State by state, mandatory malpractice disclosure gathers steam

Volume 28 Number 4

It was about five years ago that attorney Lawrence Ferguson took on a lawyer malpractice case in Columbia, Mo. His client was filing suit against an attorney for costing the client a $55,000 judgment and losing custody of her two children.

During discovery, Ferguson found that the attorney did not carry malpractice insurance. A short time later, before Ferguson could pursue what he thought was a strong case, the other attorney filed for bankruptcy and was eventually disbarred.

“My client got nothing. I was outraged by this,” Ferguson says.

Not long after, Ferguson became an ardent advocate for mandatory malpractice disclosure by attorneys in Missouri. He is now vice chair of the Missouri Bar’s Professionalism Committee, which has been working on a draft rule requiring lawyers to tell their clients if they don’t have malpractice coverage.

“We require liability insurance for everyone who has a license and drives a car, and a car can do a lot of damage,” he says. “Why can’t we see our way for attorneys to have liability insurance? It seems to me a bit backward.” While Ferguson and others are advocating for mandatory disclosure, not mandatory coverage, many think a disclosure rule is an excellent prompt to seek coverage.

In 2003 alone, three states put mandatory malpractice disclosure rules in place, joining five others with varying requirements. Bar committees and courts in several other states are looking at such proposals, and the ABA Standing Committee on Client Protection has developed a Model Rule on disclosure that could reach the full House of Delegates at its annual meeting in August.

For proponents, the changes are a long time in coming and are a signal that attorneys have a deep interest in protecting the public. But for many, change does not come easy. Opponents say disclosure rules can interfere with client relationships, put too much power in the hands of insurance companies, and add unnecessary costs—particularly for solo and small practitioners. (For a look at the financial aspects of this debate, see “Lawyers, and bars, weather the liability insurance downturn,” November-December 2002, page 6.)

For states that have not adopted disclosure rules, the issue is likely to be a lively one again this year as backers leap on the growing momentum and doubters point to a tight, expensive insurance market.

A long history

The issue of mandatory malpractice insurance has been around since the late 1970s when skyrocketing malpractice insurance premiums led to one state, Oregon, making malpractice insurance a legal requirement for all practicing lawyers in the state. Today, it remains the only state with mandatory malpractice coverage.

It wasn’t until the late 1990s that the issue resurfaced in the form of mandatory disclosure, rather than coverage. Saying it was an issue of client/consumer protection, courts in Alaska and South Dakota required attorneys to notify clients up front whether or not they had certain levels of malpractice coverage.

Building off the momentum, the ABA Standing Committee on Client Protection offered a Model Rule proposing that attorneys disclose to their clients whether or not they carry malpractice insurance. James Towery, former president of the State Bar of California, was the chair of that committee and helped draft the Model Rule.

“I think it’s a professional responsibility we have,” he says. “The great majority of clients assume that all lawyers have liability insurance, and are sadly disappointed when they find out that they don’t.”

But the Model Rule, when it first arose, failed to get support from key ABA committees and the proposal never made it to the House of Delegates for a vote.

Same idea, different approaches

While the issue cooled on the national level, it began to heat up on the state level. In 2001 and 2002, Ohio adopted a rule that was patterned largely after the Alaska rule. Not only do Ohio and Alaska require client notification ahead of time, they also require minimum amounts of liability coverage to trigger the notification.

Virginia and Delaware, however, took different routes in response to attorneys’ concerns about disclosure. Virginia requires each lawyer to notify the mandatory Virginia State Bar whether or not he or she has any malpractice coverage. The bar then makes that information available to the public upon request, either by telephone or the Internet. Delaware attorneys must give a similar notification to the state supreme court, which holds the records for public review upon request.

In 2003, courts in North Carolina and Nebraska fulfilled requests from their mandatory bars to adopt the Virginia form of mandatory disclosure. New Hampshire, also last year, opted for a prior client disclosure rule similar to Alaska and South Dakota.

“We felt the [Alaska] approach was too intrusive,” says Jim Dorsett, immediate past president of the North Carolina State Bar. “We think this will provide protection not only for the public, but for attorneys as well.” He says the rule generated little opposition from attorneys.

As in Virginia, the North Carolina State Bar will post the information on its Web site to make it available to the public. According to the Virginia State Bar, this portion of its Web site generated about 25,000 hits last year.

Dorsett also hopes the regulation will duplicate Virginia’s results in the area of uninsured lawyers. The percentage of insured lawyers in the state jumped from 60 to 90 percent after mandatory disclosure.

Nebraska’s 8,200 practicing lawyers began notifying the Nebraska State Bar Association of their insurance status in November when annual dues renewals were sent, says Jane Schoenike, the bar’s executive director. “We got tons of phone calls,” she says. “They wanted to know what this was all about.”

Schoenike expects the information to be posted on the association’s Web site by summer. From the bar’s perspective, she adds, “The hardest part is going to be scanning in all those documents.”

Not everyone agree

While mandatory disclosure is clearly gaining momentum, the road is not without bumps for many states. The Indiana State Bar Association’s House of Delegates voted this past November to kill a move to ask the state’s supreme court to require disclosure of minimum amounts of liability coverage, similar to Alaska and Ohio.

“[Opponents] were concerned that a proposal like that might lead to mandatory malpractice coverage laws coming from the supreme court,” says Tom Pyrz, the bar’s executive director. “Lawyers are always concerned about more regulations. I think it is very chilling, and people just didn’t want to go with that.”

Pyrz says there is a chance a bar committee will revisit the issue, possibly with an eye toward a Virginia-like requirement that doesn’t mandate up-front disclosure.

A committee at the State Bar of Montana was expected to reexamine the issue this winter, a year after bar members from the mostly rural part of the state sounded off in a survey with strong opposition to liability disclosure. “People are watching what other states are doing,” says Executive Director Chris Manos.

One of those states being watched closely is Michigan. Despite some objections from bar members, the state supreme court this year is ordering attorneys to tell the State Bar of Michigan whether or not they have malpractice insurance in order to gauge the need for a disclosure law. The information will be forwarded to the court to determine the need for mandatory disclosure.

“There’s been no movement by lawyers to go in that direction,” says Tom Byerley, the bar’s director of professional standards. “A lot of people did not like the question.” But attorneys who do not answer the question, he adds, will be unable to practice law in the state.

Michigan Supreme Court Justice Clifford Taylor, an advocate of disclosure, is undaunted by the opposition. “It’s very important for professional organizations such as the state bar to remember that they’re not there for lawyers. They’re there for the public,” he says. “This is a modest consideration.”

Lawrence Ferguson says he has been somewhat surprised by the amount of opposition the proposal has generated in Missouri. A draft of a rule patterned after Ohio and Alaska never made it as far as the bar’s Board of Governors.

“They see this as a politically charged item,” he says. “Their take on it is that it just doesn’t bode well to get into it.”

Similarly spirited debate last year put a proposal on hold in Louisiana. “It’s a controversial item,” says James Willeford, a member of a Louisiana State Bar Association subcommittee that has been debating the issue. “I don’t think there’s anybody strongly advocating this right now. No one’s really pushing hard.”

In Illinois, a proposal last year that would have made it the second state to require malpractice coverage has been scaled back after opposition, says Dave Anderson, the bar’s assistant executive director. The state supreme court’s Rules Committee is now considering a rule requiring mandatory disclosure of minimum coverage amounts, similar to Alaska and Ohio.

Healthy debate ahead

The flurry of activity on the state level is encouraging to disclosure proponents such as Towery and Robert Welden, the current chair of the ABA Client Protection Committee. “I think it’s a wonderful thing. It’s long overdue,” Towery says. While the Virginia, Nebraska, and North Carolina rules don’t go as far as he would like, “it’s better than nothing,” he says. “The fact that there’s a debate going on [in other states] is healthy.”

Welden adds that passage of the ABA Model Rule will not only encourage other states, but will be a boon in the multijurisdictional movement that allows attorneys to practice in multiple states—which is itself a hotly contested issue. “I think the ABA should take some leadership,” he says.

In Missouri, Ferguson is also encouraged by the momentum, despite the lack of action in his state. “I’m not giving up,” he notes. “I think we’ll get this passed.”


[Sidebar]

Who’s doing what?

Eight states currently require some form of malpractice insurance disclosure for attorneys. There are exemptions in each state, usually for government/municipal attorneys and in-house counsel for companies. Here are the requirements:

* Alaska, Ohio, and New Hampshire: Attorneys must notify clients in writing if they have no malpractice insurance, or if their coverage is less than $100,000 per claim and $300,000 aggregate. Clients must also be notified if insurance coverage is terminated or if coverage drops below the $100,000/$300,000 levels.

* South Dakota: Attorneys must specify on their letterhead if they have no malpractice insurance or if their coverage is less than $100,000 per claim.

* Delaware, Virginia, Nebraska, and North Carolina: Each state requires annual certification, either to the state’s mandatory bar or to the state supreme court, that an attorney does or does not carry malpractice insurance. No minimum limits are required.

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