When attorneys are dealing with unpaid legal fees from their clients, an obvious course of action is to file a suit against the client for the outstanding legal fees. Unfortunately, this can unleash a Pandora’s box of negative consequences for the suing attorney and firm.
Rather than simply paying the fees associate with the suit, some clients choose to countersue for malpractice. The worst-case scenario is that the defending lawyer could lose their license or face disciplinary measures. When all is said and done, the attorney will have spent more time, effort, and money than the client initially owed, even in the best outcome.
Another negative consequence pertains to the attorney’s insurance coverage. When a lawyer files a suit for unpaid legal fees, it can cause their premium to increase. The reasoning behind this is that if the client does countersue for legal fees, it is reported as a claim to the insurance company, regardless of the merits of the countersuit. If a firm has three countersuits on record over the course of a year, it may be denied renewal or new coverage.
Fortunately, with the right approach, attorneys can avoid issues surrounding unpaid fees. By carefully implementing a few tools to screen clients, both in the initial discovery phase and while working with their clients, law firms can protect their business and avoid the hassle of dealing with difficult clients.
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Important questions to ask about potential clients
There are questions you can ask yourself and your potential client as a way of screening for problem clients.
Ethics
Of course, you will want to determine if the potential client is a bad actor upfront. Is the client a con artist or asking you to engage in fraud? But also, it is critical to determine if there is a conflict on your side. Attorneys should perform due diligence in rooting out potential conflicts of interest. Are your interests as a lawyer counter to the clients?
Compatibility
It is essential to determine if the client has a viable case. However, it is also a priority to make sure the client is a good fit for your morality and the firm’s ethics. Are you personally interested in the case? Do you have the time and resources to take on this case at present? If the answer to any of these questions is no, consider referring the client to a colleague.
Client history
Determine as much of the client’s legal history as possible. A clear warning sign is a client who has had multiple legal counselors on the same case. If the client has burned through one or more attorneys, then it is likely that you will not be their last.
Client finances
If the client seems overly concerned with the cost of fees, they may not be able to pay. Be direct about billing. Transparent billing may spook the client, but it’s better to lose a client who cannot pay than to gain a client who may end up as a plaintiff in a countersuit for legal fees.
Instincts
Finally, you need to consult your intuition. What does your gut tell you about the prospective client? Occasionally, a gut reaction can be wrong. But if your head and intuition are telling you the same thing about a client, it’s likely your assessment is correct.
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Keeping clients on track
Unfortunately, there’s no fool proof way to rule out the possibility of unpaid fees. Knowing this, it’s important for attorneys and law firms to implement best practices for keeping clients on track throughout the working relationship.
By integrating in a few simple procedures early on, you can set expectations. The key is to be as transparent as possible. Here are a few examples:
- State fees clearly in the engagement letter
- Request an upfront retainer
- Set a realistic budget
- Bill clients monthly for all services rendered
- Follow up immediately if a client falls behind on payments
If a client pushes back on any of these practices, it is a red flag. Consider these tools that measure the client’s ability to pay their fees on an ongoing basis. Be proactive in monitoring your relationship with the client. Then, be ready to end the relationship if any of these steps trigger concerns that the client will be unwilling to pay or otherwise jeopardize your legal practice.
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Protect yourself against a countersuit for legal fees
Attorneys must perform due diligence to ensure their clients can afford their legal fees before signing them on as clients and during the relationship. Screening clients is an effective way to mitigate the risk of a countersuit for legal fees.
Unfortunately, no amount of preparation or diligence can altogether prevent the possibility of unpaid fees or countersuits. Attorneys need to be proactive and consult their insurance agents about maximizing their coverage. A Lawyers Professional Liability (LPL) policy from McGowan Program Administrators provides robust coverage for attorneys. In addition, our agents can advise you when and how to file lawsuits for unpaid fees and how best to file claims without affecting your premiums.
Get in touch today to get a quote or explore our coverage for professionals.
