Communication: the #1 risk management tool?

by Charles Sandison

The importance of good communication as a tool for managing risk

The Journal, April 2006, page 36

How would you respond?

In a recent survey, Marsh asked a cross-section of practices a series of questions relating to perceptions of, and responses to, risk issues centred on communication. One question invited respondents to select, from a list of risk issues, two which they perceived to be of most concern within their own practices. From the same list, participants were also asked to select two risk issues which they believed were problems for the profession as a whole.

Participants’ responses suggested that – in relation to the profession as a whole – communication-related risks were perceived as accounting for approximately 40% of claims. In relation to the risks to which practices themselves felt most exposed, communication-related failures accounted for 30% of participants’ responses. Whilst the survey sample was relatively small, all participants were their practices’ risk management contact and the results do seem to suggest interesting differences in perception. For instance, 16% of participants picked error of law as one of their top two risk issues within their own practice. However, in relation to the risk issues affecting the profession as a whole, error of law was only selected by 4% of respondents. This latter figure is more in line with Marsh’s analysis of the underlying causes of claims.

How important is communication?

Poor client communication certainly impacts on the claims experience of solicitors – and this is not confined to Scotland. In an analysis of more than 9,000 claims over a five year period, a Canadian study suggested that 46% of all claims intimated to solicitors’ professional indemnity insurers involved “communication/

relationship” issues. Similarly, an extended study of lawyers in New South Wales indicated that 49% of claims involved poor communication with the client.

A comparison of these results on a like-for-like basis with the experience in Scotland is not straightforward, simply because studies may have differing criteria for assigning the principal underlying cause to a specific category. However, it is probably fair to say that within the Master Policy claims experience, at least 25% of claims have as their underlying or contributory causative factor a failure in communication with the client.

When your practice reviews its own record of claims, complaints, “near misses” and “write-offs”, how does it compare with that 25% benchmark?

Start on the right foot

The engagement process is a critical stage in managing communication-related risks. The terms of engagement issued by a firm provide a golden opportunity to manage the client’s expectations in relation to the following areas:

Scope of the engagement – drawing the client’s attention to what is included and excluded from the work to be undertaken by the solicitor.
Clients’ responsibilities – making sure that clients know what is expected of them. Encouragingly, 74% of respondents to the Marsh survey indicated that their terms of engagement do spell this out to clients.
Time – giving the client some idea of a typical timescale and how external factors (over which the solicitor has no control) may alter the time it takes for the matter to reach conclusion. In the Marsh survey 58% of respondents advised that their practice’s terms of engagement do not give an indication of the timescale for completion of the work. Those practices are missing the opportunity at the outset of the engagement to manage clients and their expectations.
Cost – the new Practice Rules require this issue to be addressed, as one of the essential elements in the terms of engagement. Good risk management suggests that the fuller the explanation of fees and outlays and how these may vary, the better.

Communication – case studies

The following case studies, based on recent claims, illustrate difficulties which might have been avoided had there been better communication with the client either at the outset, or during the course of the matter.

Be sure non-clients are clear you are not acting

A firm had represented Mr X for a number of years. In a loan transaction, a guarantee was granted by Mr X to Mr Y. Mr Y instructed the firm of solicitors to prepare the security. At the time of the initial instructions and subsequently, Mr X and Mr Y were both having joint meetings with the solicitor. Mr X subsequently claimed that, in relation to the loan transaction, the solicitor had been acting for him and that it had never been made clear to him by the solicitors that, in this regard, Mr X’s interests were being subordinated to those of Mr Y.

Ensure the client acknowledges the impact of the worst case scenario

A client agreed to be guarantor for his son’s business borrowings. The solicitor acted for the client in preparing the guarantee and security over various properties. The securities – which had been granted on an “all sums” basis – were ultimately called up. In the subsequent dispute, the client alleged that he had never expected to be liable beyond the amount of the original debt and that, contrary to his solicitor’s position, he had never been advised of this properly. The file was devoid of any record of the client being advised of the meaning and implications of granting “all sums” securities.

ERR ON THE SAFE SIDE – SPELL IT OUT TO THE CLIENT

A firm acted in a house purchase. Following completion of the purchase, the property was badly damaged by fire and it transpired that the clients had no buildings insurance. The clients alleged that they had been left with the impression from discussions with their solicitor that the solicitor would be attending to arranging buildings cover insurance. The solicitor acknowledged that there had been some reference to buildings insurance in the course of discussion with the clients but rebutted the suggestion that he had taken on responsibility for arranging it.

Room for error

Can you be confident that misunderstandings or false assumptions could not arise between you and your clients? If so, why? Because of a technique or approach you adopt in written communications or in discussions with clients? Is this approach also best practice amongst your colleagues?

If you are less than confident, what are you doing to address your concerns? What can you do?

When reviewing your files, think about these (and other) issues:

Has the client been kept regularly updated in accordance with the terms of engagement?
Is significant advice recorded in writing (and, where appropriate, acknowledged by the client)?
Has the method of charging been set out clearly?
Has the client been advised of changes in expected costs and the reasons for this?
Has legal jargon been avoided, so far as possible?

Perceiving is believing

Most lawyers will face communication challenges with clients. Lawyers may be caring and considerate but the language that they use may leave the client uninformed. Concepts which make perfect sense to lawyers may be difficult for non-lawyers to comprehend and the use of legal jargon is often a barrier to understanding.

Research in Australia has suggested that clients’ dissatisfaction with the outcome of their case is inherently related to the client’s perception of the lawyer’s handling of lawyer/client communication. Clients of lawyers were most aggrieved by perceived failures of their lawyers to listen, ask appropriate questions and explain relevant aspects of the matter. This research is supported by surveys of doctors and patients in the US, where good doctor/patient relationships – built on effective communication – seem to generate fewer malpractice claims than relationships where the patient has viewed their doctor as inaccessible, unconcerned or uncommunicative.

It is said that perception is reality – if a client’s perception is that he or she is not being communicated with effectively, they will be much more inclined to complain or make a claim.

The role of training

When deciding on what type of training might benefit colleagues in relation to communication, consider how you rate your own communication skills, how you rate the communication skills of others within your practice and how others regard their own communication skills. It is probably safe to assume that most lawyers believe they have excellent communication skills for the same reason that most of us believe we are good drivers. Marsh’s recent survey indicated that 53% of respondents for whom the question was applicable did not carry out formal appraisals of fee earners. Without some type of feedback – formal or informal – it will remain difficult for individuals to know how well or badly they are communicating.

If your practice believes that there is scope for enhancing communication skills, two questions have to be answered:

1. Do you know what training is being undertaken by colleagues?

2. Do you know what training may be helpful?

For instance, Marsh’s survey found that from a list of specified issues, including “bad news” and “legal issues”, respondents found it most difficult to talk to clients about fees and outlays. If this is the case in your practice, communication training in that area may be a priority.

In conclusion, time spent reviewing and improving the way in which you and colleagues undertake the communication process with clients will not be wasted. Good communication may well be the best risk management tool in which practices can invest.