Risk Management and Liability Flashcards
7 cards from real ALA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management and Liability flashcards as text
A law firm is evaluating whether to add a tail (extended reporting period) endorsement to its claims-made malpractice policy. When is this MOST critical?
Answer: When the firm is closing, merging, or switching insurers
Tail coverage is essential when a claims-made policy lapses—such as at firm dissolution or insurer change—to protect against claims arising after the policy ends for acts that occurred during the coverage period.
An attorney inadvertently discloses privileged documents in discovery. Which immediate step BEST limits the firm's risk exposure?
Answer: Claw back the documents under Fed. R. Civ. P. 26(b)(5)(B) and notify opposing counsel
Rule 26(b)(5)(B) provides a claw-back mechanism requiring prompt notification of opposing counsel and a request to return or destroy the inadvertently disclosed privileged materials.
A firm's risk management program uses Key Risk Indicators (KRIs). These are BEST described as:
Answer: Forward-looking metrics that signal increasing risk exposure before a loss event
KRIs are early-warning metrics that provide advance signals of rising risk levels, enabling proactive management before risks materialize into losses.
Which strategy would a CLM recommend to reduce the firm's concentration risk arising from over-reliance on a single large client?
Answer: Diversify the client portfolio across industries and matter types
Diversifying the client base reduces revenue concentration risk so that the loss or departure of any single client does not disproportionately harm the firm's financial stability.
Under ABA Model Rule 5.1, which individuals at a law firm bear responsibility for ensuring subordinate lawyers comply with the Rules of Professional Conduct?
Answer: Partners and supervisory lawyers with direct authority over the subordinate
Model Rule 5.1 places responsibility on partners firm-wide and on supervisory lawyers who have direct authority over a subordinate lawyer's work.
A firm's disaster recovery plan (DRP) differs from its business continuity plan (BCP) primarily in that the DRP:
Answer: Focuses specifically on restoring IT systems and data after a disaster
A DRP focuses on technical recovery of IT infrastructure and data, while a BCP broadly addresses how the firm sustains critical business operations during any type of disruption.
A CLM is preparing the firm's annual risk report for the executive committee. Which metric BEST demonstrates the effectiveness of the firm's risk mitigation programs over time?
Answer: Year-over-year trend in residual risk ratings for top risks
Tracking the trend in residual risk ratings shows whether mitigation controls are actually reducing exposure over time, making it the most meaningful effectiveness metric.