Good practice

CONDUCT AND SERVICE

A compound complaint

Usually, a complaint is either about the service provided or it involves issues of professional conduct.

Sometimes, though, complaints involve both.

The practice of the Office for the Supervision of Solicitors (OSS) is to deal with both together as a 'hybrid' complaint.

Consequently, any decision will involve sanctions applicable to both types of complaint.

One such complaint to the OSS not only involved both issues, but also demonstrated the need for solicitors to be alive to the possibility that a situation that presents itself could have 'conduct' implications, and to take necessary precautions should that be so.

This case involved a man who initially approached the solicitors to represent him on criminal matters.

Later it transpired that the client was in severe financial difficulties, as a result of which the jointly owned matrimonial home was being repossessed.

In fact, the criminal charges he faced were a result of steps he had taken to try to stop the house being sold.

The client's wife also sought to instruct the solicitors to represent her in connection with dealing with the mortgagees in possession.

By this time, the husband was bankrupt and the solicitors, taking instructions from the wife only two days before the hearing of the criminal allegations against her husband, obtained her signature to an authority to take the husband's costs in the criminal matters from the wife's share of the proceeds of sale, together with all the costs relating to the sale of the property.

Later, a complaint was made that the solicitors failed to keep the husband properly informed and that they had acted in a conflict situation in accepting instructions from the wife without her being advised that she should consider taking independent legal advice.

In upholding the conflict complaint, the adjudicator took into account the fact that the solicitors saw the wife for the first time only two days before the Crown Court case against her husband and at that meeting obtained her authority with regard to costs.

The view was that, while there was not necessarily any conflict, the wife should have been allowed more time to consider whether or not to sign the authority or take independent legal advice.

While, in this case, the breach of principles 15.01 and 15.03 was at the bottom end of the scale, it illustrates the kind of situation in which practitioners could easily be caught out and the need to be constantly on guard against getting inadvertently caught up in a conflict situation.

Every case before the adjudication panel is decided on its individual facts.

This case study is for illustration only and should not be treated as a precedent.

Lawyerline

Facing a service complaint? Need advice on how to handle it? Contact Mike Frith at LAWYERLINE, the support service offered by the Office for the Supervision of Solicitors, tel: 0870 606 2588.

RISK MANAGEMENT

Capturing cover

With the renewal season for solicitors' professional indemnity insurance almost over, more and more practices have been looking at alternative ways of insuring their risk.

One route, which has become more popular, partly because of the hardening of the insurance market in general, is that of the captive.

A captive is simply a way of insuring a practice for an extra amount more than the necessary 1 million required by the Law Society.

The first 1 million has to be insured with one of the qualifying solicitors' professional indemnity insurers.

Captives best serve the solicitors' profession in terms of their deductibles.

They are self-insured vehicles and give practices a way into the reinsurance market.

However, captives are not suited to excess layer exposure, because of the each-and-every-claim (multiple) exposure at these levels.

Each captive solution is formed for different reasons.

But the benefits to the insured include the ability to:

l Capture the underwriting profits - the insured can retain a portion of the underwriting profit that is usually kept by conventional insurers;

l Smooth the cost of risk - premiums in the conventional market follow a cyclical pattern.

A captive solution can assist in smoothing these fluctuations;

l Gain access to the reinsurance market - captive insurance companies have direct access to the reinsurance market that usually offers better terms than the direct insurance market, and;

l Provide capacity for difficult-to-insure or traditionally uninsurable risks.

For example, where deductible infill insurance is not available.

However, while the benefits listed may make a captive seem attractive, it is important that solicitors understand exactly what is involved.

Therefore, it is necessary to consult an insurance broker which has a good team of risk solution and risk management practitioners.

A broker will be able to explain what type of captive a firm should be looking at.

A firm looking to place its insurance via a captive needs to be sure that its claims records are up to date and that it is aware of any notifications of circumstances which may give rise to claims.

A captive is a way of insuring a practice's risk.

Therefore, you need to be honest with your broker about the amount of possible negligence claims.

It is also important to ensure that all your risk management procedures are being utilised properly.

It would be pointless to put the minimal amount of cover into a captive if you are certain that your firm could be facing numerous claims of negligence over the next year, which could easily exceed the amount in the captive.

A captive is an efficient means of insuring risk, provided you have a well-managed practice.

If a practice has a poor record, then it would seem futile to set up a captive, as it is your firm's money which is paying for this form of deductible insurance.

This article was prepared by Alexander Forbes Professions' risk management team

QUESTION OF ETHICS

Q I was admitted 18 months ago but would like to set up in practice now.

I have a friend who is more than three years admitted and who has agreed to be a consultant with my firm.

Will she be able to supervise my practice while still remaining a partner with her present firm?

A No.

All firms must have at least one principal who is 'qualified to supervise', as defined in Law Society practice rule 13, as amended.

To be 'qualified to supervise', a solicitor must have held a practising certificate for at least 36 months within the past 10 years and also have undertaken 12 hours of training in management skills.

If your firm does not have a principal who is 'qualified to supervise' it will not comply with the rules.

Having a consultant to supervise you will not satisfy the requirement.

You can apply for a waiver of the requirements of rule 13 if there are exceptional circumstances.

If you apply, you will have to complete a form, submit a business plan and references, and attend an interview.

Please note

The Solicitors' Publicity Code 2001 replaced the Solicitors' Publicity Code 1990 on 16 November 2001.

It also repealed Law Society Practice Rule 11 (names used by a firm).

The new code requires all firms to put 'regulated by the Law Society' on their notepaper.

Practitioners can postpone this until 1 January 2003 but only if they continue to comply with the 1990 code and the old practice rule 11.

Question of ethics is compiled by the Law Society's professional ethics guidance team.

Send questions for publication to Austin O'Malley, the Law Society, Ipsley Court, Berrington Close, Redditch B98 0TD; DX 19114 Redditch; tel: 020 7242 1222.

Ombudsman's casebook

A monthly column of examples from the Legal Services Ombudsman's files

Conditional fee agreements

Last March, the Law Society's practice advice service published some helpful guidance to the profession about conditional fee agreements and the sources of help and guidance available to solicitors whose work is funded by these arrangements (see [2002] Gazette, 14 March, 41).

As the following recent cases illustrate, conditional fee agreements and the insurance arrangements which often accompany them can be a source of confusion for clients.

Therefore, it is important for solicitors to give clients a clear explanation of exactly what they are signing up to.

Settling for less Mr K was injured in an accident at work and claimed damages from his employer.

He approached a leading claims management company, which arranged for solicitors to be appointed.

The litigation was to be funded by a conditional fee agreement and Mr K was insured against the risk that he might lose the case and have to pay costs to the defendant.

The insurance premium was 1,312.50, and was paid for by a loan arranged by the claims management company.

Some time later, Mr K's claim was settled for 3,555 plus agreed solicitors costs.

However, the defendant's insurers refused to pay the insurance premium.

Subsequently, the premium - together with accrued interest on the loan - was deducted from the recovered damages, leaving Mr K with slightly more than 2,000.

Unfortunately, Mr K was denied even this sum because the settlement cheque went astray in the offices of the defendant's insurers.

Mr K complained to the Office for the Supervision of Solicitors (OSS) that the solicitors had not provided an adequate professional service regarding the missing cheque.

Following an exchange of correspondence with the solicitors and discussions with the police - who had been brought in by Mr K - the OSS was able to establish that the problem with the cheque was caused by an administrative error by the defendant's insurers.

It took the view that, as the solicitors had made a number of chasing phone calls, they had taken all reasonable steps to trace the missing money.

Mr K wrote back to the OSS to take issue with its decision and to say that he had not been aware that he had taken out a loan to pay the insurance premium.

Dissatisfied with the results of the OSS investigation, Mr K complained to the ombudsman.

She took the view that the loss of the cheque was not the fault of the solicitors, and that the OSS's decision that the solicitors had done all they could to trace the cheque was reasonable.

However, the ombudsman expressed concern that Mr K did not know that a loan had been taken out to pay for the legal costs insurance and that the loan would be repaid out of recovered damages.

The ombudsman also noted that Mr K had incurred addition hidden charges - insurance premium tax of 62.50, a 'document fee' of 20 and interest of 195.57; and that none of these fees was recoverable from the defendants, because the conditional fee agreement predated the Access to Justice Act 1999.

The ombudsman recommended that the OSS reconsider its decision and look into what Mr K was told by his solicitors about the funding of his claim and the deductions which would be made from his damages.

You lose, I win

Ms L was injured in an accident.

She instructed solicitors to recover damages for personal injury but, at the end of the case, Ms L made a complaint to the OSS about the solicitors' service.

Among other matters, she complained that it had failed to arrange for an insurance policy to cover her against the risk of having to pay the defendant's costs in the event she lost the case, and that the solicitors had not accounted to her for the payment she made to cover the cost of the policy.

The OSS's customer assistance unit contacted the solicitors with Ms L's complaint.

In passing, the solicitors noted that they had wrongly calculated their success fee (which had been deducted from the recovered damages) and that a refund of more than 600 was therefore due to Ms L.

With regard to the insurance policy, the solicitors admitted that a payment which had been made to cover the cost of the policy had been overlooked, but that they had already refunded the premium to Ms L.

Subsequently, a senior adviser at the OSS expressed concerns about the adequacy of the costs information which had been given by the solicitors, and the OSS wrote to the solicitors to ask for more details.

At this point, it seems that the OSS's investigation was blown off course when the solicitors complained to the office about the way it was investigating the complaint.

Following a review of the file by a senior adviser, the OSS decided that Ms L's complaint was unjustified.

The ombudsman decided that the OSS investigation of Ms L's complaint was not satisfactory.

She said that the OSS should have looked into the failure by the solicitors to purchase the insurance policy which was necessary to limit Ms L's exposure to the risks of litigation.

The ombudsman also decided that the OSS should have pursued the matter of the adequacy of costs information, identified by one of their senior advisers.

This was particularly important as there was a clear indication in one of the solicitors' letters to Ms L that the no win, no fee agreement might be modified to provide that all the firm's fees would be recoverable from the defendants in the event of a successful claim.

The ombudsman recommended that the OSS reconsider the complaint.