It could happen to you

After attendance at Risk Management Roadshows and diligent study of The Journal, the partners of Ford & Ferrari considered themselves a model of modern risk management practice. While not complacent by any means, they congratulated themselves on the measures put in place to ensure compliance with CML conditions, preparation of timely and accurate file entries and careful avoidance of any potential conflicts of interest.

Nothing can go wrong now, they thought. The following cases, based on true examples from the files of the Master Policy insurers, might make them think again.

A. Mr Jones, commercial property partner in the firm of A & A, departed with a clear conscience and a clear desk for his two weeks’ annual holidays in the USA. He had checked and double-checked that he had cleared any work with deadlines up until the time of his anticipated return.

He had not, however, factored in the possibility of an enforced delayed return from his holidays.

Two days before his return date a volcanic ash cloud descended over North Atlantic airspace, and his return was delayed by four days as he frantically rearranged his trip via Mexico City, Madrid, hire car to Santander, ferry to England and a long journey north to Scotland.

During his four days’ unexpected absence the date for exercising an option in missives for a property developer client was missed, along with the last day for serving documentation exercising a break clause in a lease for his tenant clients.

To make matters worse a liquor licence application in which he had intended to instruct his usual licensing agents was also too late to be accepted.

Had Mr Jones’ diary contained details of his post-holiday commitments, and been accessible (and checked) by others in the firm, a number of claims might have been avoided.

B. When Mrs Tickle had presented at the firm of B & Sons some months after being injured in a road accident, no one in the firm expected limitation to be an issue. Mrs Tickle had been a passenger, and while liability for the accident was unclear, she was certainly blameless.

The matter was, however, complicated first by the need to quantify the wages lost from Mrs Tickle’s occupations as a self-employed clown and part-time dog walker, and thereafter by some disputes over the medical evidence presented. Between these issues, well over two years passed from the date of instruction without the case being resolved.

With the third anniversary of the accident looming, the handling solicitor took special care over the letter of instruction to counsel. The accident date was written in bold type in the heading of the letter, which asked counsel to draft an appropriate summons ready for service prior to expiry of the triennium.

Unfortunately, the papers never reached counsel, who was out of Edinburgh involved in a lengthy public inquiry in the Western Isles. The letter of instruction – marked “private and confidential” – had been placed unopened in his box to await his return.

Only when the anniversary rolled around did anyone in the firm query the position. Urgent enquiries were made of counsel’s clerk, who was able to confirm his prolonged absence from business. No summons had been drafted, and nothing was available for service to protect the position.

Protracted discussions followed regarding the blame for the situation, with the firm determined that counsel and/or Faculty Services Ltd were responsible. It was small comfort to know how easily the situation could have been avoided by checking with counsel’s clerk in advance of submitting the instructions.

C. The importance of running a tight diary was deeply ingrained in the staff of C & Co, LLP, so when a complex property transaction was structured with the need for action in the future to purify the missives, that date was immediately entered into the diary of Miss Brown, the associate in charge. In line with the firm’s “double diary” procedures, it was entered also into a central diary, to ensure it could not be missed.

As he left the office on the day before “M-Day”, as the firm had named it, the senior partner popped in to check Miss Brown was primed for action. Indeed she was. And in the morning, the senior partner’s secretary, checking that items in the central diary were being actioned, popped in again to ensure that Miss Brown had arrived and was ready to send the vital letter.

Unfortunately nobody in the busy office noticed Miss Brown’s red-rimmed eyes and downcast expression. The decision last night to have her beloved dog put down had devastated her, and she had hardly been able to drag herself in to work that morning. Sitting in her room, distraught, she leafed tearfully through photos of herself and Bonzo over the years. She couldn’t quite bring herself to do any work today…

And so it was that a date, properly identified, properly diaried, and where a whole firm knew and understood its importance, slipped quietly by.

Where some time-critical actions are concerned, it’s not enough to check that someone knows that something needs done. Someone, somewhere, needs to check, and check again, that the appropriate action is being taken.

D. The partners of D & Co had always considered it a strength of the firm that the staff was so close-knit. The firm’s nights out were legendary, the summer outing was not to be missed, and the Christmas party was arranged by March each year. All birthdays were celebrated, and staff considered each other as close friends.

The partners had laughingly questioned the need for “key man” insurance when three of the girls went on holiday together, but all returned safely, and office life continued happily.

Happily indeed one Monday morning, when it was announced that the firm’s lottery syndicate held one of three winning tickets from Saturday’s rollover jackpot. The 10 members – including the cashier, three paralegals, two secretaries and an assistant solicitor – were to share a payout of over £5 million.

The partners were at first delighted at their staff’s good fortune, and toasted the future with the celebratory champagne organised by the syndicate.

That future looked much less rosy by the end of the week. Of the 10 winners, six had handed in their notice, with another three indicating theirs was likely to follow unless part-time hours were offered. Only Mrs Bloggs the cashier swore she would continue to her scheduled retirement date – small comfort, this being only three months away.

The firm never really recovered from losing so many staff, and within a few months the partners were in merger talks. Those discussions were significantly complicated by the number of complaints intimated by clients in the weeks following the win.

E. E & Co held an exemplary record for will drafting and executry administration, and the installation of a new computer database some five years previously had made the recording/storing and retrieval of wills so much easier. In addition, wills were stored in the clean, dry basement storage room in alphabetical order.

So when the firm was contacted on behalf of the widow of John Smith, a previous client, enquiring if they held a will for him, they gave absolute assurance. Having checked both storage and the database, they were certain no will was held.

Following a flood from upstairs in the cold winter of 2010 (the proprietor had jetted off to the sun and suffered a burst pipe in his absence), staff went through the salvageable records. It was only then that Mr Smith’s will was found. It had been mis-filed and wrongly recorded on the database.

The senior partner quickly contacted those acting for Mrs Smith to convey the good news. Unfortunately, steps had been taken to confirm the estate in terms of an earlier will, which had been located. In effectively “unwinding” those steps, losses inevitably flowed.

Those losses formed the basis of a claim against the firm. After investigation, it was accepted that a duty of care was created to any individual for whom a will is held, and that that duty transmits to the executors on the individual’s death.

F. Mr Lawless, managing partner in F and Partners, was known to be dedicated to his clients. One morning he was heavily involved in a lease transaction. He had been instructed by his client to ensure that notice to exercise the option to break the lease was made by close of business.

A ringing phone diverted his attention. Mr Watson was calling in a panic. Close friends since schooldays, he and Mr Lawless socialised frequently. Mr Watson was also a longstanding client.

Regretfully, Mr Watson was in a difficult and embarrassing situation. He had been arrested for drink driving and asked Mr Lawless to attend urgently to represent him. Mr Lawless immediately dropped what he was doing and left the office in a hurry to assist his client and “friend in need”.

Unfortunately, the remaining staff in the office did not appreciate the urgency of the lease case that Mr Lawless had left behind. They were all absorbed in their own deadlines that day. As Mr Lawless left hastily, and intended to return to the office later that day, he failed to inform anyone of the deadline. Mr Watson’s situation took much longer than expected and as a result, Mr Lawless did not return to the office until the next day. By then, the deadline for enforcing the break option had expired.

Had Mr Lawless taken the time to ensure that someone else picked up the vital break notice, a substantial claim could have been avoided. As it was, the firm and its insurers carried the entire cost of the client remaining in the unwanted property for a further year.

What, then, is the advice of the Master Policy insurers for the partners of Ford and Ferrari? Simply that failing to prepare is preparing to fail. Effective contingency planning is about identifying those “what would we do?” situations, sorting out alternative solutions and putting safety nets in place to avoid anything or anyone slipping through the gaps identified. It is good risk management practice. And, ultimately, it saves money.

• Linda Moir, Jacqueline Donald, Paul Crawley and Chris Dunn, Professional & Financial Risks Claims, RSA Group