As the Pandemic continues many clients cannot pay all their bills. Legal fees are a lower priority to food and rent. So, suing clients to collect legal fees is likely to become more common place. A note of caution, suing clients for unpaid legal fees can cause your attorney malpractice insurance premiums to increase. In fact, with many admitted insurers as few as 5 client fee suits for unpaid legal fees in a 2-year period causes the insurer to either decline, non-renew your insurance or place restrictive policy exclusions on your policy.
Client fee suits are a leading cause of legal malpractice claims. Fee suits cause counter claims, cross-complaints, and/or disciplinary complaints. From a malpractice insurer’s perspective if you sue enough clients eventually, you will have claims. Once a counter claim(s) is made against a firm because of fee suits, the firm becomes a less desirable legal malpractice risk. Law firms refusing to change fee suit practices likely will pay higher premiums.
There are the law firms that state; “I understand all that, but I do not like having a legal malpractice insurer telling me how to practice law. Give me an insurer that does not care about suing clients for fees.”
Most insurers that “do not care” about fee suits are non-admitted insurers or insurers that will soon be out of business. Even claims free insureds pay significantly more in insurance premiums for the privilege of suing clients for fees.
“So how do I get paid if I do not sue to collect from clients that refuse to pay?”
Look at your billing practices. A few simple tips may result in fewer clients not paying fees:
1. Client selection. If the client does not have the resources to pay you, likely not a client that you want. No sense in doing work for free.
2. Client communication. Make sure to communicate with your client, through written and oral progress periodic updates on matters. Treat your clients with dignity and respect. If there is bad news to communicate, do it in person or at the very least by a phone call. And do it promptly.
3. Staff communications. Make sure that your staff handles incoming and outgoing communications promptly, communicates clearly and concisely in a respectful manner.
4. Client Retainers. Do not be afraid to ask for the retainer for your services up front where appropriate. Either for all or a large portion of the services.
5. Client Billings. Make sure to keep on top of your billings. Bill promptly, follow-up for past due receivables, and if an account becomes past due, communicate with the client to find out why. Do not put off this conversation. Remember many times the client is upset with something and therefore the bill is not being paid.
6. Choose your battles carefully. If the balance is small or there are serious issues as to how the services have been rendered, you may just want to write this one off. Keep your emotions out of it.
7. As a very last resort. Before you sue, if your firm is large enough, a committee should decide which accounts go to suit.
8. If you sue. Wait for the statute on your services to run.
Many law firms never sue for fees, either because of their practice areas or firm philosophy. As far as your attorney malpractice insurer is concerned, zero is the best answer to the fee suits question. Continuing suing clients for fees will cause your legal malpractice insurance premiums to increase as well has having to pay your deductible for claims.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080