Limiting Professional Liability

Worried about getting sued for legal malpractice? You probably think your professional liability insurance will be sufficient to cover any claims. What if it isn’t? Can you prospectively limit your liability to a client by including such a limitation in your engagement letter? And can you settle a threatened claim?
Most states have enacted an extensive and comprehensive Code of Professional Responsibility or set of Model Ethics Rules that governs the obligations of attorneys to their clients. Such rules dictate the limitations that an attorney may place on his or her liability. The underlying rationale is that a "lawyer who handles the affairs of his client properly has no need to attempt to limit his liability for his professional activities and one who does not handle the affairs of his client properly should not be permitted to do so." Ethical Consideration 6-6. See also Restatement 3d, Law Governing Lawyers, Rule § 19 (Agreements Limiting Client or Lawyer Duties); Restatement 3d, Law Governing Lawyers, Rule § 54 (Defenses; Prospective Liability Waiver; Settlement with a Client).
DR 6-102(A) of the Model Code prohibits any limitation of or exoneration from liability to a client. Accordingly, an attorney may not include a "hold-harmless" clause or other release language in the retainer agreement that purports to waive the client's right to pursue future malpractice claims or disciplinary complaints against the lawyer.
The more permissive Model Rule 1.8(h) allows a prospective limitation if (1) the jurisdiction's law permits it and (2) the client consults independent counsel before agreeing to the limitation. Clearly, most, if not all, independent counsel would advise against signing any retainer agreement including a limitation of liability provision. Rule 1.8(h) also permits a post-malpractice settlement of liability if the lawyer advises the client to retain another attorney before agreeing to it.
The ban against prospectively limiting malpractice liability extends to services performed by an independent contractor upon which the attorney relies. In Ohio Ethics Opinion 89-12 (1989), the committee advised that an attorney may not insulate himself from liability when rendering title opinions based on abstracting services done by individuals who are not lawyers. Likewise, in Kleeman v. Rheingold, 81 N.Y.2d 270, 614 N.E.2d 712, 1993 N.Y. LEXIS 1158, 598 N.Y.S.2d 149 (1993), the New York Court of Appeals determined that an attorney may be held vicariously liable to his or her client for the negligence of a process server whom the attorney has hired on behalf of that client because the duty owed by an attorney to his or her client to exercise care in the service of process is nondelegable. The court emphasized the reasonable perceptions of the lay public and the average client that all of the tasks associated with the commencement of an action will be performed either by the attorney or someone acting under the attorney's direction. Accordingly, even in situations in which the attorney relies on the services of an outside agency, the lawyer remains responsible to the client for the accuracy of that work.
Many states allow lawyers to include in their retainer agreements mandatory arbitration provisions that cover malpractice claims. Such a provision is acceptable because it does not limit liability but merely shifts the malpractice claim to a different forum. Because an agreement to arbitrate must be consensual in nature, an arbitration clause must clearly put the client on notice that he or she is forfeiting the valuable right to litigate disputes in order to be enforceable.
As for post-malpractice releases, attorneys have the right to defend themselves against malpractice claims and to settle claims. Whether a state has adopted the Rules or the Code, settlement is considered appropriate if the lawyer first advises the client of the possible existence and nature of any malpractice claims and offers the client an opportunity to consult independent counsel before accepting a settlement. The Model Rules are explicit in this regard. Moreover, a lawyer may not condition receipt of the client’s file or other property or funds on the client’s assent to settling a malpractice claim or forgoing an ethics complaint. While it should go without saying, covering up mistakes will be considered unethical. A multitude of cases exist in which severe sanctions, including disbarment, were imposed where attorneys attempted to conceal their malpractice by presenting a fictitious “settlement” from the opposing party. The best approach in these circumstances is complete disclosure accompanied by a mea culpa and advice to seek independent counsel.