Professional Malpractice Demand Letters

• Duty: Attorney-client relationship (engagement letter, payment, reliance)
• Breach: Failure to use ordinary care, skill, and knowledge common to attorneys
• Causation (“case within a case”): But for attorney’s negligence, client would have obtained more favorable result
• Damages: Actual losses caused by malpractice (not speculative)

• Complete file: All pleadings, correspondence, emails, billing records, file notes
• Engagement letter: Scope of representation, fee agreement
• Underlying judgment/settlement: Result of case attorney handled
• New attorney evaluation: Opinion from new counsel on what should have been done
• Expert declaration: Standard-of-care expert opining on breach and causation
• Timeline: Statute of limitations analysis, key dates attorney missed
• Damages calculation: What client lost vs. what they would have recovered

Key components:

• Chronology: Timeline of representation and specific errors
• Breach identification: Cite specific professional conduct rules violated (if applicable)
• “Case within case”: Explain how underlying matter would have succeeded but for attorney’s negligence
• Damages itemization: What client lost (judgment against them, settlement they would have received, lost business opportunity)
• Coverage notice: Request attorney forward letter to malpractice carrier; set deadline for coverage response
• State Bar reference: Mention potential State Bar complaint (carefully – not as threat but as parallel option)

Attorneys settle when:

• Obvious malpractice (missed SOL, abandoned client, conflict documented)
• Malpractice carrier recommends settlement (carrier controls defense in most policies)
• Client sympathetic (elderly, unsophisticated, serious harm)
• Trial risk high (jury sympathetic to injured clients over attorneys)

Attorneys defend when:

• Judgment call, not error (tactical decision within reasonable bounds)
• Client contributory conduct (client didn’t disclose key facts, failed to cooperate)
• Underlying case was weak (can’t prove “case within case”)
• Damages speculative or inflated

MICRA (Medical Injury Compensation Reform Act):

• Noneconomic damages cap: Historically $250k (Civ. Code § 3333.2); increased by 2023 amendments (Prop 213) to $350k (rising incrementally to $750k by 2033 for non-wrongful death)
• Periodic payments: Future damages over $50k may be paid periodically (CCP § 667.7)
• Statute of limitations: 1 year from discovery or 3 years from injury (CCP § 340.5)
• Attorney fees sliding scale: Limits on contingency fees (Bus. & Prof. Code § 6146)

Purpose: Give healthcare providers opportunity to evaluate claim and potentially settle pre-litigation.

What to include:

• Identity of plaintiff and all known defendants (physicians, hospital, medical group)
• Legal basis: professional negligence, lack of informed consent, etc.
• General nature of injuries and damages
• Statement that this is § 364 notice of intent to commence action

• Medical records: Complete records from all providers (hospital, physicians, specialists)
• Expert declaration: Board-certified physician in same specialty opining on standard of care, breach, and causation
• Radiology/pathology: Images, slides, test results
• Informed consent forms: What risks were disclosed (or not disclosed)
• Medical literature: Standards, guidelines, protocols supporting expert’s opinion
• Damages documentation: Medical bills, future care estimates, wage loss, life care plan for catastrophic injuries

Two separate documents:

• § 364 Notice: Statutory pre-suit requirement; brief, general description of claim
• Demand letter: Detailed settlement demand (may be sent simultaneously or after 90-day notice period); includes medical chronology, expert opinions, damages breakdown, settlement demand

Many attorneys combine these into single document serving both functions.

Medical malpractice insurers settle when:

• Clear liability (obvious error, peer review identified substandard care)
• Catastrophic injuries (permanent disability, death – high jury verdict risk)
• Sympathetic plaintiff (child, young parent, permanent disfigurement)
• Strong expert opinions from well-credentialed physicians
• Physician-defendant admits error or shows remorse

Insurers defend when:

• Judgment call within standard of care (reasonable physicians differ on treatment approach)
• Poor patient outcome despite appropriate care (bad result ≠ malpractice)
• Informed consent obtained (patient knew and accepted risks)
• Plaintiff contributory conduct (failed to follow instructions, delayed seeking care)
• Pre-existing conditions caused or contributed to injury

Duty sources:

• Engagement letter: Scope of services (tax prep, audit, compilation, consulting)
• GAAP / GAAS: Professional accounting and auditing standards
• Tax code and regulations: For tax preparation services
• Professional standards: AICPA Code of Professional Conduct

Common breaches:

• Missed tax deadlines: Failed to file returns, missed extensions, late estimated payments
• Erroneous tax positions: Aggressive positions without disclosure, failure to advise on tax consequences
• Audit failures: Failed to detect material misstatements, inadequate sampling, independence violations
• Missed deductions/credits: Failed to claim tax benefits client was entitled to
• Disclosure failures: Didn’t advise client of FBAR, foreign account reporting, or other compliance requirements

Damages:

• IRS penalties and interest
• Additional tax liability from erroneous advice
• Lost tax benefits (missed deductions, credits)
• Professional fees to correct errors
• Business losses from bad financial advice

Regulatory framework:

• Broker-dealers: FINRA member firms; suitability standard (must recommend suitable investments)
• Registered Investment Advisors (RIAs): SEC or state-registered; fiduciary duty (act in client’s best interest)
• Dual registrants: Both broker-dealer rep and RIA; duty depends on capacity

Common claims:

Most customer agreements require arbitration:

• Forum: FINRA Dispute Resolution (not court litigation)
• Eligibility: Claim must be filed within 6 years of occurrence (FINRA Rule 12206)
• Process: File statement of claim → respondent answer → discovery → hearing → award
• Timeline: Typically 12-18 months from filing to award
• Advantages: Industry-expert arbitrators, faster than court, simplified discovery
• Disadvantages: Limited appeal rights, filing fees ($1,425-$3,350 depending on claim size)

Pre-arbitration demand should:

• Identify unsuitable recommendations with specificity (dates, securities, amounts)
• Explain why investments were unsuitable (client profile vs. investment risk)
• Document losses attributable to misconduct (not market losses)
• Cite FINRA rules violated (Rule 2111 suitability, Rule 2010 high standards)
• Reference potential FINRA complaint and arbitration if not resolved
• Request firm’s compliance and legal departments review

Evidence checklist:

• Account statements showing trades and losses
• Trade confirmations
• New account forms / investor profile documents
• Emails and notes of advisor recommendations
• Marketing materials and disclosures (or lack thereof)
• Expert report on suitability and damages

Upon receiving demand letter:

• Stop work: If still representing client, consider withdrawal (avoid deepening damages)
• Preserve file: Implement litigation hold on all documents, emails, notes, billing records
• Notify insurer: Call claims department same day; follow up with written notice and copy of demand letter
• Don’t respond directly (yet): Wait for carrier to assign defense counsel
• Don’t destroy or alter records: Spoliation of evidence invites sanctions and coverage denial
• Don’t communicate with claimant: All communications through counsel once assigned

Professional liability policies typically cover:

• Professional negligence and errors & omissions
• Defense costs (usually outside policy limits)
• Settlements and judgments up to policy limits

Common exclusions:

• Intentional misconduct, fraud, criminal acts
• Claims arising before policy inception (prior acts exclusion)
• Punitive damages (in some states)
• Claims not reported during policy period (claims-made policies)

Notice requirements:

• Provide: demand letter, relevant file materials, chronology of representation
• Cooperate with carrier investigation
• Don’t admit liability or settle without carrier consent

Questions to ask (with defense counsel):

• Statute of limitations: Is claim timely? (Legal mal: 1 year from discovery; Medical: 1-3 years; Accounting: 2-4 years)
• Causation: Can claimant prove “case within case” (for legal mal) or that error caused harm?
• Damages: Are claimed damages accurately attributed to alleged malpractice vs other factors?
• Standard of care: Was this truly breach or reasonable professional judgment?
• Contributory conduct: Did client fail to disclose facts, not follow advice, or cause own harm?

Expect parallel board complaint:

• Many clients file both civil malpractice claim AND licensing board complaint
• Board complaint can result in discipline (suspension, probation, revocation)
• Coordinate response: Don’t make inconsistent statements in civil and board proceedings
• Board proceedings are public (harmful to reputation even if civil case settles confidentially)

Board defense strategy:

• Retain board defense counsel (often separate from malpractice defense counsel)
• Respond to board investigation requests promptly and professionally
• Avoid emotional or defensive tone
• Focus on patient/client care and professional standards, not legal liability
• Consider remedial action (additional training, practice changes) to show responsibility

If carrier authorizes response before assigning counsel:

• Keep it brief: Acknowledge receipt, state you’ve notified carrier, provide carrier contact info
• Don’t argue merits: Save legal arguments for defense counsel
• Don’t admit liability: Even apologies can be used against you (unless state has apology statute protection)
• Don’t make offers: Settlement authority rests with carrier per policy terms

Sample brief response:

Use malpractice claim as learning opportunity:

• Review practice procedures: What systems failed? How to prevent recurrence?
• Calendar systems: Redundant deadline tracking, automatic reminders
• Engagement letters: Clear scope, limitations, client responsibilities
• Communication: Document advice given, client decisions, declinations
• Conflicts checks: Systematic screening before taking new matters
• CLE / training: Address knowledge gaps revealed by claim