When most lawyers think of Risk Management in their practice they think of issues related to Professional Liability Insurance. But it is really much more than that. Risk management is to practice management what driving defensively is to driving a car. They are really one and the same.
Why this new emphasis on Risk management issues today? There are a number of reasons: With the California Governor's signature on SB 645, which mandates disclosure of errors and omissions insurance to potential clients, law firms who have in the past simply gone without professional liability insurance may have to acquire it simply to stay in business. A firm attempting to compete for new business does not want to tell potential clients that it does not have errors and omissions coverage. At best they may be placed at a disadvantage and at worse they will lose the business.
Of course, not all firms or individuals have chosen to go uninsured for the same reasons. Very often, however, it is reduced to an economic decision. Those decisions may now need to be reviewed. Moreover, risk management is not necessarily an insurance issue. Quite the opposite. It is very much a practice issue. Insurance really ought not be part of the decision in a perfect world. The reality is quite different.
From an insurance standpoint, the market forces which have con- trolled the arena of Errors and Omissions liability coverage since 1977 are coalescing into new and, in many cases, not so happy trends. These trends may have a lot to do with lawyers' awareness of their practice as perceived by the insurance industry. Ironically, it has been this understanding that has led firms to take the matter seriously for the first time.
For example, law firms which have never had problems finding insurance are now being routinely dropped because their insurance carrier is suddenly out of the professional liability market. If that happens and they must seek other coverage, some firms may find that their premiums are doubled and their coverage reduced. There are many firms out there that simply cannot get prior acts coverage today because they have had claims and when they went to a new insurer they found that coverage unavailable.
Another difficulty lies with firms that have moved from insurer to insurer over the past several years. If they have experienced claims, they are not unlike someone who has lost their auto insurance coverage and have therefore found themselves in the unpleasant position of trying to insure with a less than spotless driving record. The priority becomes just getting the insurance regardless of cost.
As a result of just these factors alone, there is a new awareness of the significance of risk management. Avoiding claims and not expending deductibles which have risen astronomically, are ends in and of themselves. It has become an economic issue and in some cases a matter of survival. It should be a matter of practice management.
In my profession, as someone who concerns himself with law firms' professional liability issues, I have seen firms handle this question of risk management in their practice in countless ways. Most law firms pay little or no attention to specific issues related to risk avoidance. The ones that do, however, and do it successfully, are those that see risk management as a natural part of their practice generally.
When considering the question at all, most attorneys think solely of the mechanical aspects of the process of risk avoidance in their firms. This consideration generally boils down to docketing and calendaring. The truth lies, however, in the opposite direction. Risk management and practice management begin with the very underpinnings of the firm: the entity agreement; the fundamental way in which the firm is constructed. That in turn affects the dynamics of the partnership and everything else that happens in the firm flows from this beginning.
A well-considered partnership agreement is the very best possible risk avoidance program. A contract which links well thought out and designed partnership practices to compensation is the surest way in the world to get lawyers involved in the infrastructure of the firm.
Getting a lawyers' attention is the key. Not surprisingly, attorneys will focus on the everyday issues in their practice for which they are clearly compensated. For this reason, a system of rewards for which there is some form of compensation is really a necessity. There are, after all, any number of things that must be accomplished in order to have a successful practice. Many of these have nothing directly to do with making money. They do, however, allow for an environment in which money can be made.
Cohesiveness of the practice, supervision of attorneys, developing systems, etc. are all intrinsic to the quality of the firms' practice. They are in the long run as important or more important as a billable hours to the firms' future. To involve lawyers in these activities you must see to it that these activities have a legitimacy at the end of the year when you divide the profits.
If you want lawyers to pay attention to practice issues you must include them in your contract and provide an inducement for getting them handled. After all, increasing the level of professionalism and developing high practice standards is not merely risk management. It is an obligation that attorneys have to their clients and to themselves.