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December 11, 2007

Should You Care Whether a Lawyer Carries Malpractice Insurance?

Approximately 20% of practicing lawyers in California don't carry malpractice insurance. The California State Bar is trying to make up its mind whether these lawyers should disclose that fact to their clients. The argument against disclosure is that disclosing the lack of malpractice insurance will make it less likely that clients will use their services, and will stain their practice as somewhat lesser in value than the lawyers who are insured. The argument in favor of disclosure is, naturally, that clients have a right to know whether their lawyers are insured against malpractice.

At first blush this debate seems like a no-brainer. I mean, in a world where people pay lawyers hundreds of dollars an hour to accomplish a particular goal, shouldn't they at least be protected against the lawyer's mistakes or wrongdoing? And if there is no requirement that the lawyer be insured against mistakes -- as there isn't in California and most other states -- shouldn't the client at least be warned of this fact so they can shop for a lawyer who does offer this protection?

As you might guess, I'm initially four square in favor of disclosure. But then I ask myself, what exactly is it that I would be disclosing? What protection does malpractice insurance offer that I am not offering? A number of years ago, Nolo published a book (now out of print) by one of the preeminent lawyers who represents malpractice claimants. The purpose of the book was to help people assert their rights against a lawyer's insurance carrier. Those of us who first read the manuscript started joking that we ought to keep the title page and last page and insert 200 blank pages in between. In short, from what we had learned from the manuscript, it was fruitless to assert rights against a malpractice insurer. How could this be?

For starters, to establish malpractice you have to prove that the lawyer has done something wrong, and the only way to prove this is to have a trial. That is, you have to pay a second attorney a small fortune to prove that the first attorney has actually done something wrong. Second, the attorney being sued has no incentive to settle the case because the malpractice insurer is picking up the costs of the litigation, whereas if there is no insurer, you might reach some sensible accommodation with the attorney through mediation. And finally, in many cases the insurance does not apply at all if it appears that the attorney was grossly negligent, or engaged in conduct caused by alcohol or drug use, or engaged in practice while suspended from practicing.

If you were a hypothetical shopper for an insured attorney, it would be helpful if you could discover the name of the insurer, the limitations of the insurance policy, and the history of the company's benefit payouts. Does it pay more for some types of mistakes than others, or more in some legal areas than others? In short, does the insurer engage in full disclosure of its activity so that you would know exactly what protection you were buying? From my own experience, I can tell you that there is zero disclosure about these matters. The most you will ever learn is that the lawyer is covered by malpractice insurance. Just what this means is up to you to decipher.

So, winding my way back to the beginning, should lawyers really have to disclose that they are not covered by malpractice insurance? I think I'll flip-flop on this one and say no way. All mandatory disclosure does is infer the value of malpractice coverage -- an inference I'm not ready to make given the paucity of information available to me as a consumer and client.