Mandatory malpractice insurance disclosure: taxation without representation!

Centuries ago, Massachusetts lawyers established the fundamental principle of "no taxation without representation." To my mind, they struck another blow for this worthy cause when, several years ago, the state's lawyers resisted the American Bar Association's nationwide effort to spur mandatory disclosure of malpractice insurance coverage.

Nearly one-third of all state bar associations have imposed this on their lawyers, and my home state of California is the latest and largest example of a state bar endorsing the concept.

Our draft rule of professional conduct requires each California lawyer to disclose at the start of an engagement, and for the state bar website to disclose generally, whether the lawyer has malpractice coverage.

I have long contended in my blog posts and other writings that, as bureaucratic institutions with no performance measurement sticks or profit incentives, state bar associations have a tin ear when it comes to the business end of law. Mandatory disclosure hurts the very persons any state bar should be trying to serve: its lawyer members.

In California and most other states, that specifically means the solos and small firms that make up the majority of state bar membership. These lawyers typically don't earn much more than $50,000 a year, and find the $7,000-plus annual cost of malpractice insurance to be prohibitive.

In California, nearly 20 percent of the lawyer population goes without malpractice insurance coverage. A recent survey of lawyers in Illinois showed that 20 percent of all lawyers - and 40% of solos - do likewise.

Why? They can't afford it. Yet state bar associations want them to advertise that fact - not because they've committed malfeasance, but because it somehow will "protect" the public.

Of course, mandatory disclosure simply raises clients' consciousness of the potential for malpractice and causes an increase in such filings. Before, clients might not have been so ready to sue, but since the lawyer mentions coverage, why not sue? It's not his money anyway!

If bar associations really cared about "the public good," they would take two important steps: educate the public about what malpractice insurance costs add to their legal bills, and make affordable malpractice insurance available to all lawyers.

For example, Oregon's Professional Liability Fund is the mandatory provider of primary malpractice coverage for Oregon lawyers. Since 1978, the Professional Liability Fund has provided coverage of $300,000 per claim/$300,000 aggregate to all attorneys engaged in the private practice of law in Oregon. This is inclusive of defense costs and, in addition, there is a $50,000 claims expense allowance.

In 2006, the basic assessment for this coverage is $3,000 for each attorney. The coverage provided by the fund is on a "claims made" rather than an "occurrence" basis. All lawyers are covered, and the public is truly protected.

In recent years the perception has grown that bar associations are simply licensing agencies for their members, and that the associations' primary purpose is to protect the public. One can only conclude that at least 15 state bar associations believe solos and small firms, who can least afford malpractice insurance, are a public danger. Massachusetts has just succumbed and joined this unholy alliance, effective Sept. 1, 2006.