Another wrinkle from that malpractice insurance coverage opinion

Earlier this week, I wrote about the scariness that can come with understanding another way that lawyers’ fates are tied together when they practice law in the same firm: one lawyer failing to disclose a known problem on a malpractice renewal application could lead to loss of coverage for all of the other lawyers in the firm.

Another interesting aspect of the Illinois State Bar Ass’n Mutual Ins. Co. opinion is how it sheds light on the potential futility of enacting an ethics rule (or other court rule) requiring lawyers to disclose whether they have malpractice insurance.  According to the chart maintained by the ABA, 7 states mandate lawyers make a disclosure directly to the client regarding whether they have malpractice insurance.  If such a requirement is ever to be imposed, that certainly seems like the preferred option, even if it overlooks that lawyers already are required by RPC 1.4 to communicate important information to clients regarding their matters and a number of different ethics rules (RPC 7.1, RPC 8.4(c)) would be violated by a lawyer not truthfully answering a question from a client or prospective client about whether the lawyer has coverage.  The ABA chart reflects, however, another 17 states mandate that lawyers disclose whether they have coverage or not on their annual registration statement (and most of those states also require the information from the annual registration statement be made available to the public).

Illinois is one of the 17 states requiring disclosure on an annual registration statement and that makes the information available for review on a public website.  Among the concerns expressed by the dissent over permitting ISBA Mutual to rescind the Tuzzolino & Terpinas firm’s policy is that not only would the “innocent” lawyer in this situation have been acting in reliance upon the idea that he had coverage and disclosed the existence of such coverage to comply with his obligations under the rules, but the clients of his law firm could have relied upon the regulatory regime in place — and the fact that the public information would indicate he had coverage — to mean that they were dealing with a lawyer with malpractice insurance.   After the rescission of the policy based on one lawyers’ lack of disclosure, however, the clients were not dealing with lawyers who had coverage after all.

Tennessee has not, to date, ever gotten very far down a path toward serious consideration of adopting such a disclosure requirement.  Telling consumers that they can go look on a state supreme court website to know if the lawyer they are dealing with has insurance coverage provides information only about a fixed point in time, of course.  There are a number of principled grounds for opposition to such efforts.   One is that since most malpractice policies are “claims-made” policies rather than occurrence policies making the existence of a policy less important for a client then knowledge of whether a notice of claim was timely provided.  Another involves the various ethics rules a lawyer would violate if a client, who cared about the topic enough to ask, was lied to by the lawyer.  It seems to me that the ISBA Mut. Ins. Co. case demonstrates another example of a way in which rules that require disclosure of coverage on an annual registration statement and publication of that information publicly could, despite the best of intentions, end up misleading consumers of legal services.

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