Expect the Unexpected: Non-Litigation Claims are On the Rise
by Victoria Orze, General Counsel

This article is for those non-litigators out there who might feel that our past risk management articles have focused too heavily upon litigation practice. It's also for personal injury attorneys who might feel that we pick on them unfairly when we focus on the prevention of our most frequently reported claim-blown statutes of limitation in personal injury practice. And in general, this article is for all attorneys who are interested in just why it is that practicing law- in all its forms - become such a risky business.

We appear to be in the midst of a trend. Unhappily for real estate practitioners, we have seen an increase in the number of real estate claims reported in the first half of 2000. While in past years the real estate practice gave rise to about 18% of claims reported on average, so far this year they have made up 26% of all new claims reports. Also, it looks like more claims are coming out of the transactional context, although the trend isn't as obvious.

So why does there seem to be an increase in non-litigation claims, and specifically real estate claims? On reviewing the data, a couple of general trends seem to be contributing to the problem. There are also several other attributes of the real estate practice that make the area vulnerable to claims being asserted. Both these general trends and the specific characteristics tend to give rise to claims against transactional, non-litigation attorneys.

"Are you my lawyer?" Many of our claims are brought by parties that our insured attorney believes he did not represent. With opposing parties in litigation, everyone knows clearly which attorney is for them and which one is against them. Although sometimes litigators are accused of faulty loyalties, rarely does a litigant think that his opponent's attorney actually represents him.

In real estate and other transactional matters, the lines are unclear sometimes to the lawyers, and certainly to the clients. For example, at a simple home closing, you might represent the buyer, the seller, or the mortgage-holder, or more than one of these persons. You even may have sold the buyer a title insurance policy, thereby acting for the title insurer! You know that your duties are to your client, and that the standard of care for your actions depends upon whom you represent. Don't assume that everybody else at the table - otherwise involved - that you do not represent them. Be explicit with those whom you do not represent. And be explicit with your own clients as to the scope of your representation. Courts are all too willing to find an attorney-client relationship in the absence of evidence to the contrary, so give your clients and your non-clients clear expectations at the outset.

"But, my title clerk/paralegal/mortgage broker/client (choose one) didn't give me accurate information." Very frequently in the transactional arena, and particularly in real estate practice, lawyers rely on others to act in the client's interest. You may hire a title searcher to perform that function so you can deliver a title opinion. You may rely on bankers to tell you what are the mortgage payoff amounts or how to distribute settlement funds upon closing. Legal malpractice claims frequently arise out of a transaction the lawyer handled perfectly, but which went awry because of the acts of a third party on whom the lawyer relied. You may become responsible for mistakes those third parties make, so be wary.

Clearly you can't do everything, much less do everything to perfection. But you can, to a certain extent, insist on some things that will help minimize your risk. First, know who you are dealing with. If you hire outside vendors to search titles, make sure the vendors carry their own malpractice coverage. If they work somewhere outside your county and you do not know them well, get references from other attorneys or title companies. Second, insist on documentation. If the bank delivers a payoff amount or payoff instructions, get them in writing for your file. The same is true when relying on information from your client. Third, take reasonable steps to verify the accuracy of information you get from others. Your efforts will go a long way toward preventing problems and will also help you in establishing that you met the standard of care when things go wrong.

"The first thing we do is blame all the lawyers." There is another general trend affecting malpractice risks, and more prominently in the transactional arena. As a society, we have drifted away from the "bad things happen" mentality and have adopted a more litigious approach: "when bad things happen, it's someone else's fault." Lawyers are most often caught in the crossfire when this occurs. Several of our claims in the real estate area, and frequently the litigated ones, have nothing to do with a lawyer's mistake. Rather, they arise from the fact that we live in a litigious society. Our insured attorneys have been sued not for their own mistakes, but instead because the client ended up in litigation with his neighbor, or was unable to do exactly what he wanted with his property, or simply ran across some unanticipated problem. In such cases, no clear attorney error caused damage, and many times the lawyer could not have prevented the client's problem.

Clients also are more sophisticated than they used to be. As a result, they have heightened expectations of what lawyers will do for them. We live in a world of unprecedented flow of information. Anyone with a computer and Internet access can read legal treatises, cases and statutes, and get what looks like free advice on all of those issues where everyday life and the law intersect. Buying or selling a residence, dealing with debt collectors, getting paid for services, protecting our property rights from encroachment these are just a few of the areas of law that almost all consumers have to navigate at some point. It used to be that when one of these issues came up, a client would simply go off to his lawyer's office to get help without much thought.

These days, though, clients often do their homework before coming to see you as their potential attorney. They will have done some preliminary research, on the Internet and otherwise. They even may have received enough information to handle these problems on their own, without a lawyer. But by the time the client gets to your office, she has made a determination that she doesn't want to do it alone-because she wants to make sure things go smoothly and there is no problem afterward. As lawyers, though, we know that problems happen, many times through nobody's fault, and that things do not always go smoothly despite our best efforts.

What can we do about this trend? Unfortunately, we have to be aware that more often, when someone hires you he is doing so to avoid lawsuits arising from his transaction. He wants to ensure that he will not have to sue anyone to get what he wanted, and that you will make sure that his matter proceeds without delay and to his sole benefit. We therefore offer the following general tips, which are useful for everyone. Educate your clients about your role as an attorney and the goal of your representation. Make sure you understand your clients' goals before you undertake to represent them. Identify problems that might arise despite your best efforts, and make sure your clients are fully informed about them. Your clients will appreciate your candor and the time you take to inform them fully. And finally, document, document, document! These steps will go a long way toward refreshing everyone's recollection later when the inevitable "bad things" happen.