Check yourself

Marsh has developed a self-assessment questionnaire intended to prompt consideration of a number of risk mitigation measures.

Initially developed for use by newly established practices, its objective is to assist in the prioritising of effort, time and resources, in establishing effective risk management from early on. It is perhaps no less valuable for well-established practices as a self-assessment tool.

The questionnaire focuses on practical risk controls informed by experience of claims under the Master Policy.

Does the practice follow a vetting checklist before taking on new clients?

The current economic climate has brought with it heightened risks for solicitors. If clients lose out financially, for example, as a result of investments falling in value, deals falling through or being concluded on terms that turn out to be unfavourable, they are likely to look for someone to blame.

Another, more sinister risk which appears to be increasingly prevalent is that of fraud (see "Constant foe", Journal, June 2009, 44, highlighting recent frauds and scams).

Economic pressures may make it harder to resist taking on new clients or new transactions for existing clients, which might have been turned down for various reasons in other times.

While risk awareness, intuition and experience play an important part in the decision whether or not to take on a piece of work, having a set of criteria for vetting new clients and new business helps ensure that a consistent approach is adopted. As a successful claim is likely to cost the firm far more than any one fee, selecting the right clients and transactions from the start is an important risk management strategy.

Does every new matter have a separate file? Is it comprehensive, up to date, and in chronological order?

At this year's Risk Management Roadshow, as in previous years, panel solicitors emphasised the importance of maintaining comprehensive files as a means of preventing and defending claims.

How would your own files fare in a file review or audit? Perhaps the acid test is how effective they would be in assisting the defence of any potential claim or complaint? Do they contain a legible note of all meetings and telephone conversations, for example? Do file notes prompt and record any action points/instructions?

Whether the practice's files are in electronic or paper form, it is important to have a clear and uniformly followed system of filing (including opening, numbering, and closing) across the practice.

Does the practice have a standardised diary, log or other system for the recording of key dates?

Most, if not all, practices operate some form of diarying system. Yet claims arising from missed time limits are still a prominent feature of the Master Policy claims experience.

In last month's risk management article in the Journal, RSA, lead insurers of the Master Policy, flagged some of the potential pitfalls which can arise from an inadequate diary system, or one which is not properly implemented by some/all users.

As RSA's article suggests, it is often not the absence of a diary system that is the problem, but ensuring that the diary system you have can be relied on. Consider implementing some of the "troubleshooting tips" in the panel on the left.

For more information on managing critical dates, Marsh's e-learning module, "Managing Critical Dates" can be accessed at www.marsh.co.uk/ lawsociety (contact Calum MacLean, details above right, to obtain your user ID and password).

Is there a requirement for fee-earners and partners to review their files on a regular basis? Does the firm have a file audit procedure? If yes, how are these implemented?

Anecdotal evidence suggests that file review and file audit present practical, logistical and resourcing challenges as well as raising difficult issues of perception and sensitivities. However, if these challenges are addressed, targeted file reviews can help pick up errors, prevent claims, and prompt continuous improvement.

Auditing has the additional benefit of providing management with information on a range of risk issues. It is one way that a firm is able to satisfy itself, and demonstrate to insurers or to the Society that its partners and staff are actually complying with its risk management policies and procedures.

File review and file audit processes will vary from firm to firm – in part, depending on the nature of the client work undertaken by the firm, and on the audit's intended function. Where regular file progress meetings are scheduled which ensure that files are being properly progressed, or where a practice management system is used which has inbuilt checks to ensure that key tasks are undertaken (e.g. client vetting and conflict checks), file audits may only be required to perform a more limited function and/or be required less frequently.

The outcome of the file review process may be to highlight inconsistencies between fee earners, risk issues in particular areas of practice, departments, or offices, and a need for training or for refinement of existing controls, all with a view to improving compliance.

Claims and complaints are a drain on any firm's resources. They cost time and money and can have significant reputational implications. Effective systems and procedures can create a framework for working which helps mitigate avoidable risks. Log on to www.marsh.co.uk/lawsociety/ downloads – and see how your practice measures up.

Case study

An existing client mentions that a friend of his, Eric Fals, who is going to be working overseas for a year, requires a power of attorney. You suggest that Mr Fals get in touch. A couple of days later you receive an email from him, seeking to instruct you in relation to drafting the power of attorney. As he departs that week, Mr Fals asks if you can email the document to him straight away with instructions on what he has to do to make the appointment effective.

Would you consider acting for Mr Fals? If you are inclined to help Mr Fals, what are the risk management issues that require to be addressed?

The critical vetting issues include:

• Identification - how do you carry out the necessary anti-money laundering checks if all contact with Mr Fals is by email/phone?
• Timescale - is it feasible to meet Mr Fals's requirements within his timescale, considering the practicalities of verifying his identity; arranging a meeting to take his instructions; issuing terms of engagement; giving appropriate advice (but can you restrict the scope of work in terms of engagement so that an "execution only" service is being provided?); recording that advice in writing; and/or having the document signed?

Diary troubleshooting tips

• Consider using a double diary system (e.g. paper as well as electronic)
• Implement a central diary system or other system for ensuring shared access to individuals' diaries
• Implement a protocol for use of diary system (including use of reminders and countdown dates)
• Mark critical dates prominently on the front of the file cover
• Introduce procedures to be followed where fee earner is absent, or leaves (e.g. for handover of files where a fee earner leaves to ensure diary entries transferred to replacement fee earner)
• Incorporate critical dates within your case management to ensure relevant critical dates are considered, correctly identified, and acted upon
• Hold case review meetings for all cases that are within a specified period of becoming time barred
• Implement a policy that court proceedings should be raised automatically within a specified period prior to expiry of the triennium or other prescription/limitation period.

Calum MacLean and Marsh

Calum MacLean is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world's leading risk and insurance services firm. To contact Calum, email: calum.maclean@marsh.com

The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.

Marsh Ltd is authorised and regulated by the Financial Services Authority.