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's client data is exposed in a third-party vendor breach. Under which legal theory is the firm MOST likely to face liability?
Answer: Negligent supervision of a third-party contractor
Firms have a duty to exercise reasonable care in selecting and overseeing vendors who handle confidential client data, making negligent supervision the most applicable theory.
Which document formally transfers identified risks to an outside party and is commonly used in vendor agreements?
Answer: Indemnification clause
An indemnification clause contractually shifts specified risks and associated losses from one party to another in a vendor or service agreement.
A CLM candidate reviews a firm's insurance portfolio. Which coverage specifically protects against claims arising from professional errors or omissions by attorneys?
Answer: Legal malpractice / professional liability insurance
Legal malpractice insurance, a form of professional liability coverage, protects attorneys and the firm against claims resulting from alleged errors, omissions, or negligent acts in legal representation.
During a risk assessment, the team plots risks on a heat map. What two dimensions are typically used on the axes?
Answer: Likelihood and impact
A risk heat map plots risks along axes of likelihood (probability of occurrence) and impact (severity of consequences) to prioritize mitigation efforts.
A law firm implements mandatory conflict-of-interest checks before accepting new matters. This practice BEST represents which risk management strategy?
Answer: Risk avoidance
Performing conflict checks before accepting a matter avoids taking on engagements that would expose the firm to ethical violations or liability, a risk avoidance strategy.
Which regulatory body's rules most directly govern law firm trust account management and the risk of commingling funds?
Answer: State bar association
State bar associations promulgate rules of professional conduct, including IOLTA/trust account regulations that prohibit commingling client and firm funds.
A firm's risk committee decides to self-insure for small, predictable losses rather than purchasing coverage for them. This is an example of:
Answer: Risk retention
Risk retention means the organization consciously accepts responsibility for certain losses, often when the cost of insurance exceeds the expected loss.