To Disclose or Not to Disclose, That Is the Question

This article, Is Mandatory Disclosure of Malpractice Coverage a Good Idea? Ann Sherman, Small Firm Business (9/19/05) writes about the debate over mandatory malpractice disclosure rules taking place before many state bars across the country.  Below from the article is an excellent summary of the pros and cons of mandatory disclosure from Bob Weldon of the Washington State Bar Association and Lee Sexton, a criminal defense attorney.

WELDEN’S ARGUMENTS IN FAVOR OF MANDATORY DISCLOSURE:

* Having malpractice insurance may be a material fact to at least some
clients or prospective clients, so lawyers have a fiduciary and
professional obligation to disclose whether they have a policy, in case
the client does consider it important.

* In the handful of states that have had disclosure rules for some
time, there has been no marked increased in either premiums or claims
made since the rules were adopted. Also, in my state of Washington,
people are amazed when we tell them that lawyers aren’t required to be
insured. So requiring disclosure wouldn’t lead to an increase in
claims, because the public already believes lawyers are insured.

* Clients need a neutral third party, such as the state bar, that can
be a resource to find out if an attorney carries professional liability
insurance, because most are not comfortable asking their attorneys
directly.

* Mandatory insurance won’t be the next step because insurance
companies don’t want to have to insure the risks of all practices, and
the state bars and supreme courts don’t want the insurers having power
over who can practice law.

* A state bar association can post consumer information on its Web site
and explain the responsible reasons why lawyers may choose not to have
insurance, such as self-insurance or the inability to get insurance in
a particular area of law.

SEXTON’S ARGUMENTS AGAINST MANDATORY DISCLOSURE:

* If the general public was in an uproar over the lack of disclosure,
that would be one thing. But it’s not. So why raise the level of
consciousness about how much money clients can get if they sue for
malpractice?

* In effect, the ABA model rule requires lawyers to paint targets on
their backs. Nothing forbids a potential or existing client from asking
me whether I am insured. But then I get to decide whether or not I
really want a client who’s curious about my insurance. Under the ABA
rule I wouldn’t find out whether the client checked.

* By reporting insurance coverage to the state bar, the issue is
publicized and the public then wants to know why lawyers don’t have to
be insured. The logical next step is for the state to make insurance
mandatory.

* A lawyer who chooses not to add the cost of insurance to his or her
overhead, and who might otherwise be a fantastic lawyer, is stigmatized
for being uninsured. By implication the client is advised to go
elsewhere.

* The rule is misleading clients because liability insurance policies
are claims-made. That is, the insurance company will only pay on the
claim if the lawyer has insurance at the time the claim was made, not
if the lawyer had insurance when the underlying act took place. If the
lawyer no longer has insurance by the time the client actually realizes
that the lawyer has committed some kind of negligence, the client is
effectively out of luck. Telling the bar that you “intend” to maintain
insurance isn’t an enforceable promise that you will do so.

The MyShingle View

As my readers probably know, I strongly believe that all attorneys should have malpractice insurance as I’ve stated here and here.
And clients should have some mechanism of discovering whether an
attorney is insured or not.  I’m not sure that the best way to inform
clients is for attorneys to volunteer the information if only because
that can be awkward (by analogy, most attorneys don’t usally tell
clients that they’re a member of the bar; it’s simply presumed).  But
as with bar membership, a client should at least be able to obtain
information on whether an attorney has malpractice through a bar
website.

One thing that did trouble me in reading over the list of malpractice
pros and cons is the possibility that mandatory disclosure could lead
to higher malpractice rates.  Weldon states that there haven’t been
“marked increases” in Washington where mandatory disclosure is required.   I hope that there won’t be a large cost to something that can benefit consumers.