Own Your Mistakes But Don’t Fall on Your Sword

If you practice law long enough, you are bound to make a mistake while representing a client. Some mistakes are harmless and immaterial. Other mistakes may be fatal to your client’s case. In between those two extremes are mistakes that cause your client to suffer some negative consequences or create the possibility of negative consequences in the future. What is required of you when you make a mistake depends on the nature and severity of the error. Failure to make appropriate and timely disclosure of errors can result in adverse disciplinary, malpractice and coverage consequences.

Disciplinary Consequences (2015 FEO 4):

In 2015 FEO 4, the State Bar ruled that, when a lawyer makes a material mistake on a client matter, and that mistake could result in financial loss to the client or a disadvantage in the client’s position, the lawyer has a duty to disclose the mistake and its effect on the lawyer’s continued representation. That obligation is not relieved simply because the lawyer “thinks” she can fix the error. If there is some chance that the attempted fix could fail and harm would result, the lawyer must disclose the error. Failure to make the necessary disclosure may result in an ethics complaint for violation of Rule 1.4(a)(3) (duty to keep client reasonably informed about the status of their matter).

Materiality can be a tricky issue. On one end of the spectrum are simple typographical errors that have no impact on the document or pleading. Those are clearly not material. On the other end of the spectrum are errors that are or might be fatal to a client’s matter (e.g., missed statute of limitations). Those are clearly material and must be disclosed. Other kinds of errors require a closer analysis. The opinion suggests that you err on the side of disclosure. If you are uncertain, you should seek guidance from the State Bar or discuss the issue with one of the claims attorneys at Lawyers Mutual.

Once it is determined that the mistake is material, disclosure must be made as soon as possible. Often, when a lawyer discloses a mistake, the client will ask whether she has a malpractice claim against the lawyer. The opinion makes clear that the lawyer is ethically prohibited from giving any advice about whether the client has a malpractice claim against the lawyer. The lawyer in this situation should refuse to answer that question and should advise the client to seek independent counsel.

Material mistakes by a lawyer can also raise conflict of interest concerns. Under Rule 1.7(a)(2), a lawyer may not represent a client if the representation may be materially limited by the lawyer’s personal interests. When a lawyer makes a mistake, the lawyer’s personal interest is to avoid liability. This interest might interfere with the lawyer’s independent judgment and, therefore, necessitate the lawyer’s withdrawal. However, in certain cases, it may be possible to cure an error. In those cases, it might be permissible for the lawyer to continue to represent the client and fix his own mistake. To do that, the lawyer would be required to get a waiver of the conflict and informed consent from the client before proceeding. To get informed consent, the lawyer must explain specifically how the mistake could affect her independent judgment.

Malpractice Consequences:

When an error is discovered, time is of the essence. Often, there is a window of opportunity to repair a mistake. If the lawyer procrastinates in disclosing the error and addressing the situation, the lawyer may miss that window of opportunity. For example, if a lawyer fails to file a timely answer and default is entered against the client as defendant, the court may be less likely to grant relief if the lawyer has delayed filing a motion to set aside the default. In other situations, a lawyer’s delay in disclosing and addressing an error can cause additional damages. For example, if a lawyer fails to file a timely tax return and exposes the client to penalties and interest, the penalties and interest may continue to accrue until a return is filed. In most cases where a repair is possible, it is advantageous to respond sooner rather than later.

Another downside to a delay in disclosure is the possibility that the client will accuse the lawyer of concealing the mistake. When a mistake is not disclosed to a client, and the client discovers the error after the damage has been done, that client may sue the lawyer not only for negligence, but also for fraud and/or constructive fraud. These claims may not be covered under your professional liability policy. These claims will also expose the lawyer to a claim for double damages under Chapter 84 of the North Carolina General Statutes. Such damages would not be covered under your malpractice insurance policy.

Coverage Consequences:

Legal malpractice insurance policies are “claims-made” in nature. These policies provide coverage for claims first made and reported during the policy period. Insured lawyers are required to give notice not only of actual claims against the insured lawyer, but also potential claims. If an act or omission of a lawyer could reasonably be expected to be the basis of a claim or suit, the lawyer has a duty to report the matter as soon as practicable. Failure to report such matters could jeopardize the lawyer’s coverage under the policy. For example, if a lawyer makes a mistake and delays reporting and that delay prejudices the ability to cure the error, the insurer may deny coverage. Note that a lawyer’s belief that he can fix an error does not relieve that lawyer of the duty to report the matter to the insurer.

Lawyers Mutual has an active claims repair program where we intervene in a matter or case on behalf of the client in an attempt to fix the error. Often, our in-house claims attorneys are able to provide the necessary assistance. We also have outside counsel who have substantial experience in repairing errors in virtually every practice area. Our ability to offer effective assistance depends on timely reporting by our insured lawyers.