HOW TO RESPOND TO A MALPRACTICE CLAIM

By Mark F. Murray

No firm can afford to overlook the risk of malpractice liability or the cost of defense. The increasing frequency with which malpractice lawsuits are being brought against accountants makes professional liability a major issue for any firm, large or small. As important as having effective defense counsel is your ability to immediately and properly respond to actual and potential claims.

The following ten-step plan will guide you through malpractice litigation, beginning with the first notice of the claim and concluding with its settlement or
judgment.

Step 1: Notify the Carrier. Regardless of their form, immediately notify your malpractice carrier and personal attorney, first by telephone or in a personal visit and then in writing, of all situations that may give rise to malpractice exposure. The terms of your malpractice policy will stipulate notice requirements; absolute compliance is necessary.

Step 2: Limit Communications with Third Parties. Inform others concerning the claim on a need-to-know basis. Avoid internal discussions or written communications concerning the claim unless you are directed to engage in such communication by counsel. Moreover, never make statements concerning
the engagement, admit liability, or reveal the existence or amounts of insurance coverage.

Step 3: Respect Legal Boundaries. Do not attempt to contact the client or client's attorney to attempt settlement, make statements, release documents, probe into the facts of the claim, or begin an investigation without counsel's approval and participation. Any statements made or documents released independently can be used against you and may give the appearance of liability, particularly in the case of settlement attempts.

Step 4: Review and Preserve Documents. With the assistance of counsel and the participation of appropriate staff, collect, examine, and preserve all documentation pertaining to the engagement and claim. Doing so gives you opportunities to detect any possible deviations from professional standards and firm or industry policy and to become reacquainted with all aspects of the engagement.

Step 5: Collaborate with Counsel. Work closely with your defense attorney during all stages of the claim. Meet with your attorney to ascertain facts and discuss possible defense strategies. An optimal defense can only be prepared when
you and your staff fully cooperate with counsel.

Step 6: Chronicle the Engagement. With the involvement of defense counsel, write a candid, chronological account of all events pertaining to the engagement, beginning with the first consultation with the client and concluding with the assertion to the claim. This approach informs defense counsel of the facts surrounding the claim and the reasons for your decisions on engagement-related issues.

Step 7: Assist in Expert Selection. Share your expertise with defense counsel in determining whether expert witnesses are needed, identifying and screening possible candidates, and preparing experts for deposition or trial testimony.

Step 8: Approach Settlement Negotiations with Care.When deciding whether to settle the claim or proceed to trial, carefully consider the recommendations of defense counsel and insurance company representatives. They are educated and trained in this specialty
and serve as your most objective allies. Should you decide to settle the claim, let defense counsel carry out all settlement negotiations.

Step 9: Prepare Your Testimony. Thoroughly prepare for your deposition and trial testimony by reeducating yourself in all aspects of the engagement and reexamining all possible alternatives. While testifying, make every effort to convey the image of a positive, credible, and competent professional. Direct your responses to the judge and jury--not to counsel.

Step 10: Attend the Trial. Be present at the trial from the first day to the last. Dutiful attendance sends a message to the judge and jury that you are concerned about your client's or former client's interests and any matters that attempt to diminish the quality of your professional services. Delegate other responsibilities to members of the firm; nothing can be as detrimental to the interests of our firm, clients, and personal financial position than an excessive judgment. *