Do you really want to sue your client for an unpaid fee? A three point short course in your risks.
By Leonard Bucklin
There are risk management tools you can use to reduce the potential number of times you get into a lawsuit with the client regarding unpaid fees. You know many of those risk management tools. Require retainers. Require prepayment into your trust account of expected fees. Monitor monitoring client trust fund balances. Bill frequently. Keep communications open with your client. Add fee arbitration clauses to your retainer agreements.
But if you are faced with a client that does not pay, consider three points before deciding to sue your client for the fee.
#1. How is the client going to respond?
Often unpaid bills are a symptom of an unhappy client. An unhappy client thinks you did something “wrong”. It does not take much of a push to change an unhappy client into a legal malpractice claimant. Your collection lawsuit may well be the push that results in a malpractice counterclaim against you. When you sue an unhappy client for a fee, look overhead: the grievance bird may be coming to roost over your head, and his friend the malpractice claim bird can be following to the same roost!
In fact, collection lawsuits by attorneys predictably result in malpractice counterclaims so often that insurers are prone to add a fee dispute exclusion to their policies.
#2. Do you have a Fee Dispute Exclusion?
Some legal malpractice insurance policies contain a Fee Dispute Exclusion. This endorsement to your policy states that if you institute litigation against a client for unpaid legal fees and a claim results, there will be no coverage for work performed for that client. This exclusion is dangerous for you, because even if your claim for fees is legitimate and the work was satisfactory, you have no coverage and no right to a defense provided by your carrier if the client counterclaims. You will find yourself forced to hire defense counsel at your own cost to respond to the counterclaim.
#3. What effect does suing clients have on your insurance rates?
Generally, one fee suit against a client will not cause an insurance carrier to react negatively by raising your policy cost or declining future coverage. However, a number of fee suits by you might indicate to the underwriter that your entire office practices are not what the should be in today= s world.
Moreover, if there are counterclaims against you by the client alleging malpractice or negligent or intentional over-billing, insurance carriers the tendency is for the carriers to react negatively to the idea of insuring you next year. You may find yourself with a higher rate or fewer carriers willing to offer you coverage.
Summary.
This Three Point Short Course in Suing for Your Fee results in three best practices.
- Best practice: do not sue your client unless your legal work has been snow white.
- Best practice: if your policy has a Fee Dispute Exclusion, then never sue for fees when the expected recovery is for less money than double what is going to be your payments to attorneys to defend you.
- Best practice: never sue for your fees more than once in a two year period.