How effective file management can provide a potential antidote to claims and complaints

Every practice wants to minimise as far as it possibly can the risk of claims and complaints, and in the event that a claim or complaint is made, they would like to be in a position to put forward a cast-iron defence.

In recent years the Master Policy panel solicitors in presentations at successive series of the Risk Management Roadshows have stressed that, in their experience of handling claims under the Master Policy, very often the defence is hindered by the lack of entries (file notes of telephone conversations and meetings, and correspondence) on the solicitor’s file. In such circumstances, the solicitor may have nothing but his or her memory to rely on to refute the allegations being made by the claimant.

Many claims arise many years after the work was carried out or the alleged error or omission took place – for example, 25% of all property/conveyancing claims are intimated five or more years after the transaction was completed – and the solicitor will sometimes have only an imperfect recollection of the details of the transaction. It is no surprise that Master Policy panel solicitors always emphasise the importance of effective file management.

Scoping the engagement

Many claims and complaints can be prevented by issuing the client with terms of engagement in which the scope of work to be carried out (and, equally importantly, not carried out) is properly set out.

Case study

A solicitor had just settled three commercial conveyancing transactions on behalf of three different clients. During the following week, each of these clients separately contacted the solicitor complaining that the solicitor had been negligent by not giving the client advice in relation to the VAT implications of the transaction concerned and that as a result the client had sustained loss. The solicitor was able to refer each client to a clear statement in his terms of engagement explaining that he would not be giving tax advice in relation to the relevant transaction. Each complaint was immediately withdrawn.

Solicitor’s authority

A feature of the claims experience that has become noticeable to Master Policy lead insurers over the past few months is an increasing number of claims where it is being alleged that the solicitor had no authority to act for the client.

Case study

The firm had previously acted for Mr and Mrs A in the purchase of their family home. In the absence of Mr A, who was abroad for a lengthy period on business, Mrs A consulted the firm about selling the home and purchasing a country house she had found. Missives were quickly concluded for the purchase of the property, but, with the date of entry looming, no offer had been received for the sale of the current family home. The firm was surprised to receive a letter from Mr A enquiring what authority they had to conclude missives on his behalf for the purchase of a house he had never seen and could not afford.

As well as being clear about who is and who is not your client, particularly in situations, as in the case study, where more than one party is involved, there should be terms of engagement on file dealing with the question of who has authority to give you instructions where you are acting for more than one party. Had that been clarified at the outset with both Mr A and Mrs A, the issue which arose in the case study would not have occurred.

Failure to advise

Claims based on allegations of failure to advise/report to the client have been, and continue to be, a common feature of the claims experience across all practice areas. Insurers anticipate that in the current economic downturn they will see an increase in claims based on these allegations, for example from claimants who find that they are unable to withdraw from a contract they have entered into but are now unable for economic reasons to complete, or from clients who under economic pressures want to revisit the settlement of a claim to which they agreed in haste.

Case study

The firm acted for Mr B in pursuing a claim for personal injuries sustained by him in a road traffic accident. Shortly after intimation of the claim, insurers made an offer of £50,000 in settlement of Mr B’s claim. Mr B appeared to be recovering well from his injuries but the prognosis was uncertain. As Mr B had recently been made redundant, he was keen to settle and accept the insurers’ offer. Two years later Mr B alleges that, since he will never fully recover from his injuries, his claim is worth at least £100,000 and that he should not have accepted the offer.

The corollary is the situation where Mr B does not accept the offer and two years later has to settle for, or is awarded by the court, a much smaller sum. If a letter had been sent by the firm clearly outlining the options available to Mr B and the risks involved in accepting/rejecting the offer of settlement, it is likely that the firm could have avoided any subsequent claim by Mr B. Having the client provide written acknowledgment and confirmation of instructions will further assist in the event that such an allegation is made in spite of the information and analysis provided.

Allegations of delay

Insurers are also concerned that in the current economic downturn in a volatile stock market or a falling property market, they may see more claims in private client work based on allegations of delay in selling, realising or transferring property or shares. To minimise the risk of claims based on such allegations in trust and executry work, manage clients’ expectations at the outset by dealing with timescales in terms of engagement. If that is not done, there is a danger that clients, who may have their own perceptions of timescales, may consider there to be a delay if their expectations are not met.

During the course of the executry, the file needs to be kept under regular review (and the client regularly updated), particularly with regard to timescales for obtaining confirmation, ingathering the estate and making distributions to beneficiaries.

File notes

Corporate transactions where instructions may need to be taken on complex documentation or at late-night completions can present particular challenges. In such situations there can be a danger that the file will not reveal (and may never reveal) the up-to-date situation, if contemporaneous, detailed and legible handwritten file notes are not made. The following case study illustrates the dangers:

Case study

The firm was acting for Mr C, in the sale of the whole issued share capital of C Ltd. Many matters still remained to be negotiated at the completion meeting. During the course of that meeting many alterations were made to the draft sale and purchase agreement. Eventually completion was achieved at 3am. Some weeks later the firm received a letter from Mr C stating that he was annoyed to have found out that the provisions in the sale and purchase agreement for payment of part of the deferred consideration had altered from the position as he had understood it, and that he had given no instructions to the firm to agree the change. The firm was adamant that instructions had been given by Mr C at the completion meeting but did not have a file note, and had not written to Mr C after completion, recording the instructions given to them at the meeting.

The Author
Russell Lang and Marsh Russell Lang is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world’s leading risk and insurance services practice. To contact Russell, email: . The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues. Marsh Ltd is authorised and regulated by the Financial Services Authority.
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