As old as the practice of law, the rare but always present need to deal with clients who do not pay their bill has persisted. There are the accounts receivable calls, the awkward reminder calls, the pressing deal-making December calls and every other follow up procedure that you have implemented in the firm to avoid legal confrontation in court by suing your clients. By this point, you have offered a discount settlement and maybe mediation but at some point you have to decide to sue or not to sue in the effort to collect your duly earned fee.
Before you proceed, consider these three important considerations:
1) Impact on you current insurance coverage – Check with your broker that you do not have an exclusion for coverage for claims that are in response to suits for fees. Though these exclusions have been rare recently, we used to see unsuspecting law firms contain this provision. If you have this exclusion, there is NO coverage for claims in response to a suit for fees.
2) Impact on your application and future premiums - Many insurance company applications ask how many suits for fees the firm has initiated in a look back time frame (usually one or two years). It is important to discuss with your broker where you stand in your total and in the impact on your firm’s risk profile. For a small firm, more than a few per year can have significant negative impact on your premiums and terms.
3) File Review – Have a second pair of eyes review the file. One of your partners should review the file with a critical eye to possible communication errors and legal errors. If it’s a significant or complex matter, consider hiring an outside firm to review the file for weaknesses. See excellent Fee Collection Checklist -click Fee Collection Checklist here.
There is an old law firm risk management saying that suing your client for fees is the “invitation to the dance” i.e. to the counter claim for malpractice. While many claims do start with a suit for fees, not all suits for fees lead to counter claims for malpractice. The best risk management strategy to avoid “having to sue” for your fee are to watch your accounts receivables so that you don’t put yourself in that position.