As If Solos & Smalls Weren’t Regulated Enough, Professor Leslie Levin Wants Malpractice Insurers To Regulate Us Too

At a time when solo and small law firms are losing ground to non-lawyer providers that aren’t subject to the same onerous and costly regulation , Professor Leslie Levin comes up with this proposal: why not subject solos and smalls to even more regulation by their malpractice carriers?

As is typical of most scholarship about solos and smalls, Levin’s  law review article, Regulators at the Margins: The Impact of Malpractice Insurers on Solo and Small Firm Lawyers , (Connecticut Law Review 2017) opens with the assumption that solo and small firm lawyers are more prone to bad conduct than their well-heeled peers at biglaw – based on data showing that solos and smalls account for 90 percent of disciplinary complaints even though they constitute less than half of practicing lawyers. (Article at n. 2). Levin doesn’t question this statistic even though just one sentence earlier she writes that solos and smalls make up 3/5 – or 60 percent of practicing attorneys.

Further, Levin never acknowledges the obvious: that a large portion of this “90 percent” of complaints are ultimately not pursued, and often filed by disgruntled clients who didn’t like the outcome of their case or by other lawyers seeking to bring  the competition down a notch.  More telling, later on in her paper, Levin notes that many lawyers are never the subject of malpractice suits – so the disparity between the paucity of malpractice actions and the plethora of disciplinary complaints against solos should have tipped Levin off to the fact that many of the complaints filed are frivolous.

Just as bad facts make bad law, bad studies make bad scholarship. Based on questionable data, Levin goes in search of a solution to a problem – solos and smalls behaving badly – that doesn’t need fixing.  In order to help solos and smalls “behave better,” Levin suggests that legal malpractice insurers play a greater role in “regulating” solo and small law firm’s conduct by reviewing the contents of their engagement letters, requiring participation in “risk management” programs (in exchange for premium reductions) and check on lawyers’ office procedures to confirm whether they actually maintain the system they report and charge higher rates to discourage lawyers from “dabbling” in a practice area.

There’s so much wrong with Levin’s article it’s tough to know where to start. (As an aside – speaking of oversight, isn’t legal scholarship subject to any kind of academic oversight, or is it just assumed that no one reads the stuff).  But the end result of Levin’s proposal, if successful, is that malpractice premiums will increase, resulting in fewer solos and smalls purchasing insurance to begin with – and if they do, passing the costs on to clients, making their fees even higher and their practices less competitive.

Let’s start with Levin’s suggestion that malpractice providers offer more risk management programs – and even offer an incentive for lawyers to participate. This idea sounds relatively benign – but Levin doesn’t realize why most solos don’t avail themselves of the risk management programs that insurers offer: because frankly, they’re a waste of time. My insurer CNA which offers annual risk management programs in exchange for a 30 percent reduction on my premium. But for me — and I suspect, most solos and smalls — it’s simply not worth losing a day of billable hours to save a few hundred dollars and sit through a course on Professional Responsibility 101. These risk management courses are designed for 1950s law practices – they don’t provide lawyers with access to new tools that can make their practices safer or more effective in today’s world.

In addition, malpractice insurers aren’t the best source of advice for modern practices as many insurers aren’t particularly up to date on most issues – particularly those related to retainer agreements. A few years back, I reviewed  a sample engagement letter prepared by Lawyers Mutual Insurance, and found it far from satisfactory. Yet, Lawyers’ Mutual hasn’t updated its agreement. In addition, none of the sample agreements contain language on outsourcing, flat fees or use of the cloud – trends that most solos rely on, or would like to incorporate in their practices.

Levin ignores the other reason that malpractice insurers don’t have much incentive to offer meaningful services to help solos and smalls improve their practices. Levin suggests that this is because solo policies are small potatoes compared to biglaw, but the real fault lies with the bar associations and their deceptive “preferred provider programs”  – a pay for play scheme that offers substantial competitive advantages to the insures who pony up the most dollars.  Many solos and smalls starting out use the bar preferred provider by default, never shopping around even on rates. If bar associations undertook a rigorous evaluation of insurers (and other vendors for that matter) and ranked them on the basis of services provided, insurers would have incentive to provide more – either to gain approval of the bar or to lure more customers.  But as things stand, why invest money in improving services for solos and smalls when insurers can gain customers by buying off the bar associations.

Levin suggests that malpractice insurers should operate more like “title insurance” companies, which according to Levin, are more rigorous in their oversight and also offer more support for their lawyer subscribers. Well duh – as Levin herself explains, real estate is a highly regulated area, with legislation that subject lenders to fines for errors at closing – largely in response to the freewheeling transactions of the early 2000’s which ended in mass foreclosures. Levin also doesn’t share that title insurance is far more expensive than ordinary malpractice insurance – and that if insurers were to inject that level of oversight into ordinary policies, premiums for solos and smalls would skyrocket.

Which is my final point.  Ultimately, malpractice insurers are profit-driven.  They do not need an academic telling them how to run their companies to improve lawyer conduct – because if solo and small firm conduct were truly as bad as Levin assumes and was costing insurers considerable sums in payouts, insurers would have a profit motive to implement the suggestions that Levin suggests and indeed, would have done so.  But malpractice insurers themselves apparently haven’t seen a need to audit lawyers’ practice management systems, review representation agreements or offer more risk management because any savings from implementing these systems aren’t outweighed by the amount that insurers are paying out on solo and small firm policies.

Finally, Levin doesn’t take into account that her proposed changes will make malpractice insurance policy terms more onerous and the cost more expensive. And if malpractice insurance becomes too much trouble or too costly, many solos will simply drop the policies altogether.

If Levin – and other well-intended academics and regulators really wanted to improve solo and small lawyer conduct, why not make compliance easier by tearing down the paywall that prevents many lawyers from accessing ethics opinions that govern their conduct. Why not eliminate archaic trust account requirements (that are themselves the source of bar audits) that ultimately, don’t protect clients? By reducing the level of regulation applicable to solos and smalls, they’d have more time to spend staying on top of the law and client communications.

Levin’s article is a solution in search of a non-existent problem; yet another dig at solo and small firm lawyers, and yet another program designed to feed business to law practice management consultants (wonder if Levin does that herself).  Let’s hope, for the sake of solos and smalls that Levin’s doesn’t gain any traction because if it does, well,  that would truly be malpractice.