77% of Pennsylvania law firms indicate they are now using contract attorneys in the 1997 PaLaw Survey and the New York Times recently estimated contract attorney use is a $500 Million industry growing 30% annually. Yet despite this growth, there is still some confusion on how legal malpractice is provided for these services and the legal malpractice risks associated with using contract attorneys.
According to Donald Ivol, Jr., RPLU, Director at Colburn Insurance, “as recently as two or three years ago, insurance carriers were unsure of the risks involved with insuring independent contractors that were being utilized by larger law firms. As a result, some carriers often were reluctant to offer coverage terms providing insurance protection to both the firm and the independent contractor. Today, however, the risks are better understood and more easily insured. Most carriers have methods to address the independent contractor situation and offer coverage either in the basic policy form or by endorsement.”
The reason for the shift in now offering law firms insurance for contract attorneys is experience has shown that the risk of malpractice with contract attorneys is arguably less than the risks which can occur when busy law firms stretch their resources to handle projects. Legal malpractice often occurs when busy law firms staff projects with attorneys who are juggling too many projects and/or not adequately experienced with the particular area of law required. Contract attorney use involves less risks due to adequate experience, less time pressures, superior oversight, and they are used in less risky areas.
EXPERIENCE: Inexperienced attorneys cause a high percentage of legal malpractice claims filed in Pennsylvania. Drawing from large pools of available contract attorneys, agencies often have little problem locating contract attorneys with applicable experience in performing the type of assignment requested.
LESS TIME PRESSURES: Administrative error is the number one cause of malpractice claims, largely caused by overworked attorneys juggling too many projects. Contract attorneys do not deal with the same pressures of juggling assignments that overworked partners and associates encounter. They are typically focussed on a limited number of assignments.
OVERSIGHT: Under the ABA Formal Opinion 88-356 for temporary attorneys (the “ABA Formal Opinion”), law firms are required to supervise the work of the contract attorney which further reduces the risks for legal malpractice.
PROJECT RISK: Contract attorneys are seldom in the highest risk areas of a legal project such as issuing securities and leading large real estate transactions. When contract attorneys are used in these types of projects, they are usually subjected to substantial oversight by the law firm but can often bring partner level experience to tasks ordinarily performed by more junior attorneys.
Given these factors, it is not surprising that I have not been unable to identify any reported decisions of legal malpractice in which a contract attorney was named in the suit. The same result reached by an authoritative treatise on using contract attorneys. The Complete Guide to Contract Lawyering, by Deborah Aaron and Deborah Guyol at pg.135, Niche Press, 1995. In addition, as a result of these risk-limiting factors, law firms can now easily obtain legal malpractice coverage for contract attorneys. However, should law firms incur the cost of providing this insurance or are there other alternatives. The basic answer is in most cases, having the law firm insure the contract attorney is the only guaranteed insurance coverage available.
A myth in the contract attorney field is that contract attorney agencies can provide legal malpractice coverage. In fact, what we have seen is that agencies offer Errors and Omissions (“E & O”) insurance and not legal malpractice insurance. E & O policies will not necessarily cover a law firm if there is legal malpractice involving a contract attorney. They are generally limited to coverage if the agency was negligent in providing an inappropriate contract attorney at the time the placement is made. This will probably not provide coverage for a mistake made during the course of a project. Furthermore, the ABA Formal Opinion advises that agencies should not interfere with the independent judgement of the contract attorney on an assignment. As a practical matter, this makes it impossible for an agency to act as a law firm and oversee an attorney’s work. This inability to control the attorney would make it difficult for the agency to purchase traditional legal malpractice insurance covering the contract attorney.
Some contract attorneys who are also solo practitioners do carry their own legal malpractice insurance. However, many contract attorneys practice law primarily from contract attorney assignments where their fees are equivalent to salary wages. As a result, legal malpractice coverage equivalent to what a solo practitioner carries is too expensive for most contract attorneys. In addition, less expensive part-time legal malpractice insurance policies limit the hours an attorney works each week and will not effectively cover contract attorneys who accept full-time projects. Because the agency and contract attorney generally can not be looked to for legal malpractice coverage, it is essential for law firms to provide their own coverage to ensure they have coverage in place.
Finally, it makes sense for the law firm to provide coverage because the contract attorney is providing legal services in the name of the law firm. Contract attorneys are akin to subcontractors working under the supervision of the law firm and producing work product in the law firm’s name. Essentially, the law firm is accepting and adopting the work product as its own work product. In fact, under the ABA Formal Opinion, the law firm has discretion on how much to charge the client for these services. Short of passing the risk directly to the client by having the agency and contract attorney contract directly with the client, it appears difficult for the law firm to avoid being looked to for malpractice coverage if a malpractice claim occurs.
In conclusion, there are many reasons why contract attorney use can reduce legal malpractice risk when a law firm’s attorneys are over worked or they lack adequate available resources for a project. Nevertheless, despite factors indicating limited risks, a law firm should still provide legal malpractice insurance for contract attorneys they deploy for a number of reasons. First, clients will most likely look to the law firm for coverage if there is a malpractice claim. This is because the law firm is the organization, which has been directly engaged to provide legal services, and the contract attorney is the equivalent of a supervised subcontractor. Also, such insurance coverage is readily available. In addition, there are few alternatives to having the law firm provide coverage. The insurance industry has not yet provided an affordable insurance policy which all contract attorneys can afford. Lastly, agencies providing contract attorneys are not law firms and can not obtain umbrella legal malpractice coverage for their contract attorneys.
By: Karl A. Schieneman, Esq. Managing Director of Legal Network Ltd., a Pittsburgh based provider of contract attorneys and paralegals and frequent lecturer and author on issues relating to contract attorney use.