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We had a situation where our policyholder made a business appraisal for a client for estate planning. A couple of years later their client utilized that same valuation for a M&A transaction in order to sell their company. It ended up erupting into litigation and our policyholder wound up on weak footing because their engagement letter did not clearly state that the valuation should not have been used for any purpose other than that for which it was originally intended.

The importance of a well-crafted client engagement letter should not be underestimated. It can be your single best tool to manage risk and reduce the likelihood of claims. With this document, you set expectations as well as establish the proper boundaries with your client.

Although there is no standard engagement letter, since they vary according to the  services offered and the type of client, the basic components should include:

  • The formal, legal name of the client (individual or entity) for which the services will be performed
  • The time period during which the services will be performed
  • The scope of services, including their limitations and deliverables
  • The specific responsibilities of the firm
  • Details of what is expected of the client to facilitate the engagement
  • Fees and payment terms
  • Dispute resolution, such as the use of arbitration or mediation
  • A provision defining the steps necessary to terminate the engagement

We defended our policyholder in the lawsuit mentioned above. Find out more and Be In The Know of how you can protect your practice from similar litigation in the video below.