Risk Management for Law Firms: Engagement Letters, Policies, and Insurance

As AI tools make their way into legal practice, law firms need clear ground rules. Engagement letters, firm policies, and risk controls help ensure client trust and minimize malpractice exposure.

Why engagement letters matter

Engagement letters define the scope of representation. If a firm plans to use AI tools, disclosing this in the letter can set expectations and protect against disputes. Clients don’t like surprises — transparency builds trust.

Firm policies on AI use

Without internal guidelines, lawyers may experiment with AI tools in inconsistent or risky ways. A good AI-use policy includes:

• When AI tools may or may not be used
• Rules for handling confidential or privileged material
• Requirements for verification and human review
• Approval process for new vendors or platforms
• Documentation and audit trails of AI usage

Insurance considerations

Malpractice policies were written before AI became mainstream. Some carriers may exclude AI-related mistakes or require disclosure of AI use. Firms should review policies and, if needed, seek clarifications from their insurers.

Training and accountability

Even the best policy is useless if lawyers and staff aren’t trained on it. Regular training, plus clear responsibility for compliance, reduces the risk of “shadow AI” use slipping through the cracks.

Takeaway

Law firms can’t eliminate all risk, but they can manage it. By setting expectations with clients, writing down internal rules, and checking insurance coverage, firms can adopt AI responsibly without jeopardizing their professional duties.