Risk Management for Law Firms: 5 Tips for Small Practices
If you are looking to decrease your exposure to potential liability, this short guide to risk management for law firms can be a good place to start.
You may need to do more extensive research, so consider exploring our library of risk management articles, too.
What Are Some Types of Risk Small Law Firms May Face?
You may encounter any of the following risks in your practice:
- Client-related risks. These risks usually involve situations where a client claims you have not secured a satisfactory outcome of their matter or have otherwise failed to provide a high quality of service.
- Attorney-related risk. This category includes a wide array of procedural, planning, and administrative errors and omissions such as poor communication with clients; provision of poor or wrong advice; poor drafting of documents; delays, procrastination, or missing deadlines; inadequate investigation or discovery; and more. Some claims may also involve substantial errors like failure to know or apply the law, as well as malicious acts like fraud, dishonesty, or misrepresentation.
- Cybersecurity risks. Examples include malware, spyware, and virus infections; ransomware, phishing, and social engineering attacks; breaches of your electronic devices and IT systems; unauthorized access to sensitive business or client information; lost, damaged, or stolen data; loss of access to your website, work email, computer network, or other systems; and more.
- Practice management risks. These risks relate to your HR, administrative, financial, and risk management protocols.
- Regulatory risks. Such risks may arise out of changes in the regulatory environment that your practice may not be ready for.
5 Risk Management Tips for Small Law Firms
Whether your practice is just starting out or has been in business for a while, the tips below can help reduce your exposure to some common risks.
1. Document Everything
Keeping detailed records of your work can help lower your risk exposure and, by extension, your vulnerability to malpractice claims. Best practices in this regard include:
- Drafting thorough engagement letters that identify the client and clearly set out the legal matter at hand and the scope of your services.
- Regularly informing clients of the status of their matter, even if there have been no new developments.
- Keeping written records of all communications with clients and any third parties
- Recording conversations and meetings where appropriate and legally permitted.
- Confirming strategy decisions in writing, even if they may seem trivial, and especially if a client instructs you to go down a less-than-optimal route.
- Drafting disengagement and non-engagement letters.
2. Implement Cost Transparency
Being transparent about your fees and pricing structure from the start of the attorney-client relationship can help manage your clients’ expectations. This, in turn, may reduce the risk of delayed payment, non-payment, or financial disputes in the long run.
To that end, you should:
- Have honest and thorough initial consultations with clients that cover your pricing structure, how and when you are going to bill the client, payment methods you accept, and the consequences of late or missed payments.
- Take extra care when recording billable hours and consider investing in time-tracking software.
- Create invoices that are not only accurate, detailed, and comprehensive but also easy to read and understand.
- Pick your battles carefully when it comes to fee suits. Sometimes when a client owes you money and refuses to pay, they have a valid reason that may have to do with the quality of service you provided. If you then sue them for legal fees, you may risk exposing yourself to a potential malpractice claim.
3. Set Up Advanced Cyber Protection
According to the ABA TechReport 2020
, 26% of law practices experienced cyberattacks
in 2019. While you may not be able to fend off all attacks, the following measures may help reduce your risk:
- Educate yourself and your team about common cyber risks.
- Invest in advanced security software and ensure it is always up to date.
- If your budget allows it, consider hiring a dedicated IT expert.
- Draw up incident response plans for different contingencies.
- Back up all your data regularly and ensure you would be able to access it in the event of data loss.
- Protect all devices, data, and communications using strong passwords, firewalls, and anti-malware/spyware/virus programs.
- Change passwords often and implement encryption, a password manager, and multi-step authentication.
4. Automate Your Practice Management
In other words: invest in legal software. This can help streamline your operations and reduce the risk of human errors. Otherwise, you may increase your exposure to liability and risk falling behind the technology curve. In its 2020 Legal Trends Report
, legal software provider Clio reported that 85% of law firms use practice management software.
Some modern technological solutions you may wish to incorporate in your practice include:
- Legal research tools
- Legal practice management software
- Email and calendar tools
- Marketing software
- Accounting, timekeeping, and billing software
- Customer relationship manager (CRM)
- External hard drives, cloud storage, and remote backup
However, if you are going to buy one type of legal software, that should probably be a docketing or calendar system. This can help prevent calendar conflicts and blown statutes of limitations, which can put you at a particularly high risk of malpractice claims if you work in multiple jurisdictions.
5. Assess Potential Clients Carefully Before Taking Them On
Some smaller firms may give in to the temptation to take on every case that comes through the door. To an extent, this may be understandable – especially in the early days when some practices may prioritize building a solid client base as quickly as possible. However, being more selective with whom you choose to work with may prove more beneficial in the long term, from a risk management perspective.
If you are not sure that your practice has the capacity to provide the level of service a particular matter warrants, it might be best to refer the client to another firm. This may help lower the risk of suboptimal legal outcomes and having disgruntled clients file malpractice claims against your firm.
You should also consider doing your due diligence and researching clients before taking them on. Among other things, this could help avoid conflicts of interest that may not have been apparent when the client first walked in your office. This could also help you steer clear of potentially litigious clients with histories of malpractice claims.
Bonus Tip: Purchase a Legal Malpractice Policy
At the end of the day, you may not be able to avoid all potential risks. No matter how thorough your risk management protocols, you may still find yourself on the receiving end of a malpractice lawsuit.
To help protect yourself, consider buying professional liability insurance and focus on growing your practice.
Get your free quote today.
This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.