Utah Bar Journal

On August 10, 2004, the American Bar Association's (ABA) House of Delegates adopted a Model Court Rule (the Rule) recommended by the ABA's Standing Committee on Client Protection that requires lawyers to disclose on their annual registration forms whether they maintain professional liability insurance.1 The Rule does not provide minimum coverage limits nor does it require direct disclosure of insurance information to the public. However, the Rule does require lawyers who report being covered by professional liability insurance to notify their state's highest court whenever their coverage lapses or terminates for any reason. The Rule allows the information submitted pursuant to the disclosure requirement to be made available to the public by means designated appropriate by the state's highest court. Finally, the Rule allows the state's highest court to suspend a lawyer who fails or refuses to comply with the disclosure requirement, or who provides false information in response to the same. Lawyers who represent organizational clients full time, such as in-house counsel and government lawyers, as well as those not engaged in the active practice of law, are excluded from the disclosure requirement.

Lay of the Land
Delaware, Illinois, Kansas, Michigan, Nebraska, New Mexico, North Carolina and Virginia require lawyers to disclose whether they maintain professional liability insurance on their annual registration form. Of the latter, Delaware, Michigan and New Mexico do not provide any of the disclosed information to the public. Alaska, New Hampshire, Ohio and South Dakota require lawyers to directly disclose to their clients, in writing, if they are uninsured or underinsured. However, they also do not require disclosure of insurance information to the public. Alaska, for example, requires disclosure directly to a client through a written fee agreement. See, Alaska Rules of Professional Conduct 1.4 (c). If an attorney does not maintain insurance with limits of at least $100,000 per claim and $300,000 annual aggregate, if coverage drops below these limits, or if coverage is terminated, attorneys in Alaska are under the duty to inform their clients in writing of the same. Id.

In comparison, South Dakota, requires attorneys who do not have professional liability insurance with limits of at least $100,000 to disclose this fact to their clients on their letterhead using the specific following language: 'This lawyer is not covered by professional liability insurance;' or 'This firm is not covered by professional liability insurance.' See, South Dakota Rules of Professional Conduct, Rule 1.4 (c)(1) and (2). This disclosure must be included in every communication with a client. Id. 1.4(d). In effect, certain lawyers in South Dakota need two sets of letterhead, one for communications with clients and another for all other letters.

None of these states require professional liability insurance in order to be licensed Ð they only require some form of disclosure. In fact, Oregon is the only state that requires lawyers to carry professional liability insurance for licensing purposes. In 1978 it formed its own Professional Liability Fund (Fund) that is a mandatory provider of primary malpractice coverage for lawyers who practice in Oregon. The Fund affords minimal levels of $300,000 coverage per occurrence at a premium of about $2,000 per year.

This past year several states reviewed proposals and undertook studies to consider professional liability insurance disclosure requirements for their bar members. These include Colorado, Georgia, Massachusetts, Pennsylvania, Utah and Washington.

Utah
The Utah Bar Commission is reviewing a proposal that would require lawyers who do not carry professional liability insurance for at least $100,000 to disclose this fact to the Utah State Bar and their prospective clients. The proposed Rule 1.4 adds three subsections, (c) through (e), and reads as follows:

Rule 1.4. Communication.
(a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.

(b) A lawyer shall explain a matter to the extent reasonably necessary to enable the client to make informed decisions regarding the representation.

(c) If a lawyer does not have professional liability insurance with limits of at least $100,000, a lawyer shall disclose this in writing to clients in the written fee disclosure provided to the client pursuant to Rule 1.5 and to the Utah State Bar in the annual licensing form.

(d) If, during the course of representation, the insurance policy lapses or is terminated, a lawyer shall promptly notify clients and the Utah State Bar in writing.

(e) This disclosure requirement does not apply to lawyers who are on inactive status, in-house counsel or government lawyers, who do not represent clients outside their official capacity or in-house employment.

It is estimated that the cost to attorneys for coverage of $100,000 ranges from $500 to $1,000 per year, depending on years of experience, practice areas, claims history, etc.

In Favor of Disclosure
It is estimated that one-third or more of attorneys in private practice in this country are uninsured. See, Towery, James, Should Disclosure of Malpractice Insurance be Mandatory? ABA General Practice, Solo and Small Firm Section, as posted on the ABA website, www.abanet.org. This is an embarrassing statistic. Promoting means to increase the members of our profession who carry professional liability insurance can only be viewed as a positive thing. Anecdotally, after the adoption of disclosure rules in Alaska and South Dakota, a significant number of lawyers who had previously been uninsured obtained insurance shortly before the effective date. We are privileged to be a self-regulating profession Ð we should hold ourselves to a higher standard. It is ironic that we need to have proof of insurance to register our vehicles, but not to practice law. Potential clients seek our assistance in what they consider to be very stressful situations. Encouraging our colleagues, as other professions do, to carry minimum coverage will make us more 'professional.'

It is in the best interest of our members to be insured. Today, to be successful in our profession we must possess not only solid lawyering skills, but also savvy business skills. What responsible business person would not insure his or her business? Unfortunately no lawyer or law firm, regardless of size, is insulated against lawsuits. Having liability insurance is necessary to avoid the risk of jeopardizing personal assets, as well as the future of our associates, ourselves and our loved ones.

We need to respect and protect clients. The purpose of a rule promoting insurance disclosure is to provide potential clients with access to relevant information they can use to make an informed decision about whether to hire a particular attorney. Many clients presume that attorneys have professional liability insurance since they draw analogies from other professions, e.g. doctors, general contractors, etc. Whether a lawyer maintains professional liability insurance is a material fact that potential clients have the right to know. While clients have the right to hire lawyers who do not carry liability insurance, they should know that by doing so they will likely have no avenue of financial redress if the lawyer commits an act of negligence. To obtain any restitution from client security funds, clients must show that their lawyer misappropriated their funds.

Finally, as a profession, we should strive to be open to disclosure for the interest of the public. One of the key components of the mission of the Utah State Bar is 'to serve the public . . . by promoting justice, professional excellence, civility, ethics, respect for and understanding of the Law.Ó In regards to professional liability insurance, under-served populations in particular, such as the elderly, those of low-income and recent immigrants, are not sophisticated enough to ask the right questions before retaining counsel. If we are serious about serving them we should err on the side of openness. Although changing the status quo is never easy, establishing a minimum threshold for disclosure of liability insurance may prove to be far less of a hassle and more of a win-win situation.

1. The ABA Model Court Rule reads in its entirety as follows:

Each lawyer admitted to the active practice of law shall certify to the [highest court of the jurisdiction] on or before [December 31 of each year]: 1) whether the lawyer is engaged in the private practice of law; 2) if engaged in the private practice of law, whether the lawyer is covered by professional liability insurance; 3) whether the lawyer intends to maintain insurance during the period of time the lawyer is exempt from the provision of this Rule because the lawyer is engaged in the practice of law as a full-time government lawyer or is counsel employed by an organizational client and does not represent clients outside that capacity. Each lawyer admitted to the practice of law in this jurisdiction who reports being covered by professional liability insurance shall notify [the highest court in the jurisdiction] in writing within 30 days if the insurance policy providing coverage lapses, is no longer in effect or terminates for any reason.

The foregoing shall be certified by each lawyer admitted to the active practice of law in this jurisdiction in such form as may be prescribed by the [highest court of the jurisdiction]. The information submitted pursuant to this Rule will be made available to the public by such means as may be designated by the [highest court of the jurisdiction].

Any lawyer admitted to the active practice of law who fails to comply with this Rule in a timely fashion, as defined by the [highest court in the jurisdiction], may be suspended from the practice of law until such time as the lawyer complies. Supplying false information in response to this Rule shall subject the lawyer to appropriate disciplinary action.