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Insurance rule will be a scarlet letter for some


Diane 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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