by Michael Bell
Risks posed by today's
third-party legal vendors are dramatically different than the risks posed by
legal vendors of the past. These new risks are far beyond what many existing
law firm professional liability policies were designed to insure. Failing to
account for these changing risks can result in uninsured liability exposures
and potentially catastrophic consequences for law firms.
The legal profession is
undergoing profound change. The once simple, straightforward law firm-client
relationship has evolved into a complex web of relationships with third-party
legal vendors, including, but not limited to, discovery vendors and legal
process outsourcers (LPOs). Coupled with these structural changes of legal
services delivery is the increasingly hostile risk environment for law firms in
which escalating settlements are routinely in the tens of millions of dollars.
Importantly, the most exposed firms are not those operating on the fringe of
the legal profession, but rather the most prominent and global law firms.
Understanding and addressing these risk implications is essential for any law
firm that engages or supervises third-party legal vendors.
Risks posed by today's third-party legal vendors are dramatically different
than the risks posed by legal vendors of the past. These new risks are far
beyond what many existing law firm professional liability policies were
designed to insure. If something goes wrong, who is to blame and do lawyers
have additional professional obligations to their clients? Furthermore, who
pays for the damages of a legal vendor? Are traditional risk management
approaches and policies enough in the increasingly dynamic legal environment?
Failing to account for these changing risks can result in uninsured liability
exposures and potentially catastrophic consequences for law firms.
Setting the Stage
On June 2, 2011, a law firm client levied the first reported malpractice claim
against a prominent AmLaw firm regarding the law firm's use of a certain
third-party vendor during the course of the discovery process. In the first
reported case of its kind, this lawsuit, filed in California State Court
located in Los Angeles (Case No. BC462832) on June 2, 2011, against McDermott
Will & Emery LLP ("McDermott"), alleges liability arising from
the conduct of a third-party vendor. Plaintiff, J-M Manufacturing Company doing
business as JM Eagle ("JME"). JME, the world's largest maker of
plastic pipe, claims that McDermott is liable for malpractice as a result of
its contract attorneys sending privileged documents to the government. JME
believes the privileged materials that were improperly produced consisted of
approximately 3,900 documents. On August 8, 2011, the lawsuit was removed to
United States District Court for the Central Division of California (Western
Division) located in Los Angeles (Case No. 2:11-cv-06666-PSG).
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Michael D. Bell is
the founder and managing principal of Fronterion LLC legal outsourcing advisory
His expertise covers the full spectrum of legal outsourcing advisory services
including solution development, onsite vendor due diligence and selection, risk
management, ethical compliance, solution implementation, and ongoing vendor
relationship management. As an internationally sought-after conference speaker
on the topic legal outsourcing, Bell has also been featured and quoted in a
number of professional and mainstream publications such as The Lawyer, The Law
Society Gazette, and The Washington Post. He is also the author of LPO Source
and contributor to the LPO Ethics Resource Centre (www.LPOethics.com).