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Cyber and E&O Risks Abound with More Law Practices Using LPOs

Cyber and E&O Risks Abound with More Law Practices Using LPOsLaw firms are increasingly spending thousands of dollars each year on electronic discovery, which is the process of finding contracts, evidence, and documents and submitting it to the opposing counsel. Part of the reason for this is that companies that provide these types of services  – legal process outsourcers (LPOs) – have lower costs and are in a far better position to analyze huge streams of electronic data pivotal to the outcomes of commercial lawsuits. In fact, according to an article in the Philadelphia Inquirer, very few law firms do much document review any longer.

With third party firms taking over the discovery phase in a lawsuit, there are greater risks for law practices that include data compromises and professional liability errors. For example, storing data on the cloud comes with risk. If an LPO fails to encrypt the data when passing the information between servers, suffers an outage, loses data, or has other issues that could cripple resources, this could lead to disputes with the law firm and its clients. Additionally, if an LPO hires subcontractors to outsource parts of its IT infrastructure to other companies, if there is a problem with the servers, SaaS, third-party software, mobile apps, or other outside resources, this could also result in a dispute with the law firm and ultimately its clients. If there is a breach, a costly lawsuit could result with the client looking to the law firm for resolution, with the law practice in turn looking to the LPO and its responsibility for the data compromise.

In addition, the complexity of professional liability exposures increases with LPOs. Let’s say, for example, the LPO doesn’t properly index a document and the law firm is unable to find it. This error could be devastating. If a law firm doesn’t provide all the evidence it should have, the case could be ruled a mistrial. The law firm could end up facing a lawsuit by its client. Yes, the law firm would sue its LPO for damages to its reputation, but it still needs to address the PR mess this error caused.

Law firms need to ensure that their LPOs have the proper security measures in place is critical along with the right insurance coverages to respond in the event of a loss. Also important for law firms is to address their own Cyber Liability and Professional Liability policies. When using an LPO here in the U.S. or abroad, it’s incumbent upon law firms and lawyers to carefully review their attorney malpractice coverage and any associated limitations on their insurance. If the malpractice policy does not cover the instruction by the firm of temporary attorneys or non-lawyers, subject to adequate supervision by the firm’s own lawyers, then in the event of an error or omission on the part of an LPO employee the law firm will not be covered.

Axis Insurance Services specializes in Cyber Liability and Errors & Omissions insurance for attorneys and would be happy to review your own policies and those of your LPOs. We can also provide you with a proposal so you can compare the scope of coverages we offer. Give us a call at (877) 787-5258 to speak with our E&O professionals.

 

 

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Blogged on: November 11, 2015 by Mike Smith
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