Is Mandatory Disclosure of Professional Liability Insurance Coverage Coming to Maryland?
By Deborah H. Diehl, Esq. and Mustafa Kamal, Esq. Whiteford, Taylor & Preston L.L.P.
At the August, 2004 Annual Meeting of the American Bar Association, on the recommendation of the ABA Standing Committee on Client Protection, the ABA House of Delegates adopted the Model Court Rule on Insurance Disclosure. This follows action by an increasing number of jurisdictions either mandating a minimum level of professional liability insurance or requiring various forms of disclosure to clients with respect to whether a specified minimum level of insurance is maintained.
The Business Law Section Council has learned that the MSBA Board of Governors recently voted to oppose adoption of the ABA Model Rule in Maryland; the Maryland Court of Appeals will likely discuss whether to forward the Model Rule to its Rules Committee for consideration. We make you aware of the issue so that you can provide your own input on the topic to the Rules Committee if the Maryland Court of Appeals determines to further consider the issue.
The ABA Model Rule requires lawyers to disclose on their annual registration statements whether they maintain professional liability insurance. The full text of the ABA Model Rule and the Committee Report recommending its adoption can be found at http://www.abanet.org/cpr/client.html. The Committee Report states that “the purpose of the Rule is to provide a potential client with access to relevant information related to a lawyer’s representation in order to make an informed decision about whether to retain a particular lawyer…[w]hile the Model Court Rule does not require a lawyer to disclose directly to clients whether insurance is maintained or to maintain professional liability insurance, it does impose a modest annual reporting requirement on the lawyer. The information reported by lawyers will be made available by such means as designated by the highest court in the jurisdiction.”
Alaska, New Hampshire, Ohio and South Dakota have amended their Model Rules of Professional Conduct to require lawyers to disclose to their clients whether they maintain professional liability insurance. Alaska further requires that a lawyer inform clients in writing if the lawyer does not maintain liability insurance with limits of at least $100,000 per occurrence and a $300,000 annual aggregate. A lawyer in Alaska must also maintain disclosure records for six years from the termination of representation.
In Ohio and New Hampshire, lawyers must inform clients at the time of engagement or at any later time if the lawyer does not maintain professional liability insurance of at least $100,000 per occurrence and $300,000 in the aggregate. A form must be signed by the client acknowledging such notice by the lawyer, and the lawyer must maintain a copy of the notice for five years following the termination of representation. South Dakota has one of the most comprehensive rules for liability insurance reporting. If a lawyer does not have professional liability insurance with limits of at least $100,000, or if during the course of representation the coverage lapses or is terminated, a lawyer in South Dakota must promptly disclose this fact to the client as a component of the lawyer’s letterhead.
Delaware and Michigan require lawyers to disclose on their annual certification to the state Supreme Court whether they maintain professional liability insurance, and Nebraska, North Carolina, Virginia, and Illinois require lawyers to disclose on their annual registration statement with the state bar association whether they maintain professional liability insurance. In Nebraska and Virginia, information regarding a lawyer’s professional liability insurance is made available to a potential client if the client contacts the bar association and requests it. Like Virginia, the Illinois Supreme Court will make insurance information available to the public on its website. Oregon has the strictest requirement in that it mandates professional liability insurance as a condition of practicing law. In Oregon, coverage is tied to a mandatory carrier formed by the state, and the state requires all attorneys in private practice not only to have this insurance but also to obtain coverage from the bar’s own malpractice insurance fund. Nevada has also amended its Rules of Professional Conduct to require attorneys who advertise as specialists to carry at least $500,000 of malpractice insurance.
Several other state courts have pending proposals for mandatory liability insurance reporting, as this issue has generated considerable discussion in bar associations across the country. Some states have formed their own insurance companies to compete with commercial insurers, with several bar-related insurance companies offering malpractice coverage to lawyers in different states. The ABA Model Rule is patterned after the reporting requirements in some of the above-mentioned jurisdictions.
The Pros and Cons of Insurance Reporting and Maintenance Requirements
Proponents of the insurance reporting and maintenance requirements believe that whether a lawyer maintains professional liability insurance or another form of adequate financial responsibility is a material fact that may bear upon a client’s decision to hire a lawyer. They state that lawyers should be required to make this information available to prospective clients so that clients can make a fully informed decision when choosing whether to hire a lawyer. Such proponents argue that clients often assume that a lawyer is required to maintain malpractice insurance and do not even think to inquire if the lawyer is covered.
Supporters of such requirements believe that these rules would provide potential clients with the ability to independently determine whether a lawyer maintains professional liability insurance. This is seen as especially important in an industry where clients often have no guaranteed method of gaining financial restitution from an attorney in a malpractice suit and the ability of client protection funds to compensate clients is often limited. Proponents say that professional liability insurance ensures that a client has financial redress against his lawyer. They also claim that most practicing lawyers carry insurance, so it is not an undue burden on the profession, and that most lawyers favor either mandatory disclosure or mandatory coverage.
Detractors of these requirements point out that whether or not a lawyer carries malpractice insurance is not an ethical or moral question, and that a disciplinary system should not be invoked to solve a problem that is neither moral nor ethical. Some commentators say that while buying insurance is unquestionably a “best practice” in most situations, it is not one that involves an ethical underpinning. They question the need for such an insurance reporting or maintenance rule, asking for evidence that uninsured lawyers are currently harming clients or pointing out that there is no evidence of malpractice judgments that are uncollectible due to lack of insurance. They also point out that there is no objective data showing that a lawyer who has insurance is more likely to act ethically than one who has none.
Opponents also argue that mandatory coverage takes away the independence and self-regulation from lawyers and puts it in the hands of professional liability insurers; because lawyers who choose not to carry insurance fear losing market share to those who do carry it, insurance companies will have a say in who can compete in the legal marketplace. Another argument brought forth against the proposals is that because of the nature of lawyer’s professional liability insurance, it may be useless, or even misleading, for a client to know that a lawyer has insurance because claims are frequently not made in the same year that a negligent act occurs, and if a lawyer has insurance on the day he is negligent, he may not have it at the time a client discovers the mistake. Therefore, knowing that a lawyer has malpractice insurance may actually harm the client by giving the wrong impression.
The proponents urge that the statement required by the Model Rule is a minimum, and that state rules may require more explicit disclosure. The proponents also argue that the rule may encourage lawyers to have liability insurance; experience shows that states with mandatory disclosure or coverage requirements have a significantly decreased level of uninsured lawyers. Opponents further argue that a mandatory disclosure or maintenance rule may be a disadvantage to attorneys who cannot afford insurance and whose legal practices function on a limited budget, or on a part-time basis, or where lawyers choose to be uninsured because they choose their cases and clients specifically to avoid risks that warrant insurance coverage. Mandating (or effectively mandating) insurance coverage could also negatively impact the availability of legal representation to the poor, and making coverage mandatory for client protection frustrates the main purpose of insurance which is to protect the covered lawyer and not the client. Proponents counter by saying that an insurance disclosure and maintenance system is “lawyers regulating lawyers” even if the insurance industry participates. They argue that although insurance is an added cost, it is just another business expense, and in the grand picture, insurance is cheaper to the profession than clients damaged by attorney malpractice going uncompensated because lawyers had no insurance coverage.
The arguments presented above are not exhaustive, but they do give a good indication of the nature of the discussions for and against mandatory insurance disclosure or maintenance. The MSBA Business Law Section Council encourages you to give the issue consideration. Do you support a Maryland rule requiring lawyers to carry professional liability insurance or to disclose information about their coverage? If so, do you have suggestions on what form a proposed Maryland rule should take? If the Maryland Court of Appeals determines to consider the Model Rule further, you might want to make your voice heard.