What are the best ways to effectively reduce the risk of malpractice claims? The list certainly includes good client selection, reliable calendaring systems, a thorough knowledge of the law, and staying within your areas of expertise.
Another important consideration is client communication. And part of good client communication is an effective and comprehensive engagement letter or fee agreement. As Deanne Koll, with Bakke Norman, New Richmond, says, “The engagement letter is my first real communication with my client.”
Sally Anderson, vice president of claims at Wisconsin Lawyers Mutual Insurance Co. (WILMIC) says, “Without engagement letters, including fee agreements, misunderstandings, or ‘mis-rememberings’ by the client, are almost inevitable. Most clients will not recall everything that was said or will remember only what supports the wanted resolution of a matter. When the end result is different, there are dissatisfied clients, collection problems, and possibly other complaints or grievances.”
Do all your files contain an executed engagement letter, including your fee agreement? Some lawyers would argue that a file should never be opened without an executed engagement letter. So the question isn’t whether each of your files should have an engagement letter.
Rather, the question is, what should go into this important document?
Elements of a Successful Engagement Letter
- Set client expectations early.
- Identify the client by name (for example, the estate or the personal representative).
- Identify the scope of the representation; say what is included and what is not included.
- Say how and when you will communicate with the client, including your expectation for the client’s prompt response, and how quickly the client can expect a response from you (for example, within 24 hours after an email or voice message).
- Clearly lay out your fees, including how often you will bill and when you expect payment.
- List the client’s duties (for example, full disclosures, document production, prompt response to communications).
- Fully discuss with the client everything the engagement letter or fee agreement contains.
Kevin Klein, a former State Bar president and a solo practitioner in Phillips, says, “It is much more difficult to try to explain things after the fact, rather than setting the stage up front. Poor engagement letters can be easily misinterpreted. [Not having an] engagement letter is certain to be misinterpreted if the case doesn’t end with the desired result. Remember, many clients are not at all familiar with the legal process or representation, so they need guidance. A good letter will also provide an understanding of the flexibility needed in the typical representation, since approaches may change as time goes by, and it is always comforting to both the attorney and the client to refer back to what was addressed in the beginning. Clients are not the same, and legal matters are not the same, so a carefully crafted letter can help avoid headaches.”
Although each engagement letter will vary depending on the circumstances of the case, there are some issues that should always be addressed.
“Engagement letters are an easy way to set client expectations. Right from the beginning of the representation, you can convey to the client your policies regarding communication, scope of representation, and any expectations you have of the client. If an issue arises down the road, you can often point to the engagement letter to settle the issue,” says Lake Geneva attorney Shannon Wynn. She adds, “I set expectations with clients early on in the representation. When expectations are met or exceeded, clients are happy with my services or, at the very least, satisfied with the representation.”
Koll agrees. “Our firm uses the engagement letter to communicate more information than just what we will charge. It outlines what we’re agreeing to do, what we’re not agreeing to do, as well as what the expectations are for communication and conduct.”
Identify the Client
Anderson says that when a lawyer first receives notice of a potential claim, he or she often isn’t sure who the client is. This is especially true in estate planning and real estate cases or when lawyers represent business entities. Thus, it is important to use the engagement letter to identify the client by name. “Estate planning lawyers should be alert to the need to identify and consistently communicate with the ‘real’ client, especially when the children bring the parents to the lawyer for a will or trust. The lawyer in a probate matter needs to be clear as to whether he or she represents the estate or the personal representative.”
It is much more difficult to try to explain things after the fact, rather than setting the stage up front.
“Real estate and business cases are difficult when a deal changes in mid-stream, as they often do. These changes should be documented, and the lawyer needs to be clear with nonrepresented parties that they cannot expect the lawyer to be responsible for protecting their interests.”
Identify the Scope of Representation
After identifying exactly who the client is, it is important to confirm exactly what the attorney has been hired to do (and not do). Malpractice claims often arise because the client’s expectations are not aligned with those of the lawyer. This is especially important if you are taking a case on a limited-scope basis. Without a clear definition of the scope of your representation, and your insistence on staying within that scope, the line between what you are being hired to do and what you will not be doing can get blurred very quickly, and the scope of the representation can expand.
Klein says, “I always include scope of representation language, so the client does not look to me for services or results that have nothing to do with a particular case or controversy. Issues may include specific work discussion confirmation such as ‘you have chosen not to do A, B, or C’ or ‘at your direction I have …,’ all of which serve to confirm the present status of the case or representation. Finally, on the issues addressed, I encourage the client to contact me with any questions, so the client very clearly understands that thorough communication throughout the representation is important and encouraged.”
The engagement letter is also your chance to reach an understanding about your fees. Fee disputes are often sources of malpractice claims, so any opportunity to help your client understand the rationale for and amount of the fees you are charging is a good step toward reducing the risk of a malpractice claim, or at least, a dispute over fees.
The engagement letter or fee agreement should be a confirmation of the fee that was negotiated or agreed to, and just as important, how the client will be billed. Discussions of fees and bills are opportunities to communicate with your client. At the initial meeting, assess with the client the cost of representation, together with the client’s ability and willingness to pay.
Anderson says, “This is the time to get an advance fee to be kept in trust until earned, as agreed in writing by you and the client. An advance fee gauges the client’s willingness to pay and the seriousness with which the client takes the matter. This is an important part of ‘vetting’ the client to determine whether you should accept the representation in the first instance.”
Communication Is the Key
A good engagement letter is part of filling the communication gap between clients and lawyers. Clients and lawyers sometimes value different aspects of the lawyer-client relationship. This includes how the facts of the case are interpreted, the client’s goals and expectations, the lawyer’s goals and expectations, fees, the timetable for the case, and the scope of representation.
Anderson points out that there is a lot of information for the client to absorb, increasing the chances for misunderstandings. “Since there are many firm policies that a lawyer wants a client to understand, some lawyers use a ‘Firm Policies’ standard handout that explains some of these matters. How long will a client’s file be available at the firm? Who will work on a file and what communications the client should expect and how often are all examples of topics that can be explained in this way.”
In addition to drafting an engagement letter in the first place, it is important to go through the document carefully with your client. Make sure he or she understands it and then signs it. It is all part of good communication with your clients, which may be the most important risk-management safeguard.
Wynn says the dangers of not drafting an engagement letter, or drafting a poor one, are too great to ignore. “I think both parties can overlook the importance of engagement letters. Attorneys may see it as an unbillable ‘waste of time,’ while clients, depending on the nature of representation, may feel overwhelmed with paperwork and not regard the letter as important as other items received from the attorney.”
It is important to confirm exactly what the attorney has been hired to do (and not do).
Koll adds, “Fee agreements are drafted and executed when the relationship is new and excitement is high. All focus is on what is yet to be done, and cost is not important. It’s only until halfway through the case when both attorneys and clients begin to consider fees and other possible disagreements. Poor fee agreements can be likened to poor legal work: it will eventually come back to bite you.”
Klein says it comes down to excellent service to your clients and good communication skills – both important characteristics of a good lawyer. “Successful attorney-client relationships are based on good communication and trust. Engagement letters or fee agreements show the client you are concerned and interested in the matter, that you have insight into the relationship, that you value a sufficient level of communication, that you are professional in your approach, and that you are willing to address questions. Clients are more likely to develop significant concerns about representation and billing if they are simply told ‘Don’t worry about it. I will take care of it.’ An engagement letter is a perfect opportunity to communicate with a method or tone that is not just advocacy or adversarial/litigation in nature.”
Finally, don’t forget to include what the client’s duties are during the representation. The first of these is to provide you with current contact information at all times and to respond promptly when you need a decision from the client about how to proceed. Anderson adds, “Prompt payment of invoices from you or an agreement to contact you promptly if there are questions about what you are doing or charging can be included as well.”
Anderson says it is important for lawyers not to lose sight of the importance of engagement letters. “They set the tone for the relationship going forward, and can short-circuit problems that might otherwise occur. It is the start of a healthy and helpful attorney-client relationship.”