Frequently Asked Questions About Professional Liability Insurance

Mandatory Professional Liability Insurance Disclosure (APR 26)

RE: Malpractice Insurance

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New Rule on Malpractice Insurance Disclosure

by Robert Welden

(Excerpts from: http://www.wsba.org/media/publications/barnews/june07-weldon.htm)

Effective July 1, 2007, pursuant to Rule 26 of the Admission to Practice Rules (APR), every active member of the Washington State Bar Association will be required to disclose on the annual licensing form whether or not the lawyer maintains professional liability insurance. The first time current members of the WSBA will be required to report this information to the WSBA will be during the 2008 annual licensing process beginning in December 2007. New admittees and members returning to active status will be required to report at the time of admission.

What is the purpose of required insurance disclosure?

The purpose of the insurance disclosure rule is client protection. Under the Washington Rules of Professional Conduct, one of the basic principles of the lawyer-client relationship is that the lawyer will give the client sufficient information regarding material facts to allow the client to make an informed decision in matters relating to the representation. See, e.g., RPC 1.4; 1.7. Whether a lawyer maintains professional liability insurance may be a material fact for some persons in considering whether to hire a lawyer, and it should be easily available to a client or prospective client.

What does the rule require?

APR 26 requires that each active status lawyer certify on the annual license registration form (a) whether the lawyer is in private practice; (b) if so, whether the lawyer maintains professional liability insurance; (c) whether the lawyer intends to continue to maintain insurance; and (d) whether the lawyer is a full-time government lawyer or house counsel and does not represent clients outside that capacity. The form will also require notification to the WSBA within 30 days if the lawyer in private practice ceases to be insured.

Will failure to disclose be a disciplinary violation?

This is an Admission to Practice Rule requiring disclosure, and not a disciplinary rule. It does not mandate that lawyers be insured. However, failure to comply with the disclosure requirement will result in administrative suspension from practice until the information is disclosed, in the same way that lawyers may be suspended for failure to comply with the continuing legal education reporting requirements.

What will be done with this information?

This insurance information will be available to clients or prospective clients by posting it as part of the lawyer directory on the WSBA website or by contacting the WSBA. In practice, the availability of this information will operate similarly to the contractor insurance and bonding information available to the public through the Department of Labor and Industries by contacting the Department or searching the Department's website.

Has this been done elsewhere, and what is the experience there?

Nineteen other states currently require disclosure of insurance, either through the lawyer licensing or regulatory agency (Arizona, Delaware, Idaho, Illinois, Kansas, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Virginia, and West Virginia), or in writing directly to clients (Alaska, New Hampshire, Ohio, Pennsylvania, and South Dakota). The experience in states that have had a disclosure rule in effect for some time has shown no increase in either frequency of insurance claims or in increased premium rates. There also has been no indication of any disproportionate impact on new lawyers, solo and small-firm lawyers, or minority lawyers, nor that it has made legal services more expensive or reduced lawyers' willingness to provide pro bono services.

Was notice given before this rule was adopted?

This suggested rule was circulated for comment among the WSBA members. It was e-mailed to approximately 15,000 active WSBA members, posted on the WSBA website, and published in the July 2005 Bar News. The WSBA received e-mail responses from about 90 members and a few letters, both pro and con.

What concerns did WSBA members have, and what are the responses?

One concern that was expressed is that such disclosure is misleading because professional liability insurance is "claims made," and the disclosure does not indicate policy limits, deductibles, whether defense costs are within or without the policy limits, etc. In response, it was agreed that when this information is posted on the WSBA website and otherwise made available, there will be additional information about professional liability insurance and suggested questions that a client may want to ask. The website information will note that lawyers may make a responsible decision not to maintain insurance because the lawyer may choose to be financially responsible (self-insured), or is an in-house or government lawyer whose employer has chosen to bear the risk of errors, or for other reasons. (See sidebar for text of website information).

Another issue that was raised concerned government lawyers and in-house counsel who provide pro bono work through qualified legal services providers that maintain professional liability insurance. It was suggested that the rule should specifically address this. However, as the rule is written, if a government lawyer or in-house counsel represents clients outside of that employment, but does so in a context where he/she is insured, then the answer to (a)(2) would be "yes" and the answer to (a)(4) would be "no." (See inset for full text of APR 26.)

Conclusion

Lawyers take their responsibility to the public seriously, and this is one simple means to make this information available.

Robert Welden is WSBA general counsel.