A review of some of the topics discussed at this year's Risk Management Roadshow

The 2008 Risk Management Roadshow series took place during April, May and June. As in previous years, these events concentrated on group discussion of case studies based on the current claims experience and emerging risk issues in order to illustrate risk issues and practical risk management points.

Some of the case studies from the Risk Management Roadshow appear here with a note of some of the risk management points to be considered. There is no definitive “correct answer” to the questions posed, and no authoritatively “correct response” to the issues raised by the case studies. As was evident from the group discussions, quite different approaches can be equally valid.

The file

The following scenarios and allegations have featured in claims made against solicitors.

In each case, the content of the client file is not as helpful to the insurers/panel solicitor in defending the claim as it might be. How could the defence of these allegations have been assisted by something that the insurers/panel solicitor might have expected to find on the file?

Case study (a)

Klondikes Solicitors acted for Mr Floyd in the purchase of the tenant’s interest in the lease of a public house. As part of the transaction, Klondikes arranged the transfer of the liquor licence and existing extended hours licence. Some seven months after settlement of the transaction, Mr Floyd contacted the firm in a state of panic. He had just had a visit from the police, who advised he was trading without a licence, his licence having expired three weeks earlier. He claims he was unaware of the expiry date of his licence, and would in any case have expected that Klondikes, as his solicitors, would have dealt with the renewal process. Klondikes do not handle routine licence renewals and cannot understand how Mr Floyd could have expected that they would deal with the matter.

Risk management points

Klondikes should have on file a copy of the terms of engagement issued to Mr Floyd. One would expect these to contain provisions excluding the licence renewal from the scope of the engagement and informing Mr Floyd that the firm would not issue reminders about the expiry/renewal of the licence. Many delegates described a practice of sending the licence to the client with a “sign-off” letter on completion of the original instruction and in that letter advising what action the client has to take and by when. The letter typically refers back to the terms of engagement and confirms that the firm will not be diarising the critical date(s).

Case study (b)

Law firm, Reinharts, have always avoided giving tax advice to business clients. They are therefore taken aback when they receive a letter from Dreyfus Enterprises alleging that, relying on advice allegedly given by the firm in a conversation in the runup to 5 April, Mr Dreyfus has now missed the opportunity to take advantage of a tax concession.

Risk management points

Who is the client – the company or Mr Dreyfus? The terms of engagement will confirm the identity of the client and, in this case, exclude tax advice from the scope of the engagement. It can be easy to get drawn into discussion about tax matters and an appropriate file note/letter/email confirming the conversation would provide evidence that no tax advice had been given.

Case study (c)

When Esther Hazy sold her house nine months ago, the deal was: two-thirds of the price to be paid over at settlement with the remaining third to be paid three months after settlement. Of course this wasn’t quite as good as getting the full amount straight away, but it seemed to Esther to be the best deal on offer at the time – better certainly than accepting a more straightforward offer at a figure well below what Esther reckoned her house was worth. By the time she’d paid off the mortgage, the arrears and all the legal expenses, that would have left her with little or no equity towards the more modest house she was trading down to. After three months, there was no sign of the balance of the price. After another couple of months, proceedings had been started to call up the security granted by the purchaser in terms of the missives. Only then did it emerge that there would be nothing left for Esther after settlement of what was owing to the first ranking security holder. She blames her solicitors for the situation she finds herself in.

Risk management points

When allegations of poor advice or failure to advise are made, sometimes there is nothing on file to support the solicitor’s recollection of the points discussed and the advice given e.g. during a telephone conversation or a meeting. In the case study, corroborating the firm’s recollection would be easier if there is a letter on file fully advising Esther Hazy of the risks involved in settling without receiving the price in full; identifying the risks in not obtaining a first ranking security over the property; and making a comparison of potential outcomes/worst case scenarios.

Mortgage fraud

The incidence of mortgage fraud continues to be of concern to insurers where loans have been obtained by false or exaggerated applications, often by fictitious borrowers.  In a number of cases, following default, claims are made against solicitors, along with other professionals, who have unwittingly (or perhaps intentionally) become involved in facilitating the fraud. This subject will be addressed more fully in a future issue of the Journal.

The following case study was one of the scenarios discussed at the roadshow.

Case study (d)

When Mr and Mrs Goode first began receiving demands from a bank for arrears of mortgage payments, they assumed there had been a careless clerical mistake by the bank. For one thing, they had no connection whatsoever with this particular bank and, for another thing, there was no mortgage over the house. A rollercoaster 18 months later and they were eventually successful in having a security over their house reduced after establishing that a mortgage had been obtained fraudulently and that their signatures on the standard security had been forged by an employee of the company they had appointed to handle the letting of their house while they were abroad on voluntary service overseas. The Goodes’ unencumbered title to their house had been reinstated but not without substantial cost, distress and inconvenience. For its part, the bank had lost a six figure sum and expected to recover those losses.

Risk management points

In some of these situations, the solicitors concerned appear never to have met with their clients face to face. Query whether that complies with anti-money laundering regulations (including enhanced due diligence) and/or the Society’s guidance? Leaving aside compliance with the letter of the anti-money laundering regulations, what additional steps could have been taken to verify the identity of those instructing the solicitors?

Time bar

Time bar claims are a persistent feature of the claims experience. At the roadshows delegates were asked to consider a scenario involving a firm with a record of recurring claims arising out of missed time limits. To address the situation, the firm introduced the following risk controls:

Central diary – all time bar dates (without exception) require to be entered in the central diary as well as on the file

Countdown warnings – without exception, countdown warnings six months, three months and one month prior to the time bar date require to be entered in the central diary

Case reviews – assistants responsible for cases approaching time bar are required to discuss/agree with the head of department an action plan for cases at six months, three months and one month prior to time bar

Client communication – at the six months, three months and one month stages, a letter requires to be issued to the client alerting them to the approaching time bar and reminding them if we are awaiting information or instructions from them

How would you rate the effectiveness of the above set of risk controls? Are there any additional controls you would recommend?

Subsequent to their introduction of these risk controls, the firm had to intimate three further time bar claims. The risk controls would not necessarily have prevented these claims because the underlying causes of the claims were not related to a failure to comply with the controls.

Case study (e)

One of the firm’s clients had a claim for injuries sustained as a result of an accident on board a ferry. While the assistant concerned had very meticulously followed all the firm’s procedures for diarising and following up on critical dates, he hadn’t appreciated that the applicable time limit in the circumstances of the accident was two years rather than three years.

Risk management points

Claims are still arising from a failure to appreciate that a two year limitation period applies to personal injuries claims arising from air/sea accidents. Firms should have appropriate training/checklists in place to raise awareness, and prompt consideration, of this kind of “legal trap”. Wherever there is dubiety as regards the applicability of a time limit of less than three years, the rule should be – if in doubt, the shortest possible time limit applies. Some firms operate on the basis that an “assumed two year triennium” applies.

Case study (f)

An established client of the firm had encouraged a friend of hers, Mr Twelfty to consult the firm regarding a possible claim arising out of an accident some time ago which had resulted in Mr Twelfty having to change his job and give up skiing. By the time Mr Twelfty consulted the firm, his claim was going to be time barred in less than three weeks. Although Mr Twelfty was pretty vague about the circumstances of the accident and had mislaid an envelope of papers regarding the accident and his treatment, it seemed to the assistant who met Mr Twelfty that there could well be some basis for a claim and that the claim could be reasonably substantial. Mr Twelfty had undertaken to find the envelope of papers but by the time he got the papers to the assistant, the triennium had expired.

Risk management points

Client/transaction vetting procedures should address whether or not and in what circumstances work will be taken on. Many delegates indicated that they would tend to decline instructions in a personal injury claim close to an impending critical date and send a letter of non-engagement in appropriate terms.

If the work is taken on, enhanced risk controls might be appropriate,

e.g. terms of engagement/ correspondence setting out clearly the client’s responsibility for providing full, accurate and complete information/ documentation before court proceedings can be raised and spelling out the consequences of missing the critical date. If the client fails to produce information/ evidence/documentation timeously, consideration should be given to terminating the engagement, in which event a letter of disengagement should be sent.

Case study (g)

An assistant in the firm’s branch office has allowed a personal injuries claim to become time barred. This was the only such claim he had – most of his cases are family law matters. He joined the firm a few months ago and he maintains that he knew nothing about the central diary or the system for case reviews.

Risk management points

Firms should have appropriate induction procedures to ensure that all joiners are given appropriate training in the firm’s risk management procedures. This case demonstrates the value of auditing files to establish whether risk controls which fee earners are supposed to know about (or are misunderstanding) and ought to be complying with are actually being complied with. Otherwise, there is a risk of inconsistency or lapses.

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