Does your lawyer have malpractice insurance? So what?

Many lawyers have one form or another of malpractice insurance, which, in theory, provides them with some sort of fund from which to pay any malpractice judgments entered against them and, with some policies, coverage for their legal fees and expenses to defend against lawsuits by clients.

In general, this should be a good thing for clients, especially if their negligent lawyer would otherwise be unable to pay the cost of the harm he causes.  Malpractice insurance is something a potential client should look for when selecting a lawyer, but don’t be fooled:  The malpractice insurance isn’t to help clients, it’s to protect lawyers from your client claims, even valid claims, including substantial amounts spent to defend even the most legitimate claims in an effort to avoid, delay, and exhaust clients trying to vindicate their rights.

There are many things that can go wrong with lawyers that don’t count as “malpractice.”  Malpractice insurance only covers malpractice — professional negligence — by the lawyer.  It doesn’t cover unexpectedly bad results, results that aren’t as good as the lawyer said they should be, close cases that go the other way, and so on.  And it doesn’t cover excessive or even fraudulent legal fees, unethical behavior (unless it’s also malpractice), and anything else the lawyer does that is “wrong” but not wrong because it’s malpractice.

Unfortunately, these practical considerations may be hidden if clients focus only on the simplistic question: Does the lawyer have malpractice insurance?  But this is the yes or no question that most lawyers address in their websites and the only question that most bar organizations require them to answer and, in many bars, the only information the bar publishes about the lawyer or the only thing it requires the lawyer to disclose to the prospective client (if the lawyer has no insurance).

Once again, there are things the bar isn’t explaining or disclosing that are far more important, such as whether the lawyer has lost prior malpractice claims or failed to pay any judgment obtained by a former client.  And the bar isn’t disclosing its close, often financially connected, relationship with malpractice insurance carriers.  Just leaf through the bar’s magazine or website and you’ll see lots of big, expensive ads bought by insurers, plus all the notices for bar functions sponsored by the same insurers.  These carriers are often behind, for example, some of the rules or restrictions applying to malpractice coverage or the consequences to lawyers if they have no coverage — the insurance companies want the bar’s rules to push lawyers in the direction of having to buy coverage.

What should the client be asking?

First ask the unanswered questions above, like whether the lawyer has been sued for malpractice — or anything else — by a client or former client.  Also whether the lawyer has any unsatisfied judgments against him, by anyone, not just clients.  And, if the lawyer has malpractice insurance, how much the deductible and policy limits are, plus the limit on the number of claims in the same year.  (The policy’s worthless to you if the lawyer has sixteen other claims and the insurance only covers up to two or three, which is common.)

One important question is how much insurance the lawyer has.  In many instances, the amount of insurance coverage required by the bar, if anything, is minimal — to satisfy the bar in many states, a lawyer typically just needs a policy, with no amount specified or a nominal amount (like $100K) — not enough in the current market to cover what a client’s malpractice lawyer would expect for his or her fee.  We have seen instances where major law firms, with hundreds of lawyers, do not have enough insurance to cover a single large claim, let alone several if there is a “run on the bank” because the firm had a single bad apple or series of embarrassments.  And the firm may have a large deductible (loss retention) — maybe millions for a large firm — which it may not be able to cover if the firm is in trouble.

Some policies are “eroded” by defense costs, including the legal fees for the defense and expenses.  Basically, this means that an expensive defense may diminish, or exhaust, the funds available to pay the client.  Expert witnesses are also expensive in legal malpractice cases, partly because of the unique process for proving such claims — it’s called the “case within the case” and requires two sets of experts in some cases.

There are technical issues with these policies, like when a “claim” must be made to be covered, what happens if the lawyer has left the firm, died, or the firm disbanded or absorbed by another firm, and so on.  A client pursuing a malpractice claim needs to find out whether there are problems with the coverage — a negligent lawyer is also likely to be a negligent insured.

Another issue for lawyers, as with all insurance, is what activities the policy covers.  The simple answer should be all aspects of practicing law and representing clients.  But things are never that simple.  For example, what about the lawyer who is also doing business with the client?  Or the lawyer who’s on the client’s board of directors?  Or the lawyer acting as as an arbitrator or mediator or expert witness?  Our own experience with malpractice carriers was that they were happy to accept premiums from us since we never had a claim, but they wanted to carve out most of our practice as experts, consultants, speakers, arbitrators, authors, co-counsel, and so forth — they just wanted us to pay money for nothing — no kidding.  To us, that’s a compliment.  What are modern lawyers supposed to do if the malpractice insurance industry isn’t keeping up?

About JWT

John Toothman founded The Devil's Advocate, the legal fee management and litigation consulting firm, in 1993. He graduated from Harvard Law School, with honors, in 1981. John has been a lawyer with large and small law firms and the US Dept. of Justice. He's tried over sixty cases. He has testified as an expert witness in over seventy more. ... He is the author of several books and dozens of articles about lawyers, law firms, legal fees, ethics, litigation and trial practice, and related issues. Books include: Trial Practice Checklists 2d (West), Legal Fees: Law & Management (Carolina Acad. Press), and the Civilian's Guide to Lawyers series. His pro bono activities include teaching and speaking at seminars. ... John is admitted to practice law in DC, Maryland, and Virginia. More information:
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