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Communication is top risky business: insurers

Communication is top risky business: insurers

COMMUNICATIONS RELATED errors are a main cause of negligence claims brought against lawyers by clients, according to statistics from New South Wales and Victorian insurers. The statistics show…

COMMUNICATIONS RELATED errors are a main cause of negligence claims brought against lawyers by clients, according to statistics from New South Wales and Victorian insurers.

The statistics show that negligence claims stemming from a lack of understanding between client and lawyer, or misunderstandings within the legal team, far outnumber claims brought for failure to understand and apply the law.

Claire Edwards, chief claims solicitor at NSW professional indemnity insurer LawCover, said communication problems and errors involving drafting and checking documents had been identified as the two main causes of loss in NSW.

“Although claims arise in various areas of law, such as personal injury or conveyancing, the common cause of loss arises due to communication issues,” Edwards said.

In NSW, incomplete explanations and advice, as well as failures to advise a client, obtain instructions, follow instructions and define the extent of the retainer accounted for approximately 45 per cent of claims between 2001 and 2006, according to LawCover statistics.

Figures from Victoria’s Legal Practitioners Liability Committee (LPLC), which classifies causes of loss under different categories, showed that failure to manage the engagement, which includes ensuring the client understands the scope of the retainer, and the likely cost and time frame, accounted for 23 per cent of claims, while failure to listen, ask and explain accounted for 19 per cent of claims.

Sharon Taylor, chief risk manager at LPLC, said the reason communication failings are such a common theme in negligence complaints is because communicating is such an integral aspect of work as a lawyer.

“I don’t think everyone is born a good listener and to be a good lawyer you have to be able to take good instructions — that’s an essential skill. Lawyers need to ask the right questions, actively listen to the answers and explain complex things clearly. It’s a critical part of what we do as lawyers but not everyone does it well all of the time. Training has a role here,” she said.

Taylor said there are certain things lawyers can do to minimise the risk communication problems that may lead to a negligence action.

“Lawyers need to be forensic in their approach to instruction taking. It’s also important to test the client’s understanding of the advice given. One danger for a young lawyer, in particular, is doing a small part of a very large transaction without context. Following general instructions on a specific piece of work can have disastrous consequences. You may well need to ask some questions about the bigger picture to complete the task at hand,” she said.

The NSW and Victorian statistics mirror the situation overseas. In Canada, communication related errors have been identified in 2006 as the biggest cause of malpractice claims in both large and small firms, accounting for roughly one-third of claims handled by insurer LawPRO.

In Queensland, professional indemnity insurer Lexon Insurance is currently undertaking its own detailed study of the causes giving rise to claims against solicitors. While statistical data has not yet been finalised, David Durham, Lexon's Legal Risk Counsel, agreed that claims in Queensland commonly arose due to communication failures.

While communication claims are some of the easiest to prevent, they can be difficult to defend where lawyers fail to keep adequate file notes. Edwards said lawyers need to remember that the statute of limitations for claims against a lawyer is six years so claims can arise some time after the mistake or error is made.

“You should always document advice you give in writing. It can be a real problem when a solicitor doesn’t have documentary evidence to back up what advice was given so we have to rely on a solicitor’s recollection, and/or their usual practice, and if you are a solicitor dealing with lots of matters then you may not be able to remember something from years ago,” she said.

Ronwyn North, managing director of Streeton Consulting, which specialises in legal risk management, has found that attitudes to risk management are also an excellent indicator as to who will have a claim brought against them.

“Some lawyers try to ensure bad things don’t happen. Other just say ‘That’s what insurance is for’ and don’t take it very seriously. Attitude to risk management is a good indicator of who will have a claim. Lawyers who have had multiple claims often say it was all just bad luck and unpreventable, whereas people who have had just one claim are often mortified and have taken steps to change things and are therefore a lower risk,” North said.

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Communication is top risky business: insurers
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