Law Firm Risk Management: What Are the Biggest Challenges Law Firms Face?

One of the greatest paradoxes related to practicing law is that law firms run a huge risk of being sued. It’s not uncommon for both current and former clients to file claims against their legal representation for a wide variety of reasons. However, disgruntled clients only scratch the surface when it comes to law firm risk management and the many risk factors related to practicing law. And while these claims are very much a real threat to legal professionals on a day-to-day basis, there are many other risks to consider. 

Whether you are an independent lawyer or a 50-person practice, the first step to putting together a quality law firm risk management plan is being able to understand what type of risks your law firm could be up against in order to decrease liability exposure.

Technology-Related Risk Management in Law Firms

It’s no secret that cyber attacks are one of the most prominent threats businesses face today, no matter the industry. The most common types of cybercrimes, such as hacking, social engineering, and malware, literally cost businesses billions of dollars each year worldwide. Considering the fact that law firms tend to store a great deal of sensitive customer information on computers and other data networks, it’s easy to understand why they are a very popular target for cybercriminals.

While technology has certainly made communicating with clients easier, there are still unexpected technology risks that can arise when working on technology projects. This is especially the case in the legal world where technology is oftentimes used to augment or provide support for older, paper-based systems.

When looking at technology risk management in law firms, you must understand exactly what technology is and what technology risk management entails. While technology has made life easier for many, it has also created a number of legal risks that need to be accounted for to avoid lawsuits if the technology fails.

In today’s risk landscape, law firms should not hesitate to either outsource freelance cybersecurity experts to protect and maintain their networks or to even hire technology experts in-house if the firm has the budget to do so. Hackers and the various types of malware, ransomware, and computer viruses that are being used to attack business today are getting more and more sophisticated and harder to protect against, which is why the number of data breaches experienced by businesses (small and medium-sized businesses in particular) continues to soar.

To get up to speed, you need to build specific strategies for risk management in law firms. Just as attorneys operate uniquely from business, so must your technology risk management. The process can be broken into three parts: technology risk assessment, technology risk mitigation, and technology risk management for law firms.

Technology Risk Assessment

The technology risk assessment process can be carried out in three steps:

• technology risk identification
• technology risk quantification
• technology risk prioritization

Technology Risk Mitigation

Once the technology risk assessment has been completed and all potential technology risks have been identified (usually based on technology risk priority, technology risk exposure and technology risk severity), the next step is technology risk mitigation. A technology risk assessment usually results in a list of recommended technology risks to mitigate.

Technology Risk Management for Law Firms

Once the technology risks have been evaluated and prioritized, it’s possible to proceed with technology risk management, which can help organizations to control technology risk by implementing technology controls.

A technology risk management plan is usually introduced along with technology controls. The technology risk management plan should be up-to-date, realistic, and it should include the following key elements:

• technology risk mitigation plans
• technology risk acceptance criteria
• technology risk notification processes
• technology risk incidents reporting process
• technology risk management responsibilities
• technology risk reports

For law firms, technology risk management is usually related to data security and technology governance. Some of the most common technology risk mitigation activities are:

• software license management
• endpoint protection
• network access control
• web filtering
• technology security policies
• user access management
• technology risk prioritization and technology risk reporting

The most common technology risks that law firms face today include: malware attacks, unpatched software vulnerabilities, insecure web applications (HTTPS, SSL certificates), technology misconfigurations (e.g. technology configurations that can lead to data loss or technology misconfiguration incidents such as unauthorized access to systems and applications ), and technology supply chain integrity (e.g. using low-quality technology components such as technology used in servers and technology infrastructure components).

For more, read our full guide on data security for law firms. In addition to technology risks, your law firm should investigate risks that happen with people, such as clients and employees, information sharing, and more. Read on for law firm risk management techniques for elsewhere in your firm.

Human Error Risks

Human error risks can also be related to technology and cyber threats, considering that a vast majority of social engineering and phishing attacks are predicated on tricking business employees into downloading or clicking on something in order to infect their networks and systems. However, there are many more risks associated with human error and negligence that can lead to compliance issues and serious legal malpractice claims.

Errors in communication can easily lead to claims. For example, if a lawyer fails for some reason to inform their client about a matter pertinent to their case. Even simply not staying in regular contact and failing to return your client’s calls can lead to a claim if the client believes that there was no explicit reason that warranted the lack of communication.

Something as simple as a missed deadline is another human error that represents a real risk to your law firm. Missing hearings or failing to file documents due to poor time management or sloppy planning can also lead to claims if your clients feel that these errors were detrimental to their cases.

While law firm risk management is just as important to a small law firm as it is to a large one, risk can be reduced in your small firm if you pay careful attention and place importance on the following:

• Communication
• Time management
• Planning
• Document management
• Client relations

Errors in communication can easily lead to claims. If a lawyer fails for some reason to inform their client about a matter pertinent to their case or even not staying in regular contact and failing to return your client’s calls, risk is present and risk management should be addressed. It is equally important in both big and small firms, but risk can be reduced in your small firm if you pay careful attention and place importance on following processes for law firm risk management.

The risk management process for law firms begins with communication, time management, and planning. Communication includes ensuring that deadlines are set appropriately and that all parties involved in the case know about them; that meetings occur at regular intervals; that phone calls or other forms of communication happen regularly to keep the client informed; and finally, risk management should include training staff to be familiar with clients’ cases and not to assume that everyone is on the same page.

Time management risk control means ensuring that there is consistency in case formatting, electronic filing protocols, and guidelines for the submission of evidence.

Finally, law firm risk management planning should include provisions for risk assessment so you can identify areas where risk may exist. The risk assessment process may include risk prevention, risk reduction and risk transfer. Risk identification is critical to law firm risk management planning because it will be the basis of risk assessment and risk analysis.

Once risk has been identified, you need a plan for law firm risk management:

• A back-up lawyer who can take over if there is an emergency or risk of a claim
• Train your clerks and staff to better risk management skills such as time management, communication, and case planning
• Use risk transfer methods such as insurance or risk sharing with clients

Time management risk control means ensuring that there is consistency in case formatting, electronic filing protocols, and guidelines for the submission of evidence.

Law firm risk management planning should include provisions for risk assessment so you can identify areas where risk may exist. The risk assessment process may include risk prevention, risk reduction, and risk transfer. Risk identification is critical to risk management planning because it will be the basis of risk assessment and risk analysis.

Client and Colleague-Related Risks

Related to communication, another big part of your law firm risk management process should be evaluating the working relationships that you have with your clients and other lawyers that you might have to cooperate with along the way. When it comes to clients, it’s incredibly important for lawyers to stay within their areas of expertise and not take on cases related to areas of the law that they are not experts on.

Make sure that the scope of each client and case is clear before you commit to it as well. Don’t take on a client if you don’t believe that your firm has the resources to offer the client the professional services that their situation warrants. Researching clients before committing to serving them should be a top priority in your law firm risk management process because it helps you avoid risks such as having a conflict of interest that might not have been clear and obvious at the onset of your relationship with the client.

You should be just as picky about the lawyers you’re teaming with on cases. Make sure that they have expertise in the particular area of law that the case is related to before you agree to work with them. Before you decide to work with another law firm or outside lawyer on a case, check to see that they are reputable and don’t have an extensive history of malpractice claims being filed against them.

How Law Firms Can Manage These Risks

In order to manage the everyday risks faced by attorneys, it’s first important to be able to identify them. The first step towards achieving this should be taking a proactive approach and providing training and education to all law firm’s employees so that they know what risks are imminent and how to protect themselves against these risks.

Generally speaking, here are some legal best practices that you should be incorporating and preaching as part of your law firm risk management training:

Don’t Take Every Case: If it’s clear that any aspect of a case is overtly risky, don’t be afraid to decline it or hand it off to a friendly firm that you know might be more suited to handle such a case. Saying “no” to cases that aren’t right for you will, in the long run, do much less damage to your law firm and its reputation than taking on cases that you’re not able to deal with properly.

Be Honest with Clients: Setting expectations is a huge part of the legal risk management process. Honest communication with clients is paramount when discussing realistic expectations and possible case outcomes in order to avoid overpromising and underdelivering.

Document Everything: Obviously, making sure that every professional relationship and endeavor is accompanied by a clear and binding contract needs to be a priority. But beyond that, keeping detailed notes and documenting as much of your legal process as possible is also another step you can take to protect yourself from a variety of potential risks. Backup your emails, keep time-stamped notes, and even record conversations whenever possible to protect yourself from hearsay.

Insure Your Law Firm: No matter how strong your law firm’s risk management program is, there are so many risks associated with running a legal practice that avoiding claims entirely is practically impossible. Thankfully, buying the proper insurance coverage will help you to cover any and all gaps in your law firm risk management program and protect your law firm and employees when claims do arise.

Due to the nature of the work, every law firm should buy errors & omissions insurance, otherwise known as lawyers professional liability or legal malpractice liability. Whether your law firm is accused of misinterpretation, offering detrimental legal advice, missing deadlines, failure to protect classified information, conflict of interest, or any other possible client motive for filing a claim against you, a good legal malpractice insurance policy should cover legal defense costs, settlements, and trial-related expenses (expert witnesses, research costs, etc.). The cost of your legal malpractice insurance is determined by the size of your law firm, your areas of practice, claims history, location, and more.

As mentioned earlier, law firms tend to deal with a lot of sensitive information, which makes them prime targets for cyber attacks. This is why the second most important coverage for a law firm to have is undoubtedly cyber liability insurance. Another recommended coverage for law firms is EPLI insurance coverage, which will protect your firm in the event of employee-related claims, such as discrimination, harassment, and wrongful termination.

No matter how big or small your law firm, having an expert broker in your corner while putting together your insurance program is absolutely imperative to law firm risk management. Feel free to connect with someone from our expert legal insurance team at any time to discuss your law firm’s insurance needs and options.