In an error stemming from 1991, the Illinois Supreme Court is set to rule on the amount a law firm owes to a client for their wrong-doing. The outcome of this case will have repercussions on insurance companies, law firms and client engagement decisions.
The matter stems when Morton Goldfine engaged the law firm of Barack Ferrazzano in 1991 to help him recover a $5M investment in a stock that lost value amid fraud allegations. The firm declined to work on a contingency fee basis, but agreed to work on an hourly basis. Mr. Goldfine asked the firm to preserve his claims under the applicable “blue sky laws”. The blue sky law sets up a remedy for the situation like Goldfine encountered – but the law firm missed the deadline and recovery of the investment was unable to proceed. Goldfine sued the firm and won.
The case sounds simple, but over 20 years later, it is still in the courts. The reason for this is that Goldfine sued the investment brokerage that sold him and stock as well. In 1996, Goldfine and the law firm Barack Ferrazzano agreed to stay the malpractice proceedings until the investment case was settled. That case was finally settled in 2007. At that time, the malpractice suit proceeded until 2010 when a verdict was awarded. It has been in appeal until now.
The Supreme Court is being asked to decide wither the statutory 10% interest should be awarded on the settlement starting in 1991 when the error occurred. The exact matter has more issues, but for discussion purposes on this website, this is the meat of the matter.
Lawyers should care about this case for a number of reasons.
- Limits. The case could drastically impact pricing and limits a firm chooses to carry in the presence of high-risk activities. It could also impact the limits insurance companies are willing to offer law firms and would make the need to shop the insurance greater. Complicating this decision is the fact that lawyer’s professional liability insurance is on a claims-made form. Meaning that the limits the firm has in place at the time of the lawsuit is what matters.
- Client Acquisition. Should the courts decide in the plaintiff’s favor and view interest accruing from the beginning, it could impact the willingness with which a firm will accept securities cases. Taking on these types of clients may also bring higher insurance prices as underwriters will view the potential severity of a claim as higher than previously contemplated.
- Liability Carry-Over. The firm was sued, but so were the 24 partners of the firm from 1991. Many of these partners are now moved on to other jobs, firms or even retired. However, they will be on the hook for nearly $1M each should the verdict go against them. Making sure that firms an attorney previously worked at maintains lawyer’s malpractice insurance is vital as an attorney transitions elsewhere.
Transferring risk is an important part of law firms. Maintaining good insurance and having a broker who looks out for your best interest is a vital aspect of any law firm’s risk management program. Contact us to discuss how we help protect your law firm.