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Ensuring Insurance

Committee Recommends Requiring Disclosure of Malpractice Coverage

A correction has been made to this story.

Posted Jul 13, 2004 4:24 PM CDT
By Mark Hansen

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An ABA committee is recom­mend­ing the adoption of a model court rule that would require law­yers to disclose on their annual registration statements whether they main­­tain professional liability in­sur­ance.

The proposed rule, which is be­ing sponsored by the ABA Stand­ing Committee on Client Protection, is expected to be submitted for consideration by the association’s policy-making House of Delegates at this year’s annual meeting in Atlanta.

At present, only five states—Delaware, Michigan, Ne­bras­ka, North Carolina and Vir­ginia—require lawyers to disclose on their annual registration statements whether they maintain malpractice insurance. Four other states­—Alaska, New Hampshire, Ohio and South Dakota—require lawyers to disclose directly to their clients whether they carry insurance. Oregon is the only state that requires lawyers to carry insurance.

The proposed model rule also would require lawyers to notify a state’s highest court whenever their insurance coverage lapses or is terminated.

The committee is not recommending that a court amend its current rules of professional conduct, so a failure or a refusal to make the required disclosure would not constitute a disciplinary offense. How­ever, a failure to comply with the proposed rule could result in an administrative suspension. And providing false information in response to the proposed rule could subject a lawyer to possible disciplinary action under Rule 8.4(c) of the ABA Model Rules of Pro­fessional Conduct, which prohibits conduct involving “dishonesty, fraud, deceit or misrepresentation.”

The purpose of the proposed rule, says committee chair Robert D. Welden, is to provide a potential client with access to relevant information to make an informed decision about whether to retain a particular lawyer’s services.

Under the proposed rule, the information provided by lawyers would be made available to the public by such means as designated by a state’s highest court. In Nebras­ka and Virginia, the committee points out, such information is available either by telephone or by visiting the bars’ Web sites.

The proposed rule would exclude from the reporting requirement lawyers who represent organizational clients full time, such as in-house counsel and government lawyers, and those not engaged in the active practice of law.

The committee would leave it to the states to decide whether they want to include minimum limits of required coverage, as the four states that have such a reporting requirement now do.

It also recommends that state bars and lawyer regulatory agencies take steps to inform the public of the limits on the usefulness of the information being provided, such as the fact that most malpractice policies are “claims made” policies and do not cover dishonesty or other intentional acts. Claims-made policies provide coverage only for claims made while the policy is in effect.

RETURNING TO THE DRAWING BOARD

This isn’t the first time the committee has tackled the subject. The group floated two previous proposals that drew some active opposition. One would have required law­yers to notify their clients in writing if they had no insurance. Another would have required lawyers to disclose on their annual registration statements whether they maintained a min­imum level of insurance and whether they had any unsatisfied malpractice judgments against them or any firm for which they ever worked.

So the committee returned to the drawing board, unveiling its latest proposal in April. However, at least one ABA entity—the Standing Commit­tee on Lawyers’ Professional Liability—has decided to oppose the measure. Wel­den says he is disappointed by the news.

Professional liability chair Edward C. Mendrzycki says insurance disclosure may give potential clients a false sense of security. They may assume they will have an avenue of recovery that may or may not exist, depending on the highly specific circumstances of a potential claim.

“Lawyers are not in a position to assure their clients that any particular act or omission will be covered,” he says. “Thus, this rule is akin to selling a patch of shade as sunscreen.”

Correction

"Ensuring Insurance," July 2004, page 61, incorrectly reported that five states require lawyers to disclose on their annual registration statements whether they maintain malpractice insurance. We have learned that a sixth state, Kansas, also requires this. The Journal regrets the error.

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