UK law departments and issues with law firm liability caps

A recent Legal Week Intelligence Client Satisfaction Survey garnered responses from 297 UK law departments. The results summary in LegalWeek, Oct. 26, 2006 at 3, has a strange paragraph in it, at least for US law departments.

“General counsel identified law firm policies towards liability caps and conflicts as significantly more important factors in choosing who to instruct, rather than their global reach or their diversity policies.” No strangeness anywhere about the desire of companies for their firms to have clear conflict policies.” As a factor for choosing a firm, conflicts seems oddly ranked so high, but the criterion is understandable.

More strange and less understandable is the importance attached to “liability caps.” Research and explanation by Amanda Nelson, Administrator of Diageo’s law department, cleared it up. In the UK, law firms can be held liable to third parties who rely on the firm’s due diligence. That potential risk – possibly huge – does not exist for US law firms. A few of the leading UK law firms have sought to limit their liability with caps. This is far from a tempest in a teacup; potential change in the UK situation is brewing.