The July edition of the Fronterion Forefront newsletter covers the significant liability issues arising from the use of third party vendors as exemplified in the recent malpractice suit against AmLaw firm McDermott Will & Emery LLP. Please see the reprint below.
How to Avoid McDermott’s Liability Muddle
As an emerging practice in the legal profession, outsourcing has yet to answer the question: what happens when things go wrong?
A lawsuit against Chicago-headquartered McDermott Will & Emery could change that (see story).
When Things Go Wrong
One of the law firm’s former clients says that contract attorneys at an outside e-discovery vendor, hired by the firm, handed over too much information, Corporate Counsel magazine reports. McDermott has promised to fight the claim.
Regardless of the merits or outcome, the McDermottcase provides one of the first tangible examples of liability issues directly linked to a third-party legal support vendor.
The case highlights the fact there are risks, as well as rewards, sending basic legal work outside the firm to low-cost external vendors based domestically or overseas.
“Many law firms are now weighing whether the savings are worth the risk,” says Fronterion founder and managing principal Michael Bell. “But clients are still pushing their outside counsel to incorporate LPO or third-party vendor services into their offerings.”
“As a result, law firms and LPO vendors are having to confront the issues teed up by the McDermott case.”
The overriding issue is who is to blame for mistakes by outside providers. Many clients believe the buck clearly stops with the supervising law firm, while others feel that liabilities can be transferred to the end corporate clients through contractual provisions and targeted policy coverage.
How to Protect Your Firm
It is a complex and emerging issue, but steps can be taken by law firms to protect themselves. The first is ensuring the firm has proper structures and safeguards in place when engaging LPO firms. Simply leaving this responsibility to partners is no longer enough.
The second is re-examining insurance coverage for specific coverage scenarios, policy endorsements and deductible levels.
Due to the growing importance of liability issues, Fronterion has recruited Mark Vonnahme, a former CEO of a publicly traded US insurance firm, to advise on third-party liability issues. Vonnahme says premiums are already being affected by the use of LPO vendors and these issues are increasingly targeted by many in the insurance industry.
Fronterion Liability Report
Fronterion is soon to publish its first-ever report on law firm liability. To inquire about receiving a copy, contact Fronterion managing principal Michael Bell (firstname.lastname@example.org).
The issue of third-party liability is increasingly part of the legal profession and it is critical to get it right. Is your firm prepared?
Until next time,
The Fronterion team