Have you made any new year’s resolutions for 2016? Have you broken those resolutions yet? With 2016 still in its early days, you have time to take stock of your law practice and think about how you can serve clients better, reduce your risk of mistakes, and sleep better at night.

First, a review of 2015 malpractice claims that came into Wisconsin Lawyers Mutual Insurance Co. (WILMIC) might help you determine ways in which to improve your practice in 2016. As I typically do at the start of each year, I consulted with Brian Anderson, claims attorney for WILMIC, to find out which areas of law generated the most claims the previous year and what kinds of mistakes were made.

Because Anderson once played football at U.W.-Madison and roomed with future head coach Paul Chryst before going on to obtain his law degree, I assumed he’d be in a very gracious mood after the Holiday Bowl win for Chryst and the Badgers and that he’d be happy to give me his time to examine claims activity for the year. He was!

According to Anderson,the four practice areas that produced the most claims in 2015 were the following: bankruptcy and collections work and work governed by the Fair Debt Collection Practices Act (FDCPA); estate planning; real estate cases; and plaintiffs’ personal injury work. Each area is discussed separately below.

Bankruptcy, Collections, and the FDCPA

Bankruptcy and collections work, along with FDCPA claims, are combined because there is so much overlap. Anderson says, “These two law areas combined to produce 30 percent of the claims reported to WILMIC in 2015.”

The most common mistakes made in bankruptcy cases, according to Anderson, are the following:“First, failing to timely file a bankruptcy case resulting in the client no longer qualifying for a discharge. Second, filing the wrong type of bankruptcy action for the client’s circumstances, resulting in adverse tax consequences or discharge ramifications. Third, failing to verify the accuracy and overall completeness of clients’ assets and liabilities disclosed on their bankruptcy schedules, resulting in the dismissal of the bankruptcy filing and claims asserted against the client for both defrauding creditors and the bankruptcy trustee.”

Anderson says lawyers can learn from these mistakes.

“It is important to carefully review your client’s financial situation and make sure that the schedules produced are accurate and complete, prior to moving forward with a bankruptcy filing. This can be a burden on counsel when a client is facing financial pressure and is demanding that you file the bankruptcy case immediately. Consider whether you can diligently handle the bankruptcy matter if the client’s needs are not realistic or consistent with your duties in assuring that the financial information filed is correct.”

Anderson mentioned several types of mistakes made in collections matters, many of them technical violations of the FDCPA while lawyers pursued a collection. Those include:

• Failing to provide a debtor’s spouse with the debt-collection notice;

• Failing to verify the amount of the debt being collected;

• Failing to verify the debtor’s address or where the underlying debt was incurred, before commencing a collection lawsuit;

• Adding to the principal of the amount being collected interest charges, attorney fees, or service fees that the debtor did not expressly agree to pay; and

• Pursuing a collection action or garnishment against a debtor after a bankruptcy was filed, in violation of an automatic stay.

According to Anderson, “FDCPA claims made against attorneys handling collection matters continue to be both frequently asserted and costly to defend.” He says that these types of actions often include claims for statutory damages and actual attorney fees, which may not be considered covered damages under a lawyer’s professional liability policy.

Although a lawyer can reasonably rely on the collection information a client creditor provides with regard to the underlying debt, Anderson says, “the lawyer is often the target of claims when errors are later found in the collection data used as the basis of a lawsuit. Special care and precision is paramount when handling collection matters to avoid claims alleging an FDCPA violation. If there are doubts or questions regarding the accuracy or completeness of the underlying debt, it is wise to withhold pursuing the collection matter until the debt obligation can be verified.”

Some 2015 collections-representation claims were caused by failing to have a clear scope of retention or an apparent conflict.According to Anderson, those claims arose because of two main issues: “one, misunderstandings regarding whether the lawyer was retained to assist with the bankruptcy only, or to handle ‘all’ debt-related issues to include the defense of a pending foreclosure action, and two, conflict of interest claims when a former client, now debtor, is aggrieved by the fact that the attorney now represents a creditor in a collection or foreclosure matter.”

There are a few things lawyers should know about scope of retention and conflict issues when they take on a collections representation. Anderson says that “a carefully drafted scope of retention letter is an important safeguard when agreeing to represent a debtor facing multiple financial issues. There may already be legal actions facing the client that you were not aware of and did not contemplate when agreeing to represent the client. In addition, before agreeing to move forward with representing a collection agency, bank, or business client on a collection matter, it is important to run a conflict check.” Often, running a conflict check identifies a previous client on the debtor side of the matter. If the conflict is not discovered early on, it could create problems for all the parties if a conflict-of-interest allegation is later asserted.

Estate Planning

Claims made against lawyers practicing in the area of estate, probate, and trust law represented more than 17 percent of the claims reported to WILMIC in 2015.

Estate planning continues to represent a significant malpractice risk for lawyers. Anderson says the traditional-family model has changed and clients are often looking for creative ways to protect assets and make distributions from their estates. Estate planning lawyers are subject to claims made by nonclients (disenfranchised beneficiaries), because privity is not a valid defense in these matters if a lawyer negligently drafts a will or trust.

According to Anderson, common mistakes lawyers make include the failure to accomplish the testator’s intent or stated goals in the performance of the estate work. This can happen in the following ways, among others:

• Preparing invalid trust documents, which do not protect the client’s assets from Medicare or Medicaid;

• Failing to timely prepare or finalize estate planning documents before a change in the client’s health or financial circumstances;

• Allowing a client to execute documents that disinherit intended beneficiaries or change the intended distributions, while the testator was acting under an undue influence or did not fully understand the change’s effect on his or her estate plan; and

• Handling the transfer of property or real estate without fully understanding the client’s entire estate plan or explaining the tax impact of the transaction to the client.

Anderson confirms that for estate planning lawyers, one of the potential problems is failing to understand the client’s real goals even if the preparation of the documents was proper.

For example, he says, the lawyer may not have understood that the client’s real goal was to engage in an asset protection strategy. This is why a candid discussion about what the client intends to accomplish is invaluable, not only to educate the client but also to help the lawyer document the scope of the retention.

“In addition, time is sometimes of the essence in these types of matters. Clients often wait until their health is failing to develop an estate plan or make important changes to their plan. A lawyer should never let the client’s sense of urgency override any concerns regarding the client’s competency and overall understanding of the impact of the legal transaction prior to the execution. Finally, always remember who the client is. Never let an aggressive would-be beneficiary call the shots.”

Real Estate

Claims made against lawyers practicing in the area of real estate represented more than 12 percent of the claims reported to WILMIC in 2015.

Real estate transactions often overlap with estate planning claims, Anderson says. The client or the lawyer might not have appreciated or understood a real estate transaction’s potential effect on a client’s estate plan when the work was performed.

Anderson says, “Real estate lawyers should make certain that they understand the client’s goals and estate plan before moving forward. Carefully defining the scope of retention can help avoid claims.”

Anderson gives four examples:

• Preparing a real estate conveyance without knowing or properly advising the clients of the impact the transaction could have on their beneficiaries, intended estate plan, and Medicare or Medicaid eligibility;

• Failing to understand the intended use of property being purchased or sold and properly advising the client before completing the transaction;

• Failing to conduct or recommend a title search or to discover restrictions, liens, or easement issues negatively affecting the value of the property being purchased; and

• Failing to understand or advise the client with regard to the tax exposure associated with the real estate transaction being entered into.

Anderson agrees that real estate transactions are sometimes not as straightforward as they may appear. He says it is important to fully understand the client’s circumstances and how the real estate transaction at issue fits into his or her entire estate plan before agreeing to simply “draft up the deal.” When issues later arise that affect the client’s estate distribution or prohibit the intended use of the property purchased, or when unforeseen tax obligations present themselves, the real estate attorney who “created the problem” is often blamed.

Plaintiffs’ Personal Injury Matters

Plaintiffs’ personal injury work has historically been the most frequent source of claims. These claims can be costly to resolve, and although the number of claims in this area represented only 9 percent of the claims reported to WILMIC in 2015, the associated indemnity exposure constituted a disproportionate share of the indemnity exposure for the total claims reported.

Anderson says the most common mistakes made in plaintiffs’ personal injury workare time related: failure to file a notice of claim, commence a lawsuit, or resolve an injury claim in advance of the statute of limitation. He says that missed deadlines have a variety of causes.

A carefully drafted scope of retention letter is an important safeguard when agreeing to represent a debtor facing multiple financial issues.

“There may have been a clerical error causing the wrong date to be entered into the calendaring system. Or, the lawyer didn’t recognize or understand that the retention even occurred. Sometimes, a lawyer may have trouble securing experts in a timely manner to support the claim. And finally, we sometimes see a failure on the part of a lawyer to account for the fact that the underlying accident took place in a different jurisdiction or involved a municipality, a state, or the federal government. That creates a shorter statute of limitations period than anticipated.”

Lawyers also make other types of mistakes in this area of practice. Anderson says, “We sometimes see a failure to obtain all the potentially relevant policies of insurance or comply with UM or UIM policy provisions, jeopardizing a client’s right to recover.” He says that WILMIC also sees lawyers failing to investigate and properly develop the injury claim to help ensure that the client realizes the maximum recovery.

Conclusion

Anderson says the beginning of a new year is a good time for lawyers to consider their practice and develop risk-management strategies to help avoid claims. “Developing a clear understanding of a client’s needs and making an informed decision with the client on whether or not the lawyer should represent that person is often the first step to avoiding a malpractice claim.”