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July 18, 2003

Disclosure of Malpractice Insurance Should Be Mandatory

Filed under: pre-06-2006 — David Giacalone @ 1:26 am

Robert Ambrogi’s LawSites blog (7/17/03)  points to an illuminating article from GPSolo Magazine (April/May 2003) entitled “Should Disclosure of Malpractice Insurance Be Mandatory?It’s a pro and con piece by James E. Towery and Edward C. Mendrzycki.

checkedBoxS Towery’s “pro” argument is comprehensive and persuasive. His short history of laws and rules on the topic is quite useful, and his description of the organized bar’s reaction to such proposals is quite dispiriting (but not at all surprising).  Most clients simply presume their lawyer has malpractice insurance, but Towery notes that “most experts in legal malpractice insurance believe that one-third or more of American lawyers in private practice are uninsured.” Towery (a past chair of the ABA Standing Committee on Client Protection and past president of the State Bar of California) makes far too many good points to catalogue them all here, but his final thoughts are worth quoting and contemplating:

When a client hires a lawyer, is the lawyer’s lack of insurance a material fact that the client is entitled to know? It is difficult to fashion a persuasive argument that clients are not entitled to that information. Lawyers operate under a state license and have a monopoly on practicing law. With that monopoly go certain obligations. Full disclosure to clients of material information regarding their representation is certainly one of those obligations. And if you don’t believe that most clients would consider information about lack of insurance to be material, I suggest you put that question to a cross-section of your own clients. You may be surprised by the response.

On the other hand, there appears to be far too much “con” in Mendrzycki’s counterpoint statement.   Mendrzycki, who chairs the ABA Standing Committee on Lawyers’ Professional Liability, worries that the issue is just too complicated to be explained to clients and that a rule would a problem by stigmatizing lawyers who don’t have malpractice insurance, or driving them out of practice.  Mendrzycki stresses that disclosure is simply not a proper issue for an ethics rule, merely because clients would want to know that information.  Among his scarier excuses for opposing the disclosure requirements are:

  1. “Although purchasing insurance may be a sound business practice, it does not implicate the traditional notions of morally “right” and “wrong” behavior that the disciplinary rules were designed to address.”
  2. “We accept the principle of caveat emptor in all manner of other business transactions, and hiring a lawyer should be no different.” [editor’s note: !!! ]
  3. “To many of our clients, the law is complex and nebulous, and there is no need to further complicate the attorney-client relationship or negatively affect the perception of the profession.”

As Towery explains, and HALT has reported, (ABA Punts on Mandatory Malpractice Insurance, Spring 2003 Legal Reformer, at 3), an ABA Committee did once propose the adoption of a Model Rule making disclosure of the lack of malpractice insurance mandatory, but many other Committees objected, and Ethics 2000 rejected the notion, and failed to include the requirement in the new Model Rules.

UPDATE (10-27-03): See Declarations & Exclusions Blog Should Clients Bear the Risk When Attorneys Risk Going Bare? for a discussion on informing the client when an LRIS lawyer drops his malpractice insurance.

UPDATE (10-31-03):  The October ’03 edition of Ethics and Lawyering Today reports that Michigan, Nebraska, and North Carolina have adopted rules requiring disclosure of malpractice insurance coverage (or the lack thereof), “bringing the total number of states with disclosure rules to eight (plus one with a mandatory insurance requirement).”

Update (Feb. 22, 2006): For information on activity in several states on this issue, see our post “the Arkansas Bar Association irks me.”

2 Comments

  1. “When a client hires a lawyer, is the lawyer’s lack of insurance a material fact that the client is entitled to know? It is difficult to fashion a persuasive argument that clients are not entitled to that information. Lawyers operate under a state license and have a monopoly on practicing law. With that monopoly go certain obligations. Full disclosure to clients of material information regarding their representation is certainly one of those obligations. And if you don’t believe that most clients would consider information about lack of insurance to be material, I suggest you put that question to a cross-section of your own clients. You may be surprised by the response.” This phrase of the article has certainly got something that can bring more values to the insurance sector as well as for the a client.

    Comment by rghins — May 1, 2008 @ 8:17 am

  2. What lawyer in their right mind would not carry insurance? Of all people lawyers should know the value of having proper protection of their assets.

    Comment by A. Ray — September 26, 2008 @ 12:50 pm

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