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Disclosure Rules

By Mark Hansen

May 23, 2006, 8:56 am CDT

Add Pennsylvania to the growing list of states that require lawyers to disclose whether they carry malpractice insurance.

Only nine states had such a requirement in August 2004, when the ABA House of Delegates adopted a model insurance disclosure rule at the recommendation of the Standing Committee on Client Protection. But now that number has grown to 16, according to the committee’s tally, which was last updated on Jan. 31, about a month after the Pennsylvania Supreme Court adopted its insurance disclosure rule. (The rule goes into effect July 1.)

By the committee’s count, at least six other states are considering some type of malpractice insurance disclosure rule. Since August 2004, only Arkansas has rejected a disclosure rule, according to the committee. Oregon is the only state that requires lawyers to carry professional liability insurance before they can practice.

The numbers represent a triumph of sorts for the client protection committee, which gained approval for a model rule on professional liability insurance disclosure on its third try in the House of Delegates. And even that victory was by a narrow 11-vote margin on a scaled-back version of the committee’s earlier proposals.

“I think that by adopting a model rule, the ABA has brought attention to an issue that many states might otherwise never have considered,” says committee chair Robert D. Welden of Seattle. He is general counsel to the Washington State Bar Association. But the merits of malpractice insurance disclosure rules still are a matter of debate. The ABA Standing Committee on Lawyers’ Professional Liability continues to hold a cautious view of the model disclosure rule that was adopted by the House of Delegates, says Benjamin H. Hill III of Tampa, Fla., who chairs the committee.

In 2004, the committee opposed the model rule on grounds that such a requirement could be misleading because having insurance doesn’t necessarily mean that coverage exists to address any particular claim. Hill notes that none of the states with insurance disclosure requirements follow the exact letter of the ABA’s model rule.

“I think each state in its own way is trying to minimize any unintentional misleading of the client,” Hill says.

Insurance disclosure rules take two general forms. Eleven states follow the ABA model rule’s approach, requiring lawyers to disclose their professional liability insurance status on their annual registration statements filed with state licensing authorities. A second approach, followed by five states (most recently Pennsylvania), requires lawyers to disclose their insurance status directly to clients.

Wary of the Slippery Slope

Even those who agree that lawyers should have malpractice insurance don’t necessarily share the same view on disclosure rules.

It’s not realistic to expect that mandatory insurance requirements will become widespread, says Lynda C. Shely of Scottsdale, Ariz., a past chair of the ABA’s client protection committee and former ethics counsel to the State Bar of Arizona. Some lawyers don’t want to pay for insurance and some lawyers object to having any more mandatory obligations placed on them, she says.

But requiring lawyers to disclose whether they have insurance is the next best thing, says Shely. “It’s a small step toward simply making material information available to the public, so that the consumers of legal services can make informed choices,” she says. But Salt Lake City lawyer Rodney Snow, for one, remains unconvinced. Snow opposes a proposal that would require Utah lawyers to disclose to clients if they do not carry at least $100,000 in malpractice coverage.

Snow says he thinks every lawyer in private practice should be insured. But, he adds, “Once you start down that slippery slope of affirmative disclosures, where do you draw the line? Should we also disclose our win-loss records? How about our coverage limits and exclusions? Maybe we should just attach a copy of our policy to our fee letter.”