.

3 When I paid off the home equity loan after the real es-

tate closing, I told the bank personnel to pay off and cancel the lien. They assured me they would do so. I never thought of putting that request in writing and I never thought the sellers would again draw down that line of credit, placing a lien on the house that is now owned by another.

4 When I prepared the estate plans for my husband and

the statute passed for filing his suit.

8 As this was my first medical malpractice case, I did

not realize that either my client or I would have to advance thousands of dollars in expenses for expert witness fees, obtaining records and securing depositions. After I was deep in the litigation, the client advised me that he had no funds to pay for these necessary expenses and neither did I. At the same time I came to realize that both proximate cause and damages were going to be difficult to prove.

9 During the initial client interview I had a feeling that this

client was not being completely forthcoming with information. My intuition said there was going to be a problem, but I dismissed that feeling as I badly needed another client. Now two years into the representation the client is proving more difficult to represent with his ever increasing demands for unnecessary and self-defeating actions. Realistic settlement offers are being rejected with unrealistic demands. I now

wife client, they never told me about their prenuptial agree-

understand that difficult clients may occupy 80% of my time

ment and I never asked them if they had one.

and result in about 10% of my income. I wish I had acted on

5 With the economic downturn I cannot afford to turn

away potential clients, even those involving matters where

my initial feelings about this client and declined the representation. The red flags were there but I chose to ignore them.

I have no experience and no expertise. I decided to use this

10

matter as a learning experience. I never considered associat-

resolved to his satisfaction, but now he refuses to pay the

ing another attorney who regularly handles such matters, as

balance of my fee. When I pressed him for payment or to

I did not want to share the fee. I am now facing a motion to

use the Fee Resolution Program with the State Bar, he threat-

dismiss and I am not sure what to do.

ened me with a malpractice claim and wants the fees he paid

6 I took the case for the purpose of obtaining a settlement offer for the client. As I never intended to file suit or complete the case, I did not think I needed to examine the proper statute of limitations or determine what the proper jurisdiction might be.

14

7 When my client did not return my calls or respond to my

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I successfully represented my client and the matter was

to be refunded. When I sued him for the fee and he counterclaimed for malpractice, I did not realize that my policy deductible would be impacted for defense expenses. My deductible is a substantial portion of the fee I am seeking, and I am not even sure the client has the assets now to pay a judgment if I am successful with the collections case.

11

My cousin referred a new client to me with a personal plea to help

this person in a difficult situation. The new client turned out to be a member of my church who I see every Sunday. He told me he had seen several other attorneys and no one was able to help him. He told me that

TOP TIP Made a mistake? Check out Communicating

money was not a problem and he wanted to pursue the matter on the

About Mistakes on our website at www.

principle involved, not based on the likely damages to be awarded. Now

lawyersmutualnc.com/claims/communicating-

after handling the matter for a year, the expenses and time necessary to

with-your-client-about-mistakes.

accomplish the matter are increasing and the client is no longer making his promised payments. Because this was a referral by a family member and involved a church friend, I did not utilize my usual employment or retainer agreement, which allowed me to withdraw if fees were not timely paid. If I withdraw it will cause me difficulties with my family, my

The Numbers Don’t Lie

friends, and at church. My client has threatened a Bar Grievance if I file a

Practicing law has become a risky business.

motion to withdraw. I knew I should have never taken this case.

In fact, lawyers find themselves increasingly

12 To increase my real estate closing practice, I hired a new, yet ex-

named as defendants in malpractice claims.

perienced paralegal. Because she was experienced, I did not check her

Each year, over 1000 of these problems turn

references or past employers. She asked for my signature stamp to avoid

into grievances filed with the State Bar. Most

delays in closings. I gave her my trust account records and asked her

are dismissed as frivolous. Some result in

to balance the monthly accounts to relieve me of this monthly burden.

disbarment or surrender of license, an average

I was surprised when my bank called indicating an over-draft in the

of 20 result in suspension and over 200 lead to

account. My paralegal said it was a mistake and she would sort out the

some other form of discipline.

issues with the bank for me. I did not realize that she told the bank to start contacting her when there was a problem rather than me. After my paralegal called saying she was unable to come to work for the fourth day in a row, I began to receive calls from the bank. The shortfall was now in the hundreds of thousands of dollars. The State Bar has called me to discuss the trust account situation.

As soon as we hear these kinds of statements from good lawyers, we quickly take action to provide advice or attempt to repair the prob-

All these cases brought aggravation, anxiety and lost billable hours for the responding lawyer. Though most grievances filed are by former clients, an increasing number are filed by fellow attorneys and third parties.

TOP CLAIMS AREAS IN 2020

lem. If a repair is not possible, we begin to gather sufficient evidence

Litigation - Plaintiff

21%

to evaluate the claim. Unfortunately some of these matters are not

Estates &Trusts

16%

covered by your malpractice policy and some involve matters that can

Real Estate - Residential

15%

impact your law license.

Family Law

10%

If any of these statements sound familiar to you, please contact Lawyers Mutual and one of our specialized claims attorneys will begin to assist you. We help good lawyers every day and we want to help you.

John is a former Senior Claims Counsel who retired in May 2020. For claims-related questions, please contact us at

800-662-8843 or 919-677-8900.

Litigation - Other

9%

Bankruptcy & Collections

7%

Gen Bus & Corp Law

6%

Real Estate - Commercial

4%

Real Estate - Other

3%

Criminal Law

3%

All Other

6%

OCTOBER 2021

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