Insurance rule will be a scarlet letter for some
By DIANE KARPMAN
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Karpman |
A proposal is circulating for public comment that would require lawyers to
disclose the absence of malpractice coverage to the client and get signed acknowledgment.
If not, you could be disciplined or the fee agreement may be unenforceable.
Since you cannot be disciplined for the absence of a written fee agreement,
this proposed rule makes disclosure of coverage more significant than a written
contract. Of course you want to have written fee agreements with your clients.
They protect you. But this proposal also presents problems in the regulation
of the profession.
Beyond all the esoteric insurance issues (such as policies being on a “claims-made” basis, “tails” and “diminishing
limits”), insurance policies include exclusions that can render the policies
voidable. Exclusions allow carriers to privately and quietly regulate the practice
of law. Lawyers who are paying premiums recognize an “obligation to perform
their contracts conscientiously.” Anthony E. Davis (1996) Professional
Liability Insurers as Regulators of Law Practice (65 Fordham L. Rev. 209).
Once in a while (sure) lawyers can be heard complaining that they are overly
regulated. Just think about this additional layer of regulation imposed by
the exclusions in insurance policies. Our ethical rules are developed after
a period of public comment and vetting within the profession, such as speaking
to the media (“O.J. Simpson rule”). Some-times we have a “gee
whiz” moment, and jointly realize that some conduct should have been
prohibited a long time ago, like sex with clients (“Arnie Becker rule”).
We lawyers collectively evaluate and contemplate, and usually enact rules after
a democratic “group think” process.
The problem with policy exclusions is that they can be triggered by perfectly
acceptable conduct that conforms to our rules, such as going into business
with a client, making an acquisition or serving on a client’s board of
directors. Our rules may consider those acts to be risky, but provide client
protections and safeguards, through appropriate disclosures, consents and advice
to consult with independent counsel (Rule 3-300). In some policies, mergers
and lateral hires can trigger exclusions, as can strategic alliances or networks,
office sharing, and hiring temporary lawyers. All of these acts can be beneficial
and assist in the delivery of legal services. Exclusions can close those doors,
slamming them shut on some clients obtaining counsel.
The proposed rules will profoundly impact solo/small practitioners, who are
most likely to provide legal services to minorities and the poor. Therefore,
this becomes a critical issue regarding access to justice. Of course, it is
axiomatic that these costs will be passed on to the clients.
Enactment of the proposed rules will result in more lawyers being forced to
obtain coverage or be marked with a scarlet letter. That would mean more secret
regulations from outside our community, regulations that strike at core issues
central to the practice of law. The American Bar Association’s Ethics
2000 Project specifically rejected such a rule in 2002 because what does coverage
have to do with ethics?
The legal profession is one of the few remaining self-regulating professions.
Enactment of this rule is tantamount to a relinquishment of that self-regulation.
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