Wisconsin Lawyer: Risk Management: Retired but Still Liable:

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    Risk Management: Retired but Still Liable

    This final column in the series "Taking Down the Shingle" addresses the professional liability of retired lawyers whose names remain on the firm letterhead.

    Ann Massie Nelson

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    Wisconsin Lawyer
    Vol. 77, No. 12, December 2004

    Taking Down the Shingle
    Retired but Still Liable

    This final column in the series "Taking Down the Shingle" addresses the professional liability of retired lawyers whose names remain on the firm letterhead.

    by Ann Massie Nelson

    Ann Massie 

Nelson Ann Massie Nelson is secretary and director of communications at Wisconsin Lawyers Mutual Insurance Co. Previous columns in the "Taking Down the Shingle" series appeared in the June 2004August 2004, and October 2004 issues of Wisconsin Lawyer.

    Lawyers who retire from active law practice but whose names remain on the firm's letterhead may share in the professional liability that comes from their real or perceived association with the firm.

    Terms such as "of counsel," "affiliated," or "formerly associated" are not precisely defined by the profession or widely recognized by clients. Even the adjective "retired" has taken on new meanings as more people leave long-term careers for other opportunities.

    Keeping a retired lawyer's name on the letterhead, even in a figurehead capacity, lends prestige, name recognition, and longevity to the firm. Likewise, the retired lawyer maintains a presence in the profession and the community; even if the accoutrements are gone, the firm continues to be a place to call "the office."

    This mutually beneficial association carries with it a need to shield the firm and the departing lawyer from becoming liable for the other's errors or omissions.

    Organizing as a limited liability corporation and crafting a carefully worded exit agreement could limit a lawyer's liability. However, conventional wisdom says that if the client perceives that a lawyer is a member of a law firm _ as a reasonable person might conclude if the lawyer's name appears on the firm's letterhead _ then the lawyer is, in effect, a member of the firm.

    When the retired lawyer shares in the firm's profits, he or she probably will share in the liability, absent a special agreement. Furthermore, the retired lawyer could be named individually in a lawsuit, particularly if the firm's available limits of liability are inadequate. Even if no liability exists, the costs of defending a claim or resolving a coverage dispute could be significant.

    Lawyers who are retiring from private practice and their law firms need to consider the following precautions.

    Name Former Lawyers to the Policy

    One way to provide coverage for former partners, shareholders, and associates is to continue to name them on the application for professional liability insurance. For everyone's peace of mind, the firm should send a copy of the declarations page and policy to all lawyers named on the application every year when the policy is reissued.

    The lawyer who retires or leaves the firm must rely on the former law firm (or firms, in some cases) to maintain insurance coverage with a reputable carrier and with adequate limits of liability and a manageable deductible.

    Plan for Future Dissolution

    Retired lawyers may have little say about insurance coverage if the firm later merges or disbands and discontinues its current professional liability insurance policy. Ideally, the dissolving firm will purchase an extended reporting period, more commonly known as "tail" coverage, that names current and former lawyers who performed legal services on behalf of the firm.

    Tail coverage is added by endorsement to the existing policy. The tail extends the time (usually for one to five years or an unlimited time period) to report a claim under the current policy. The available limits of liability and conditions of the policy do not change.

    An unlimited tail affords the greatest protection. The statute of limitation on legal malpractice in Wisconsin is six years from the date the client discovered (or reasonably should have discovered) the alleged error or omission, regardless of when the representation occurred.

    Questions to Ask

    • Ask the following questions before a lawyer leaves a law firm or before a malpractice claim is made.
    • How long will the firm continue to name the lawyer on its professional liability insurance policy application?
    • Will the firm continue to carry adequate limits of liability?
    • What provisions will be made for former lawyers if the firm merges or dissolves?
    • Who will pay for the individual tail?
    • If the firm dissolves or merges with another firm, who will purchase the tail? How will the tail be funded?
    • Who will pay the deductible if a claim is made against the firm or the retired lawyer? How much is the deductible?
    • Will the retired lawyer have access to client files and firm records, if they are needed for his or her defense?
    • Who will authorize defense procedures and settlement agreements?

    Get an Individual "Tail"

    A lawyer might be able to purchase an individual tail endorsement when he or she leaves the insured firm. Again, the terms of the policy remain the same; only the time period for reporting claims resulting from work done on behalf of the firm changes.

    A tail may be unavailable, or the insurance company may require separate underwriting before issuing the tail endorsement. An unlimited tail can cost 2.5 times the individual attorney's share of the firm's annual premium.

    New Work Requires a New Policy

    A retired lawyer who has a change of heart and hangs out a new shingle will need to purchase a new policy. The new policy may be assigned a "retroactive date of inception," which means work performed before that date is not covered.

    A returning lawyer who has a tail with a reliable carrier can request a policy with a retroactive date of inception, which is generally less expensive than a policy without this restriction. The previous law firm may wish to specifically exclude coverage under its policy for the individual lawyer and the lawyer's new entity.

    Lawyers who retire from private practice but continue to do incidental or volunteer legal representation should be aware that work performed after the date stated on the tail endorsement will not be covered. Coverage may be available for part-time or "semi-retired" lawyers who continue to accept new matters.

    In either case, the lawyer and the firm would be wise to choose the same insurance company. This removes the risk of a coverage dispute between carriers if a claim is made.

    Document Dates of Representation

    Lawyers remain personally liable for their own errors and omissions unless they can verify that they withdrew from representation before the liability was assumed. Accurate time and billing records and letters of engagement and disengagement _ not just for new clients but also for new matters _ document the dates representation began and ended and may help limit liability.

    Notify Clients of an Attorney's Departure

    While the client has retained the services of the law firm, not the individual lawyer, the client needs to be notified when his or her lawyer is retiring or leaving the firm. Clients should be given the opportunity to select other counsel or to authorize transfer of their file to another law firm. Law firms need to request a signed and dated statement from the client documenting the client's decision regarding future representation.