Minimize the Risks of Client Lawsuits
When a top litigator prepares a case for a trial, part of the process is mapping out a clear, written story to put in front of a jury. Professionals looking to avoid or minimize the impact of client lawsuits would be smart to follow that lead, according to Christopher Piety, underwriting counsel, Professional Lines Risk Management, Aspen Insurance.
“Just like when a talented lawyer faces a jury, the better prepared you are, the stronger your case will be and the more likely you will prevail,” Piety said. “That means being very clear when writing an email or a letter to a client. Approach these communications as if you were writing directly to a future jury.”
Piety explained that in the wake of several recent sizeable professional liability claims, lawyers and other professionals (i.e., accountants, architects and engineers) must deliver clear, concise written communications, to create a record of what happened along the way. “On some of the larger claims that I’ve been involved in, whether it is with lawyers, accountants, architects or engineers, it really boils down to managing client expectations. And to do that requires effective written documentation,” he said.
For example, Piety said that in a recent professional liability claim, a lawyer did nothing wrong other than failing to put into writing advice that the circumstances of the client’s case changed, which typically translates to an added risk that the desired outcome may not be achieved.
“When you write an email or letter, it’s critical to include specifics. It will go a long way to avoid potential trouble, especially if the situation ends up in court,” Piety said. “A good defense is a strong offense.”
– Christopher Piety, underwriting counsel, Professional Lines Risk Management, Aspen Insurance
“The attorney didn’t spell out in writing that the evidence no longer supported the client’s seven-figure expected outcome,” Piety said. The client eventually dropped the case and then sued the lawyer for malpractice, claiming that the attorney’s failures cost them a positive result. Without written documentation advising the client about the risks, the attorney could not prove the client had been advised.
Screen for Bad Apples
“Professionals need the courage to ‘fire’ a potential problem client should any serious red flags emerge,” Piety said. “Not every piece of business is a good one.” Along those lines, he offered a few bits of advice to avoid potential problems when choosing clients:
- Obvious Red Flag: A potential client that “burned through” multiple professional services firms. Worse, have they sued any of them?
- Reputation Check: After completing a credit check and/or litigation search, research the potential client’s reputation in the local business community.
- Financial Stability: Check to see if the client is financially sound. Sometimes, problem clients manage to transfer their financial problems to their professionals in the form of unpaid fees and/or malpractice claims.
- Available Staff: Make sure your firm is prepared and staffed to properly do the work requested.
Clarity is Critical
“When you write an email or letter, it’s critical to include specifics. It will go a long way to avoid potential trouble, especially if the situation ends up in court,” Piety said. “A good defense is a strong offense.”
Professionals need to carefully detail the scope of work when starting a new project or case, particularly if the client is also new. From a risk management perspective, it’s most critical to completely outline limitations and risks.
In addition, specific risks to various types of professionals may include:
- Law Firms: Never offer guarantees for specific results, and understand that silence can be interpreted by a jury as agreeing with a client’s unrealistic expectations.
- Architects and Engineers: Specify what you will and will not be responsible for. Never agree to indemnify anyone outside the firm.
- Accountants: Advise clients and others using your work that attest engagements only provide limited assurance of no material misstatement in the financials, but do not guarantee the absence of fraud or financial problems with the attest client’s business.
“Throughout the entire business relationship, it’s a good idea to document any ongoing changed circumstances, no matter how seemingly small, and advise clients of any new related risks and/or performance limitations,” Piety said. He outlined these examples:
- Accountants: Quickly advise clients in writing when the client’s own poor record-keeping is causing the audit work to be more expensive and/or creating risk of material misstatement requiring additional client action.
- Lawyers: Advise clients in writing when discovering evidence that may potentially change the value of the case.
- Architects and Engineers: Communicate in writing when change orders on a project require expensive design changes that may negatively impact the overall project budget.
“Just like when a talented lawyer faces a jury, the better prepared you are, the stronger your case will be and the more likely you will prevail. That means being very clear when writing an email or a letter to a client. Approach these communications as if you were writing directly to a future jury.”
Piety said the failure to act quickly often causes confusion, which can in turn lead to unnecessary and unforeseen problems. To stop that from occurring, he offered these insights:
- Communicate immediately, via writing, any emerging issues that affect a client’s expectations and your ability to meet them.
- Clients who fail to pay in a timely manner or seem unhappy early on in the relationship probably have an issue that should be addressed immediately.
In the end, only by having a clear written record of what actually occurred can professionals ensure they will reduce, or even prevent, the threat of a claim. Do not give your future opponent an opportunity to fill in the gaps with their own version of reality designed to sway a jury against you.
“Always focus on the fundamentals because fundamentals are what will really help a defense,” Piety concluded. “In so many cases, written communication will prove to be the critical factor between winning and losing.”
This article was produced by Aspen Insurance and not the Risk & Insurance® editorial team.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.
Minnick Engineering 911
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
To a disinterested observer, the sight of a middle-aged civil engineer using the company parking lot on a spring afternoon as a dressing room would be, at best, an example of bad taste.
But former Minnick Engineering employee Bill Hayes wasn’t getting ready for a game that afternoon. No, he had mayhem on his mind.
Hayes, terminated just two hours previously, got his jersey on and grabbed a metal softball bat from the back of his SUV.
Hayes paused, arched his back and let out a wounded scream. Then he charged the front door of the civil engineering company.
Matthew Forrester, just two years out of college, was the first Minnick employee to see Hayes coming.
“Stop Bill, don’t do it!” Forrester yelled and picked up a plastic chair in an attempt to slow Hayes down.
With one swipe of the bat, Hayes knocked the chair out of Forrester’s grasp and shattered Forrester’s left forearm.
Forrester’s scream of pain alerted a handful of employees, including Linda Minnick, the daughter of the company founder and current CEO, who was in the process of interviewing a job candidate in a nearby conference room.
Linda jumped up, the shocked job candidate right behind her, and tried to get to the conference door before Hayes did. But Hayes, a former college middle linebacker, was too strong and too quick.
He stuck the bat in the narrowing door crack, then used it to violently thrust the door back open. Hayes got in three swings before the job candidate chased him out of the room.
The attack left Linda Minnick with some cracked ribs and the job prospect with a shattered jaw.
“Who you gonna’ fire next, Linda?” Hayes yelled as he ran deeper into the building. Some employees ran for cover and others set off after Hayes.
Linda Minnick had terminated Bill Hayes a scant 127 minutes previously, but it had been a long time coming.
The interview with the young job prospect filled her with optimism — at least until Bill Hayes roared back into the building and carried out his act of revenge.
In pain but trying to focus, Linda Minnick looked out the window to see a Channel 4 television crew rolling into the company parking lot.
“How did they get here so fast?” she said to no one in particular, as an administrative assistant knelt down next to the stricken job applicant, who was sitting in a nearby chair in severe pain.
Right behind the news truck was a police cruiser.
“What?” Minnick said again, to no one. In the space of the last two minutes, she felt that she was becoming mentally unhinged.
The shock of the attack wasn’t the only cause of Linda Minnick’s confusion.
When the Springfield Township Police escorted Bill Hayes out of Minnick Engineering, this time for the last time, he was in handcuffs. Channel 4 was there to record the whole thing.
The television crew was there, courtesy of Hayes himself. Before his onslaught, Hayes had called his cousin Tommy, a Channel 4 cameraman, and told him he should come to the Minnick offices that afternoon, that he was going to “see some things.”
Linda was weak and in shock. The pain of her cracked ribs felt like someone was jabbing a knife into her lung. She could only sit and watch the police sergeant shove Bill Hayes’ head down into the cruiser.
But just before Hayes was shoved into the car, he caught Linda’s eye and smiled a demented smile.
A shiver went through Linda as she watched the patrol car roll away.
“This is all my fault,” she said to herself.
Linda’s memory provided it for her all too clearly. Five years ago, Bill Hayes punched an office wall during a meeting that was called to deconstruct some engineering errors in a public sector project.
Then, three years later, Mrs. Yost, a kindly woman who worked in sales administration, was working late one night and saw Bill Hayes urinating in a potted plant by the copy machine.
It was a case of “He said, she said.”
Hayes denied doing it. Mrs. Yost, who was 67 and close to retirement, became emotional when questioned about the incident and seemed to want to put it out of her mind. Again, no action was taken against Hayes.
Minnick was always a family-run operation- handling employee situations like the one Hayes presented was way beyond the realm of what Linda was prepared for.
The day of Hayes’ termination she had finally had enough of his inconsistent performance and took that step without thinking further on the potential reaction that it may have elicited.
Minnick was ill prepared for this tragedy. She knew that now as surely as she felt the stabbing pain in her side where her ribs were cracked.
A paramedic ran up to Linda Minnick.
“See to him first,” Minnick said, nodding to the seriously injured engineering graduate sitting in a nearby chair.
The initial toll from Hayes attack was staggering enough. There was the first wave of injuries to Linda Minnick, Matthew Forrester and the job applicant, Henry Neal, whose jaw injury required extensive and expensive reconstructive surgery.
But Hayes had also injured three more people, two of them seriously, before the police got to him. One injured party was the employee of a contractor, Warren B. White Custodial Services. Hayes had shattered that unfortunate man’s knee with his prized metal softball bat.
The six and ten o’clock local news featured footage of Bill Hayes being led out of the Minnick Engineering offices in handcuffs. Watching the coverage with her husband, Linda Minnick could only hope the story didn’t go national.
From a coverage standpoint, Minnick Engineering was as vulnerable as its employees, prospective employees and contractors were the day Bill Hayes did what he did.
Warren B. White Custodial Services and the family of Henry Neal sued Minnick Engineering, alleging that the company had inadequate physical defenses in place in the event of an act of workplace violence.
Their lawsuits were successful, arguing as they did that the young Harry Neal suffered substantial emotional, not to mention physical trauma, getting hit in the face with a baseball bat at his very first job interview.
The janitor, who supported a wife and four children, also provided a sympathetic portrait for a jury. Linda was deposed as part of the legal proceedings. Under questioning, she admitted what the plaintiffs’ attorneys uncovered in their research.
Hayes presented a potential threat that hadn’t been adequately addressed by company leadership.
There was workers’ compensation coverage for the injuries to Forrester and the two other employees. But everything else hit the company’s general liability policy.
The litigation expenses alone in the Henry Neal case and the separate Warren B. White action amounted to more than $400,000.
Then came the medical and the emotional pain and suffering, which amounted to $1.2 million.
Those amounts tore right through the company’s self-insured retention of $200,000 and kept on going through its $1 million primary layer and into the $5M umbrella layer. Linda’s background was in engineering, not finance. Risk management was something she was sensitive to but now she was getting a real education in it.
There had been nowhere for the company’s general liability policy to run and hide in the aftermath of the Bill Hayes case. The broker trying to place the company’s coverage the following year was really up against it.
The company’s lack of a formal crisis management plan including methodology to deal with workplace violence was front and center with the underwriters.
“But we need coverage,” said Vince Liriano, the COO who handled insurance for the company. Minnick Engineering didn’t have a risk manager as such.
“Well, we’re going to need some premium increases, and larger retentions,” the underwriter said.
Leaving the renewal meeting, Linda felt sick to her stomach.
The only carrier that would talk to them wanted to triple the self-insured retention on the account and wanted a 40 percent premium increase.
There were two images Linda could not get out of her mind. The enraged, demented face of Bill Hayes forcing open that conference door, and the amount of money she and Vince Liriano had just agreed to as a self-insured retention.
The day Linda took over the reins of her father’s company seven years ago was the proudest day of her life. Now, a job doing traffic engineering studies in any other town but this one looked like a dream job.
Risk & Insurance partnered with XL Group to produce this scenario. Below are XL Group’s recommendations on how to prevent the losses presented in the scenario. These lessons learned are not the editorial opinion of Risk & Insurance.
1. Security assessments: Pre-incident security assessment and consulting, available through qualified Security Consultants, subsidized by an allowance provided by the Insurer, with Kidnap Ransom & Extortion coverage, could have gone a long way in preventing the injuries and emotional trauma that buffets Minnick Engineering in this scenario. Such a Consultant assessment would have resulted in creation of a formal Crisis Management Plan that would have included premises security recommendations, such as double door implementation and locking mechanisms that may have prevented this attack. That consulting could also include training for employees in how to prevent, diffuse and respond to a workplace violence event.
2. Kidnap, ransom and extortion coverage: The actions that took place in this scenario would have triggered coverage under the definition of Assault in the XL Kidnap Ransom & Extortion policy. This coverage, in addition to providing the Security Consultant pre-incident training, would have mitigated the expenses that accrued to Minnick Engineering’s general liability and umbrella policies. Assault limits are generally available up to $2.5M Personal Accident, Legal Liability, Expenses and Consultant Expenses are all included in cover.
3. Consider medical and legal costs: In this scenario, medical and legal costs ended up constituting the lion’s share of losses. In addition to the physical injuries to the outside contractor and the young job prospect, there is also psychological damage and counseling costs to consider. A KRE policy would not only reimburse an insured for physical and mental medical costs, it would also cover the legal liability in cases where the insured is sued by the victims and those costs assigned to the insured.
4. Spread risk management responsibilities: One of the weak points in Minnick Engineering’s risk management structure was that the burden of determining what should be done with a potentially dangerous employee was siloed. Pre-incident counseling, which the Security Consultants provided by coverage under KRE insurance, could have offered valuable training to key executives who might not have had a protocol in place to handle a potential workplace violence situation. Additionally, a holistic Crisis Management plan could have been crafted, providing clear and concise direction to the senior team on prevention and management of a wide variety of situations that could harm a company’s personnel, property and reputation.
5. Consider your portfolio: Just as a key executive should not work in isolation when it comes to making risk management decisions, neither should a single insurance policy be left to take the brunt of all possible risks. Getting renewals for Minnick Engineering’s general liability policy became a nightmare after the company was hit by a workplace violence event. A KRE policy could have handled many of the expenses in this case and spared the more expensive general liability policy.
What Is Insurance Innovation?
Truly innovative insurance solutions are delivered in real time, as the needs of businesses change and the nature of risk evolves.
Lexington Insurance exemplifies this approach to innovation. Creative products driven by speed to market are at the core of the insurer’s culture, reputation and strategic direction, according to Matthew Power, executive vice president and head of strategic development at Lexington, an AIG Company and the leading U.S.-based surplus lines insurer.
“The excess and surplus lines sector is in a growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said. “Tomorrow’s winning companies are those being built upon true breakthrough innovation, with a strong focus on agility and speed to market.”
To boost its innovation potential, for example, Lexington has launched a new crowdsourcing strategy. The company’s “Innovation Boot Camps” bring people together from the U.S., Canada, Bermuda and London in a series of engagements focused on identifying potential waves of change and market needs on the coverage horizon.
“Employees work in teams to determine how insurance can play a vital role in increasing the success odds of new markets and customers,” Power said. “That means anticipating needs and quickly delivering programs to meet them.”
An example: Working in tandem with the AIG Science team – another collaboration focused on innovation – Lexington is looking to offer an advanced high-tech seating system in the truck cabs of some of its long-haul trucking customers. The goal is to reduce driver injury and fatigue-based accidents.
“Our professionals serving the healthcare market average more than twenty years of industry experience. That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment. At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
– Matthew Power, Executive Vice President and Head of Regional Development, Lexington Insurance Company
Power explained that exciting growth areas such as robotics, nanotechnology and driverless cars, among others, require highly customized commercial insurance solutions that often can be delivered only by excess and surplus lines underwriters.
“Being non-admitted, our freedom of rate and form allows us to be nimble, and that’s very important to our clients,” he said. “We have an established track record of reacting quickly to trends and market needs.”
Lexington is a leading provider of personal lines coverage for the excess and surplus lines industry and, as Power explains, the company’s suite of product offerings has continued to evolve in the wake of changing customer needs. “Our personal lines team has developed a robust product offering that considers issues like sustainable building, energy efficiency, and cyber liability.”
Most recently the company launched Evacuation Response, a specialty coverage designed to reimburse Lexington personal lines customers for costs associated with government mandated evacuations. “These evacuation scenarios have becoming increasingly commonplace in the wake of recent extreme weather events, and this coverage protects insured families against the associated costs of transportation and temporary housing.
The company also has followed the emerging cap and trade legislation in California, which has created an active carbon trading market throughout the state. “Our new Carbon ODS product provides real property protection for sequestered ozone depleting substances, while our CarbonCover Design Confirm product insures those engineering firms actively verifying and valuing active trades.” Lexington has also begun to insure new Carbon Registries as they are established in markets across the country.
Lexington has also developed a number of new product offerings within the Healthcare space. The Affordable Care Act has brought an increased focus on the continuum of care and clinical patient safety. In response, Lexington has created special programs for a wide range of entities, as the fast-changing healthcare industry includes a range of specialized services, including home healthcare, imaging centers (X-ray, MRI, PET–CT scans), EMT/ambulances, medical laboratories, outpatient primary care/urgent care centers, ambulatory surgery centers and Medical rehabilitation facilities.
“The excess and surplus lines sector is in growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said.
Apart from its coverage flexibility, Lexington offers this segment monthly webcasts, bi-monthly conference calls and newsletters on key risk issues and educational topics. It also provides on-site risk consultation (for qualifying accounts), access to RiskTool, Lexington’s web-based healthcare risk management and patient safety resource, and a technical staff consisting of more than 60 members dedicated solely to healthcare-related claims.
“Our professionals serving the healthcare market average more than twenty years of industry experience,” Power said. “That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment.”
Power concluded, “At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”