MALPR ACTICE ARTICLE

REPRESENTATIVE MALPRACTICE

And Its Impact on Your Business

Karl Osterhout, Esq Managing Partner, Osterhout Berger Disability Law Karl@mydisabilityattorney.com

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Introduction

The beginning point is to say, when discussing legal malpractice,that it is impossible to say what some lawyerout there might do. So, this article is not even designed to say, for instance, thata malpractice case could never happen to you or that every rep should not have malpractice-based issues in mind when conducting their business. But I think it’s extremely important also to remember that the word “malpractice” is sometimes used in a more colloquial way to describe “bad practice,” but as we will see, this is not the legal definition of malpractice, orreally even in the universe of what someone must prove in order to succeed in a malpractice case.

Nothing in this presentation is designed in any way shape or form to let us off the hook in terms of the absolute necessity of continuously improving our skills and adding tools to the toolbox. At all. There just is, as we’ll see, a pretty wide distance between a valid legal malpractice claim on one hand, and our moral/ethical obligations to our clients, on the other. That may be especially true in Social Security disability cases, for reasons we’ll look at momentarily.

But, the reality of malpractice cases in general and of legal malpractice cases in particular, is that there are a lot of definitions in terms which absolutely matter in establishing whether or not malpractice has actually occurred.

Benefits of Malpractice Insurance

My impression in talking with folks is that the word “malpractice” invokes a very strong emotional reaction, probably something like fear mixed with shame on one hand, or anger on the other. It’s not my focus today to help people with their personal responses to any mistake or possible mistake they may have made, or how to deal

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with fools, but to focus on the fact that a malpractice case is a legal matter with definitions and terms which matter greatly in terms of doing an actual analysisof the situation. In that sense, this presentation might be thought of as rather dry.

Of course, you’ll have to deal with the emotional and legal aspects if this ever happens to you, but let’s think about this, first, in terms of something everyone is familiar with, their auto insurance policy. Does the average person drive down the road in fear and shame, or anger, worrying about whether they’ll smack into somebody’s car or get smacked into? I don’t think so, and I think the reason that they don’t is because they know they have insurance. Well, Hello! You have legal malpractice insurance too, which is important and necessary, for numerous reasons:

Protects you against claims of professional negligence, including providing you with legal representation by someone who handles these types of cases on a regular basis; Provides you with the peace of mind to focus on other aspects of your practice; Could provide your practice with a means to outsourcing risk management; Builds client confidence in your practice, thus legitimating your practice; May fulfill your ethical and professional obligations; and Might cover the cost of having independent legal counsel represent you in an ethical complaint.

Typical terms of a legal malpractice policy(not intended to be comprehensive)

This is only intended to address a few common terms that seem to appear in most or all policies. As mentioned before, state law can affect the wording or requirements of a malpractice policy. So, in the end there just isn’t a substitute for actually reading

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it yourself, becoming familiar with its terms, and making sure you understand any clauses or get someone to help you understand them.

Notice to the insurance company must be given “as soon as practicable” of “any circumstance which could reasonably be expected to give rise to a claim.” Must use written notice which includes “the specific wrongful act,” the damages which have or may have resulted from the wrongful act” and “the circumstances by which you first became aware of such wrongful act.” “Limits of liability” and deductible. “You shall admit no liability, make no payments, assume no obligation and incur no expense related to such claim.” “You shall immediately forward every demand, notice, summons or other process received by you.” “You shall cooperate with us and… Assist in making settlements and in the conduct of suits. You shall attend hearings, trials and depositions and assist…” You shall not demand or agree to arbitration of any claim without our written consent.” “Prior bad acts” not covered. “Defense and settlement” – insurance company must obtain your consent to settle, but such consent may not be unreasonably withheld. You may not admit liability and/or make any attempt to voluntarily settle case without the insurance companies consent, once the case has been referred to the carrier.

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What are the legal elements of a malpractice claim?

In law school most of the basic legal courses like contracts, property issues, and “tort cases” like malpractice cases were taught in terms of the “elements” of what was needed to prove a legal case. All “elements” refers to are essentially the “steps” of establishing a claim, which is something you are familiar with from the five-step sequential analysis that we do every day. One of the immediate difficulties in discussing this is that malpractice is a state law issue and, of course, there will be some variance from one state to another. To get it out of the way right at the beginning, nothing I could write here could be an exhaustive discussion and certainly should not be taken as “legal advice” to anyone reading it.

But, the general definition that generally works everywhere is that a rep will be deemed negligent if he/she “fails to possess and exercise that degree of knowledge, skill and care which would normally be exercised by members of the profession under the same or similar circumstances, and that negligence has resulted in actual harm to the client.” To break it down, citing Pennsylvania law, to establish a viable legal malpractice claim, the plaintiff must establish three elements:

(1) the employment of the attorney or other basis for duty(DUTY); (2) the failure of the attorney to exercise ordinary skill and knowledge (BREACH OF DUTY); and (3) the attorney's failure to exercise the requisite skill and knowledge was the proximate cause of damage to the plaintiff. (ACTUAL DAMAGES).

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(1) the employment of the attorney or other basis for duty

This is typically not a very tricky point. If you and the claimant have signed a fee agreement and/or in the Social Security context, and appointment of representative (even if you did not get a signed fee agreement), it seems clear enough that the rep has been “employed.” Once this occurs, the employment cannot and until the claimant has been notified by the rep that they are deciding to end the relationship (I’m assuming I don’t have to tell you that this needs to be done very carefully, preferably with something signed by the claimant acknowledging the termination of employment or, at least, proof of some sort that the letter was received by the claimant). Another consideration in Social Security is the hearing office rules related to withdrawal – a claimant might be able to successfully argue that even if you send a letter, get a signed acknowledgment and/or proof of service of the letter, the termination of employment might not be effective if it violates the hearing office rules in some way. I’m not sure anyone knows the answer to this question, but it’s at least something you should be doing anyway, just on the basis of avoiding problems.

There is another issue related to terms of employment and engagement by the claimant which I have seen, although occasionally: where the rep explicitly lists actions they will take on the claimant’s behalf (“request all medical evidence.”; “Take any action necessary… [to win the case]…” and things of a like nature. Now, instead of (or in addition to) a legal malpractice case, you may be looking at a breach of contract case (e.g., “My rep explicitly promised to request all medical evidence in my case, and then failed to do so.”). Now, breach of contract is another legal issue that is controlled (largely) by state law and so no comprehensive discussion can be offered here, or is even attempted; however, it is reasonably safe to say that the more specific the fee agreement is about what kind of services will be provided, the more

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opportunities this provides for trouble down the road if things go sour with the claimant. It is natural to say such things in order to “win over the claimant” but I think it’s fair to say that even when we say we will do “everything” to win the case for the claimant that does not include requesting records that have nothing to do with the claimant’s disability, or remaining in a case when you know that the claimant is lying about working or something like that. Yet, you’ve created possibly some confusion and trouble for yourself by being so specific in the fee agreement which you must view as a contract of employment.

(2) the failure of the attorney to possess and exercise ordinary skill and knowledge.

To discuss this topic I am choosing a hot button issue that is frequently discussed in NADR presentations and amongst ourselves:

cross examination of vocational experts. So, the question here would be “what is the ordinary skill and knowledge employed by reps when it comes to VE cross examination?” The answer is that normally a rep does almost nothing related to VE cross examination and/or legal memorandum writing on the topic of vocational issues. So, a real hurdle for the legal malpractice attorney looking at a potential Social Security malpractice case is that the standard is to do next to nothing with respect to vocational expert cross examination. Put another way, you do not stand out when you failto do these things; in fact, you are in the majority. Put yet another way, the standard of possessing and exercising skill is notthat a rep must exercise extraordinary skill, but rather ordinary skill; the standard in a legal malpractice case is not a comparison of the rep to best practitioners out there.

Or, to go for a third way, the legal malpractice attorney knows that he must establish the failure of duty on the basis of expert testimony, usually a lawyer who identifies

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and describes that breach of duty. It would not seem difficult to impeach any supposed expert witness who testifies that normally a rep deeply and effectively crosses vocational experts and/or effectively identifies legal arguments related to vocational issues.

To be more general about it, in the reading I have done (and there aren’t a lot of legal malpractice cases out there – go figure: lawyers essentially wrote this law), the general bases for legal malpractice cases (not all of which were successful, by the way) is a fairly long list:

Failure to meet statutory and/or court-ordered deadlines Failure to Represent a client with appropriate skill Failure to represent a client zealously and diligently Not acting with reasonable promptness Not keeping clients reasonably informed about their case Not properly explaining matters to clients Failing to provide legal fee terms in writing Engaging in a conflict of interest Failing to protect the client’s interests Practicing law in a jurisdiction where not licensed Failing to comply with court orders Conduct interfering with the administration of justice Intentional failure to seek the client’s lawful objectives Misappropriation of client funds Charging unreasonable fees Failing to return unearned fees upon the termination of representation Disobeying the rules of a tribunal Making false statements to a court or tribunal Conduct involving “dishonesty, fraud, deceit or misrepresentation” Poorly worded or misleading “closeout letters” (believe it or not, this was a list of grievances against a single attorney in a single case!)

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Of course, the facts always matter and we will get to that momentarily. I emphasize again that this article is only about legal malpractice. It says nothing atall about what standard we should be attaining for, or what should be motivating us every time we agreed to take on a claimant’s case.

(2) the attorney's failure to exercise the requisite skill and the proximate cause of damage to the plaintiff. knowledge was

In other words, did it cost the claimant any money? (And, in some states there is an attendant option to also claim “mental distress” as a damage in malpractice cases). This factor is HUGE in most of the legal malpractice attorneys’ consideration of whether or not to take a case (don’t forget, however, that there are plenty of Don Quixotes out there). And, to put it simply, there just isn’t a lot of money at stake in mostpotentialSocial Security legal malpractice cases (of course, it’s a lot of money to the claimant, so again I’m not addressing conscience, just potential exposure to legal malpractice).

As mentioned above, one of the large costs in legal malpractice is hiring an expert. On top of that, there’s a significant amount of time that goes into reading the record, crafting a complaint that sets forth all the elements described above, and including damages (sometimes with great specificity). Most if not all malpractice attorneys handle cases on a contingent fee basis, like we do, although the standard seems to be a 40% contingent fee.

To get the obvious “big ticket” Social Security cases out of the way first, the most obvious examples of cases that could actually be worth a lot of money involved cases with expired DLIs andlapsedprescribed periods in widows’ cases. Screwing up one

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of those cases (by, let’s say, negligently amending an onset date to after the DLI or prescribed period), would not only affect any past due benefits, but would in almost any case also include future benefits. Depending on the age of the claimant (especially in DLI cases) and the monthly amount at issue, it would be nothing at all for such a case, to have a “bottom-line value” of $500,000 or more. This is an amount that could get a legal malpractice attorney interested.

But, of course, you probably knew this already. The “run-of-the-mill” amount of past due benefits (in a case where the claimant is going through the process for the first time, the vast majority of our cases), as you know, is much more like $20- $30,000 in a really good Title II case. So, in those cases the “bottom-line value” is $20-$30,000. I can’t say how much an expert will cost, because I just don’t know, but even assuming that as the only cost in a case worth $20-$30,000 (therefore, only $8000-$12,000 for the malpractice attorney, assuming no cost for the expert), it is pretty easy to see why malpractice cases in Social Security cases are very rare.

However, let’s think about Don Quixote for a minute. He/she just thinks that a real injustice has occurred (and frankly maybe it did) and thatis his/her motivation. Here are additional factors he/she must consider:

(1)the claimant has a duty to mitigate damages. This almost always requires filing a new application and attempting to reopen the issue in the new application (essentially arguing that whatever evidence was overlooked, never obtained, etc., which has now been obtained and submitted, was new and material and requires a different outcome).This is a kind of two-edged swordbecause if the application is denied, and the ALJ denies it also, this

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probably requires the claimant to file a federal court action to get the ALJ decision overturned. All requiring more and more time, and more expense.

(2)If the case is an SSI case, all the numbers above are even less, far less.

(3)And, the rest of the two-edged sword is that if the claimant actually wins their argument that the evidence or whatever was improperly overlooked, etc., then there is no malpractice case (except, possibly, in states where

“mental distress” is a valid element of a malpractice case).

(4)Assuming the claimant does everything required to mitigate damages and still did not get a favorable outcome the first problem of course is that

SSA’s decision stating that the new

evidence or whatever wasn’t convincing will be Exhibit A of the defense to the malpractice case (e.g., “SSA explicitly considered the (evidence/arguments) advanced in this malpractice action and found them to be without merit.”).

(5) But, let’s assume the case proceeds past this and to an actual valuation. Even assuming, theoretically, that a court will proceed past a negative finding to still look at damages, you would never be talking about the full amount of $20-$30,000 I posited above the real math would be something like: $30,000 x .5 chance of winning before the agency = $15,000, x .5 winning before court = $7500 x .6 chance of winning on remand = $4500. (This is kind of made up math in a way, but depending on the posture of the case and if mitigation has been required, etc., this is a very real possibility for how an insurance company would value the case for the purposes of settlement.)

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(6) And, finally, remember: you have insurance! Most of the work of dealing with this will be done by a law firm hired by the insurance company to handle it. Even if, in a small case, something ends up actually being paid to the claimant, the hard-boiled bottom-line business effect of this is that you will probably start paying a more for your insurance (just like if you wreck your car). Nobody goes to jail after a malpractice case.

What if you are threatened with or served with notice of a malpractice claim?

As I noted above, once you have been threatened with or actually received notice of a malpractice claim, you now have two responsibilities. Certainly, if you are still engaged by the claimant (i.e., you have not already sent out a closeout letter and closed the file), you probably have anobligation to talk to them. But, as noted above, theinsurance company is rather insistent that you inform them “as soon practicable” and to not admit liability, attempt to settle the case, or other like activity. So, I think this is probably the best advice.

Probably the easiest scenario is when the client has already received a closeout letter and you have closed the file, so you have no ongoing obligation to even talk to that claimant (it may feel like you do, but legally you don’t). I think the best way to handle it is to ask the client if they’re willing to explain the basic facts of their complaint, but I would tell them ahead of time that you are obligated by your insurance company to not discuss the merits of the case with themor try to resolve it. If you want, you could even take their side on this, saying something like, “yeah, I think it’s stupid, but I can’t risk the insurance company not covering this. If there

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is anything to what you’re going to tell me.” The client may not want that, but at least you’ve given them the opportunity.

Assuming they go ahead and explain to you what the nature of their complaint is, then I would stick by what I said, thank them for taking the time to explain it to them, but that the only way to proceed is for the former client to find an attorney to help them with their case, and that you will be informing your insurance carrier that there may be a claim made. You will not feel like this is the best course. I get it, but it would not likely be helpful at all, and might even put you in a jam with the insurance company, if you were to possibly admit (intentionally or otherwise) to any sort of wrongdoing, attempt to settle the matter, etc. What you risk is that the insurance company says this to you because they intend to deny coverage (possibly) if you violate your obligation to them.

Again, I am certain that for most folks it will not feel right to handle a situation like this in such an antiseptic matter, especially when you might be angry that the case is even being pursued, or perhaps feeling guilty because the claimant may havea point. But, it really is better, even for the claimant, if he or she is getting their advice from someone who is completely looking out for them and, it is just clearly a conflict of interest for you to even pretend that you’re able to do that and stillmanage your own feelings and still preserve what are perhaps legitimate defenses to the lawsuit on your own part.

In cases where the claimant has notbeen discharged as a client, the conversation still proceeds along the same assumptions, but obviously you have the issue that the claimant is still a client. I think the best advice, which I have followed myself on

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numerous occasions (I did have to report malpractice once, but obviously we get in these kind of conversations more often than that)is this:

In this situation, it is legitimate and you have a basis for asking to go into more detail about what the nature of the claimant’s complaint is. It might be something that isn’t malpractice at all, but just disappointment or a desire to have input into how the case is being presented, opinions about how to present the case, etc. These aren’tprobably malpractice issues, they are client/case management issues, and sometimes the whole discussion of “malpractice” kind of fizzles. But even there I think that conversation mustend with some sort of confirmation along the lines that:

“I know this conversation began with you talking about malpractice, and I need you to know that if you still feel that way you have every right, and maybe even an obligation to yourself, to seek another attorney’s advice. Obviously, I can’t advise you on something like this. If you need to do that, I’m not going to say or do or imply anything that would be an attempt to change yourmind. But, I need to know, because if you feel it is in your best interest to pursue a case like that, then you will have to find another representative for your Social Security case also. I’m not saying that because I don’t want to represent you, but because it would be a conflict of interest to representyou while I was being sued for malpractice (I am sure a malpractice attorney you spoke with would confirm this). On the other hand, if we are on the same page and we agree about how to proceed, etc., then I’m ready to get to work on your case.”

I think the best thing in closing is to remind you of what I said at the beginning: that you have insurance for a reason. These people do not stay in the insurance business

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losing malpractice cases that do not have merit. On the other hand, they also do not take kindly to violations of the terms of the contract of insurance either. Frankly, I’m hoping that this just makes any malpractice situation simpler and less anxiety producing, because the insurance you have purchased gives you access to experts who can give you rational advice at a time when it’s probably hard for you to be entirely rational.

But, I also want to return to something else I said at the beginning, that anything I’ve said here today about malpractice has literally almost nothing to do with the ethical/moral obligation to know everything we can know, and to take all reasonable steps to represent our clients in their “cases” (which I put in quotes to remind you of the definition I’ve been using for several years now – a “case” is your expression of intent to do the best you can for your “client”, which I have also defined for years as “that person who has looked to you to help ensure that they have a roof, some clothes, a regular supply of foodand reliable healthcare coverage.”). So, I would just close with something that I’m not even going to write down, but which I want to say, so you can hear me saying it the way I mean it, with love: KARL E.OSTERHOUT

MANAGING PARTNER, OSTERHOUT BERGER DISABILITY LAW