Targeting high risk areas

If risk management efforts are to be effective, it is essential that they are properly targeted.  If risk management activities are to be properly targeted, we need to be able to identify the areas of client work which give rise to intimation of Master Policy claims and “circumstances”.  It is also crucial to be able to identify the underlying causes of those claims and “circumstances”.  This page has regularly featured these themes.

All Master Policy intimations are categorised according to dominant work type, underlying cause and contributory factors.  The results of analyses of this claims classification information help to ensure that the subject matter of Risk Management seminars and Journal articles are properly targeted.

If risk management strategies and activities are concentrated on areas where there is a high incidence of claims, this could have a significant beneficial impact on the Master Policy claims experience as well as achieving for the profession improvements in client care, client satisfaction, efficiency and profitability.

High value claims

High value claims, although relatively few in number overall, have a major impact on the total cost of Master Policy claims.  If risk management could be targeted at claims of the very highest value, then the impact on the total claims experience of the profession would be significant in monetary terms.

With this in mind, the claims classification information can be analysed according to value profile but analyses have indicated that there is little to distinguish very large claims from the entire range of Master Policy claims in terms of underlying causes and contributory factors.

A recent analysis of very high value claims conducted by the Master Policy insurers on a no- names basis bears out this conclusion.  The insurers have indicated that the principal causes according to a broad brush classification are:

• Human error (49%)
  
• Client pressure (20%)
  
• Lack of knowledge of the law (6%)
  
• Conflict (3%)
  
• Other causes (various) (22%)

These categories are not necessarily “scientific” and the classifications are of course based on subjective opinion.  A different view might be taken by someone else considering the same set of facts, however the analysis is at least indicative of broad patterns.  It is certainly significant that only a small percentage of cases have been attributed to “Lack of knowledge of the law”.  That is certainly consistent with the view that fewer than one in ten intimations involves lack of technical knowledge of the law.

Client pressure

Interestingly, “Client pressure” emerges as the second most dominant underlying cause in the insurers’ analysis.  In this connection, the following scenarios have featured in the recent Master Policy claims experience:

• Pressure to settle on a particular date.  All the parties missed an issue which proved to be material
  
• Failure to identify risks associated with a client who had pressurised the fee earner into taking a particular course of action
  
• Time pressures resulting in a basic drafting error after multiple drafts

To an extent it may be possible to manage clients so as to minimise the time and other pressures to which fee earners may be subjected.  However, these pressures have to be acknowledged as a feature of current professional life and we all need to concentrate on managing the risks associated with these pressures.  Checklists and file checking procedures can be beneficial in this respect.

Human error

It is significant that the insurers have categorised a high percentage of intimations as “Human error”.  This category is intended to refer to non-technical errors and omissions, including oversights, breakdowns in communication, failure in examination of deeds and documents, delay.

The insurers have also identified the following contributory factors:

• Lack of supervision
  
• Dabbling
  
• Absence of file notes
  
• Failure to record what was agreed and what risks are
  
• Ineffective systems and procedures
  
• Ineffective communication

The insurers comment that these have been consistent factors of the Master Policy claims experience from the commencement of the Master Policy scheme.

Systems and procedures

The insurers have made the following general observations on the files which they see in the course of handling Master Policy claims:

• no evidence of any increasing use of checklists
  
• no evidence of file checking procedures being employed
  
• evidence of files being “signed off” by the “responsible partner” prior to the file being closed
  
• rarely evidence of the issuing of client engagement letters

It is not being suggested that the absence of checklists or checking procedures was responsible for the claim, however it is worth considering whether a suitable checklist or checking procedure might have prevented a “human error” resulting in a claim.

Security work

In terms of subject matter, security work continues to account for a very large proportion of all claims and “circumstances”.  The underlying causes and contributory factors extend across the entire range potential causes.  Failure to examine the title properly, drafting errors, administrative errors, delay etc.

Council house purchases

There is one particular area of work which the insurers have highlighted which will be addressed in a future issue.  This is where practitioners act in council house purchases where the funding is provided in whole or in part by family members.  Several claims have arisen out of this category of transaction.  There are variations on a theme depending on the circumstances of the parties to the transaction, the objectives of the parties and the sequence of events following the purchase.

Most of the claims which have arisen however feature a combination of risks and risk management issues.  The difficulties arising include potential conflict of interest, failure to advise on all the risks involved for the parties to the transaction, lack of clarity with regard to instructions and drafting errors.

These risks will be discussed and risk management measures suggested in a forthcoming issue.

The information/advice in this page is information/advice on risk management.  It should not be relied on as stating the correct legal position.  It is necessarily of a generalised nature and should not be regarded as specific to any practice, individual or situation.

Alistair J Sim is Associate Director at Sedgwick Professions