March 7, 2000
Sherwin P. Simmons, Chair
Commission on Multidisciplinary Practice
Steel Hector & Davis LLP
200 S Biscayne Blvd
Miami, FL 33131-2398
Re: ABA Standing Committee on Lawyers’ Professional Liability
Position on Multidisciplinary Practice
Dear Mr. Simmons:
The debate and discussion since the announcement of your Commission’s report to the House of Delegates last June has been intense. While the focus changes from forum to forum, the discussions continue and no doubt will until the annual meeting of the ABA in July in New York. In furtherance of the Commission's continued study of this important issue, the Standing Committee on Lawyers’ Professional Liability (Standing Committee) wants to make its position on Multidisciplinary Practice (MDP) known to your Commission.
The Standing Committee listened with interest to the discussion during the recent Town Hall Meeting at the ABA midyear meeting in Dallas. Our perspective on the subject can best be stated by paraphrasing Paul Sax, Chair of the ABA Section on Taxation, when he said: "Henry Ford used to make only black Model T’s and we bought them. It used to be that doctors told us about our health problems and we accepted their advice. The legal profession used to tell the public how they would receive legal services, and that was the way it was. But those days are gone and iMacs come in all different colors, because we are now living in a consumer- driven economy."
This reality has caused the Standing Committee to look again at how legal services will be delivered in the future and how that future will impact lawyers’ professional liability insurance (LPLI) and claims made against members of the Bar. We see the key issues as falling into three major categories: Coverage (will existing policies respond appropriately in an MDP environment?); Exposure (what new or different risks will an MDP environment produce?); and Capacity (will there be insurance available in an MDP environment, and if so, are the markets acceptable?). While none of us has a crystal ball, the Standing Committee has its finger on the pulse of the LPLI industry and feels comfortable offering the following observations in aid of your Commission's debate.
Coverage: Current insurance policies do not adequately respond to risks inherent to an MDP environment. A typical lawyers professional liability policy contains an insuring agreement that speaks of paying damages that result from acts, errors or omissions committed while practicing law. They further contain very specific exclusions limiting coverage for outside business activities, trusteeships and other activities that are not directly related to the practice of law. The major coverage risk imposed by an MDP environment results from the inclusion of other professional liability activities into what has in the past been a very well defined "Practice of Law." Jurisdictions adopting MDP rules as proposed by the Commission will need to consider what, if any, impact these rule changes will have on their respective client protection schemes. In addition, the insurance industry will need to look at the definitions of "Professional Service" and "The Practice of Law" with an eye to expanding the definitions to cover MDP situations. This will not necessarily lead to an increase in cost to law firms. In most situations where two different professional practices are both insuring their professional liability, the cost of the combined coverage under the MDP should be no more than the cost of insuring the two risks separately. An MDP policy should have the added advantage of reducing the cost of defense where two disciplines are involved in the potential loss. Simply stated there will be less finger pointing and potentially a faster resolution.
As the industry struggles with reframing policy forms to deal with the advent of MDP and the changes in professional practices generally, it will need direction. Will it come from the Bar, from the AICPA or from consumer demands? If the ABA doesn’t make strong and decisive recommendations to Jurisdictional Bars, and Supreme Courts, there will be little uniformity in the rules as MDPs develop. In such a scenario the insurance industry will be left to create its own definitions and rules, based on public pressures and perceptions. The result will be insuring agreements and policy interpretations that will, most likely, not serve the interests of the organized bar, practicing lawyers or the best interests of the public.
Increased Risk Factors: An MDP creates some inherent new or expanded risks, all of which are manageable. The Standing Committee is particularly concerned with the potential for increased liability in the areas of "Breach of Confidentiality" and "Conflict of Interest." Because of the unique right of confidentiality mandated for communications between attorneys and clients, the imposition of other professionals who operate under differing professional rules of conduct entering into the equation will require care. How the rights of clients are protected will remain an obligation of the lawyers in the MDP, and care must be given in the ABA process of rule drafting to insure that other professionals working in an MDP are required to meet the higher standards imposed by our rules of professional responsibility. Simply stated, the jurisdictional rules of professional responsibility must trump any other rules, regulations or statutes. While perhaps complicated, this is an absolute if we are to avoid professional liability claims problems for the lawyers in the MDP.
Conflicts of interest problems are less definable in the MDP environment, but those that might include insurance agencies, title insurance, and real estate sales operations will create opportunity for conflicts. Additionally, Model Rule 1.10 Imputed Disqualification – General Rule is viewed by many as restrictive to the point of perhaps requiring withdrawal from current representation where information is gleaned from another entity or party even where no representation of the second entity is undertaken (see ALAS Loss Prevention Journal, Volume 9, No. 2, P.2 [May 1998]). While proposed rule 1.18 intends to relax the imputed disqualification issue in MDP situations, the inherent conflict between the differing rules of the professions involved will still create new and different risk factors. In the MDP environment, where other associated professions have less restrictive rules, conflicts are more likely to arise for lawyers. Strict disclosure rules may help the problem, but in the end the lawyer will still be held accountable for creating understanding in such disclosures and in dealing with the consequence where a client is harmed by an action of the MDP. Even if the lawyer involved does not personally benefit, and there is no benefit to the MDP or other professionals within the MDP, if there is harm to the clients of the lawyer, principals of the MDP must still respond under Rules. These issues are not as manageable as the breach of confidentiality issues.
Capacity: There will be insurance available for MDPs. However, it may not be in the form or from the carriers that lawyers expect. The Standing Committee has been watching the lawyers professional liability market for the past twenty or so years. We have observed the hard markets of the late seventies and the late eighties and the growth of NABRICO companies that started to fill a void left by the commercial market. We also watched the extremely soft market of the nineties and the books of some of the NABRICO companies decline as price pressure from the expanding commercial market increased. The tide seems to be shifting and we are now seeing signs of hardening in certain parts of the country, and with certain areas of practice. Consolidation in the global reinsurance market and even some of the commercial retail markets seem to portend change. As the industry and consumers become more sophisticated and demanding, we are forced to ask whether there will be a place in the insurance world for small mono-line, mono-state companies that only cover a single profession's risks. The committee tends to believe that it may be difficult for such programs to exist if they are not compulsory (like the Oregon Professional Liability Fund). If such is the case, the number of companies offering coverage will shrink and the coverage may be packaged with other coverages in order to develop sufficient premium volume to justify the risks inherent to a professional practice in this century. In short, the industry will provide coverage for MDPs with price and options being the yet unanswered questions.
In closing, the Standing Committee would like to observe that it endorses the efforts of the Commission to define MDP in such a way that jurisdictional Bar associations and Supreme Courts will have guidance in dealing with this important issue. MDPs will exist, and in our view the only issue remains, according to whose rules. The Standing Committee believes that the legal profession’s best chance to address our concerns, and the many others already identified by the Commission is to have the legal profession lead the effort and direct the dialogue from which MDP will inevitably spring.
Thank you for allowing us the privilege of being heard on this issue. If the Commission desires, I and/or other members of the Standing Committee will be available to assist you in this important effort.
Joseph P. McMonigle
Chair, Standing Committee on Lawyers’
Professional Liability Insurance
cc: Members, STC on Lawyers’
Sheree L. Swetin