Professional Risk Management: A New Day

Tuesday, June 1, 2004 - 00:00

Editor: Can you tell us something about your extensive career as an author and speaker in the area of insurance law and risk management?

Evans:
In the professional risk management area I have authored two books, A Practical Guide To Legal Malpractice Prevention and Purchasing Legal Malpractice Insurance. Over the years, I have spoken in approximately 40 states to well over a half million lawyers and other professionals on risk management issues. Each year I conduct between 12 and 15 seminars, including the presentation of papers, just on risk management. This year I will speak to the Connecticut and Georgia Bar Associations, among others. I am the former Chair of the Torts & Insurance Practice Committee of the Georgia Bar Association.

Editor: You seem to be one of the few people able to combine a very active practice with a career in writing.

Evans:
I have found they work very well together. Lecturing and updating my books on an ongoing basis forces me to stay apprised of developments in the industry. That, I suppose, is something of the academic side of my professional life. At the same time, however, by defending professionals in jury trials, I have the opportunity to actually tell them what is going to happen and how it is going to happen. There is nothing like a judge and a jury to inject a little bit of reality into the discussion of the standard of care imposed on professionals.

Editor: How did you come to McKenna Long?

Evans:
I came here last year. My practice is national in scope - currently we have cases pending in 32 states - and I needed to be part of a firm with offices across the country. In addition, McKenna Long has a very strong litigation practice. That, combined with the firm's extensive reach in the governmental and political arena, made it a fine platform for me. Prior to joining McKenna, I was with Arnall Golden & Gregory here in Atlanta, an excellent firm but with no offices outside of Georgia.

Editor: Much of your practice has to do with defending professionals. Who are they?

Evans:
At the moment my practice extends to all professionals except medical professionals. That includes attorneys, accountants, financial planners, securities brokers and just about anyone who fits within the definition of a provider of professional services. Within that particular group, the clients tend to be large law firms, accounting firms and financial planning enterprises.

Editor: Your experience in the field of insurance law is considerable. Would you tell us some of the key issues at present in that area?

Evans:
Most of these large firms have professional liability insurance, as to which there are a number of issues. One has to do with the particularity of the professional field. By that I mean the standards for legal malpractice in the case of lawyers, or the standards for accounting malpractice for accountants. Another issue concerns the overlay of various coverages. When we represent these firms we focus on what coverage exists, whether compliance with the conditions of coverage has been met, whether the claims fall within policy limitations, and so on.

Editor: Are the coverage issues changing? Have you seen changes as a result of the recent corporate scandals?

Evans:
The financial aspects of coverage have changed far more dramatically than the actual coverage terms. Deductibles and retentions are dramatically higher. Participation by the insured is now a given. With respect to what is covered, however, there is not much that has changed. I hasten to add, however, that the underwriting aspects of coverage have changed in the sense that applications for insurance are far more extensive. They must be read with great care, and any ambiguity clarified prior to submission. In addition, the severability issue - the degree to which each partner is charged with knowledge of what his partners are doing, irrespective of actual knowledge - has become a major point for insurers of the accounting industry, particularly those who insure the larger accounting firms.

Editor: Are you also involved in defending boards of directors?

Evans:
We are engaged in a substantial amount of directors and officers liability work. At present this is a seller's market, which means that the insurers are in a position to dictate much tougher terms than they were in the past. In addition to the increase in cost, coverage has narrowed. Allocation of liability, as between the entity and the individual directors and officers, is being addressed directly, and insurers are demanding that specific allocations be agreed to in advance. We also see special terms that deal with claims deriving from the insured's public offerings. Insurers are much more aggressive today in denying coverage where a fraudulent securities filing is involved. For instance, if a shareholder brings an action against the company for misstatements contained in a proxy or public offering statement, and the shareholder is successful, the insurance carrier is very likely to take a hard look at the company's insurance application. If they are in a position to do so, the insurers are saying that a fraudulent securities filing is evidence of an untrue statement having been made in the application for insurance. That, of course, is grounds for denying coverage. Georgia is what is known as a "material misrepresentation" jurisdiction. If an insurance carrier can show that the plaintiff/shareholder's claim with respect to a fraudulent securities filing was valid, it has gone a long way to show a material misrepresentation in the insurance application. There are ways in which the company can protect itself, however. If the application includes a statement to the effect that it provides the information to the insurer "to the extent of its knowledge" or "to the best of its information and belief," and the insurance is thereafter issued without that statement having been challenged by the insurer, the company has an argument with which to meet the material misrepresentation charge.

Editor: We hear that it is increasingly difficult to recruit independent directors at a time when Congress, the SEC and the securities exchanges are anxious that corporate America be governed by such persons.

Evans:
Sarbanes-Oxley - and specifically the attentiveness and oversight responsibilities it imposes on the governing board - has certainly had a chilling effect on the willingness of many independent directors to serve. Unfortunately, directors and officers liability insurance is not the easy way out. It has become much more expensive of late, and the protection it affords less comprehensive than it was in the past. An unfortunate side effect of the corporate scandals is that when companies are most in need of independent directors, the people who are qualified to meet that need are least willing to serve.

Editor: You have lectured on ways to minimize malpractice claims through technology. Can you give us an overview of this?

Evans:
For starters, it is important to know the areas of greatest risk. In the case of legal malpractice, for example, we know that most claims are brought against firms with one to five attorneys. We know, in addition, that most of these claims are brought against attorneys who practice in the plaintiffs' personal injury area or the residential real estate area. These are high volume practice areas, and because of that they lend themselves to protection by way of technology that other areas do not. One of the easiest ways in which to do this involves the footer that appears on the bottom of an attorney's email. A statement to the effect that the communication is not meant to evidence an attorney-client relationship, that such a relationship entails the execution and delivery of an engagement letter or formal fee contract, goes a long way to defeat the claim that such a relationship did exist at the time the attorney allegedly provided erroneous or negligent advice.

Another area of risk concerns the legal opinion which is forwarded to an unintended recipient. The firm provides an opinion on, say, legal title to a client, who then forwards it to a third party. The third party later claims to have relied upon that opinion to its detriment. By including a statement in the opinion - or language in an email footer - that indicates that the contents of the communication are meant for the recipient only, that no one other than the recipient may rely on it and that any such person does so at his peril is an excellent way to meet this risk.

Another way in which an email footer is useful has to do with the disclosure of privileged information. The fact that an attorney says information is privileged does not make it so. What makes it privileged is that it constitutes advice as between an attorney and his client. If privileged advice is disclosed to a third party, and it is clear that that disclosure was inadvertent, then the disclosure does not operate as a waiver of the privilege. In this instance, the footer would include a statement that the communication constitutes an inadvertent disclosure as to anyone other than the intended recipient. The footer ought to go on to require the unintended recipient to delete the message and to notify the sender. It is by such steps as these that, with very little effort, an attorney can manage to reduce his exposure to risk.

Editor: Does the attorney-client privilege have to be acknowledged by both parties?

Evans:
Yes, but please note that compensation is not required to be present. What is necessary is a request for advice on the part of the client, and agreement to provide that advice by the lawyer. That is, a formal acknowledgement - a letter of engagement or a fee agreement - of the relationship is the best evidence that it exists. For this reason, we suggest that attorneys include in their voicemail greeting a statement that makes clear that leaving a voice mail message does create an attorney-client relationship. Indeed, it might be wise to have the greeting recite the fact that a voice mail message that purports to hire the attorney - "unless I hear from you by noon, I'll consider you as my lawyer" - does not mean that the attorney has been hired.

There are any number of ways in which technology can be used to protect professionals, and I have given but a few examples. Until recently the focus of the attorney-relationship was on solving the problem at hand. As that relationship has become less personal, however - and technology has certainly played a role in that development - the risk of a client bringing a malpractice suit against his attorney has increased. Today, it is technology that enhances our ability to protect ourselves. With a little forethought, we can use voice mail greetings, email footers, electronic docket control systems, and the like in ways which were not contemplated when they were first developed, and all together they represent a dramatic improvement in the way we are able to deal with the risk of professional liability.

Please email Mr. Evans at revans@mckennalong.com with questions about this interview.