ALA Risk Management and Liability 3 — Questions and Answers
Question 1: A law firm's engagement letter should include which element to most effectively limit the firm's malpractice exposure?
- A flat-fee billing schedule
- A clear scope-of-representation clause (Correct answer)
- An arbitration clause only
- Partner contact information
Correct answer: A clear scope-of-representation clause
A well-defined scope-of-representation clause sets boundaries on what the firm has agreed to do, reducing the risk of claims based on work outside the agreed engagement.
Question 2: Under the ABA Model Rules, an attorney's duty of confidentiality extends to:
- Only information shared during formal representation
- All information relating to the representation, regardless of source (Correct answer)
- Only privileged attorney-client communications
- Information shared after the engagement letter is signed
Correct answer: All information relating to the representation, regardless of source
Model Rule 1.6 broadly protects all information relating to the representation, not just privileged communications, requiring careful information-handling risk controls.
Question 3: A firm discovers that a departing associate emailed client files to a personal account. The FIRST step in the incident response process should be:
- Notify the state bar immediately
- Contain the breach and preserve evidence (Correct answer)
- Terminate the associate
- Issue a press release
Correct answer: Contain the breach and preserve evidence
The first step in any incident response is containment—stopping further exposure and preserving evidence—before notifications or other remediation steps are taken.
Question 4: Which concept describes the minimum acceptable level of risk that a law firm's leadership is willing to tolerate before taking corrective action?
- Risk capacity
- Risk tolerance
- Risk appetite (Correct answer)
- Residual risk
Correct answer: Risk appetite
Risk appetite is the amount and type of risk an organization is prepared to pursue, retain, or take, distinct from risk tolerance which defines acceptable variance around objectives.
Question 5: A CLM is reviewing insurance renewals and notices the current policy has a 'claims-made' trigger. What does this mean?
- Coverage applies when the negligent act occurs, regardless of when the claim is filed
- Coverage applies when the claim is reported during the active policy period (Correct answer)
- Coverage is unlimited and applies retroactively
- Coverage applies only to claims filed in federal court
Correct answer: Coverage applies when the claim is reported during the active policy period
A claims-made policy provides coverage only when the claim is both made against the insured and reported to the insurer during the policy period, unlike occurrence-based policies.
Question 6: A law firm's business continuity plan (BCP) PRIMARILY aims to:
- Prevent all disruptions from occurring
- Ensure critical operations can continue during and after a disruption (Correct answer)
- Eliminate all identified risks from the risk register
- Transfer financial risk to insurers
Correct answer: Ensure critical operations can continue during and after a disruption
A BCP focuses on maintaining essential functions and restoring operations after a disruption, not preventing all risks from materializing.
Question 7: Which of the following BEST illustrates 'residual risk' in a law firm context?
- The total risk before any controls are applied
- The risk that remains after implementing mitigation controls (Correct answer)
- Risk that has been fully transferred to an insurer
- A risk that has zero probability of occurring
Correct answer: The risk that remains after implementing mitigation controls
Residual risk is the remaining exposure after risk controls and mitigations have been applied; it represents what the firm still must accept or manage.
ALA Risk Management and Liability 3
A law firm's engagement letter should include which element to most effectively limit the firm's malpractice exposure?