Going bare: Not carrying malpractice insurance could leave you and your firm exposed


by Gary Gosselin
Dolan Media Newswires
DETROIT, MI -- --(October 12, 2013) Practicing law without malpractice insurance is like playing Russ4an roulette — if you pull the trigger enough times …
According to the American Bar Association, it is estimated that 5 percent to 6 percent of all private attorneys face legal malpractice charges each year.
“I wouldn’t be surprised,” said Brian D. Einhorn, president of the State Bar of Michigan. Einhorn is a professional malpractice attorney and said he understands why someone might go without insurance — to a point.
“Lawyers in private practice think the amount they pay for insurance can be [a burden] sometimes,” he said. “But people make mistakes; they thought they filed it … [they] didn’t know the case’s shortened statutes of limitation, so that can really affect a lawyer and their practice.”
Mistakes notwithstanding, he said, often all it takes is a disgruntled client — ex-client — and someone who thinks they have a case and you have to defend yourself, he said. One round of attorney’s fees could have paid for nearly a lifetime of premiums.
Einhorn, who practices with Collins Einhorn Farrell PC in Southfield,  related a case he has been working for a highly regarded attorney whose client thought there could have been a different outcome in a case.
The lawyer, who Einhorn said did nothing wrong, had to fight, got a summary judgment that was appealed and finally won on appeal. That lawyer had to pay $30,000 for representation. 
Accepting the risk
Although Michigan lawyers have to report whether they have insurance or not, there are no statistics released.
The Michigan Supreme Court issued Administrative Order No. 2003-5 in 2003, which requires a disclosure on the State Bar of Michigan dues statement whether the registrant has malpractice insurance. That started in the 2003-04 year.
The SBM compiles those statistics about how many Michigan attorneys go without insurance, but the bar would not release that information, nor would SBM representatives comment on the issue.
Those interviewed, both in the legal profession and insurance industry, would not even try so speculate about how many are “going bare” without malpractice insurance.
Einhorn said a large category that he sees who tend not to carry coverage are criminal defense lawyers, but noted they need insurance as much as anyone else. He reiterated that you don’t necessarily have to even do anything wrong — all it takes is a dissatisfied client.
The latest ABA chart on state adoption of malpractice insurance reporting showed seven states required disclosure to the client; 17 states (including Michigan) require malpractice insurance disclosure to the state bar; five states were considering adopting disclosure notices; five decided not to adopt the court rule; and North Carolina withdrew its court rule.
Only Oregon requires malpractice insurance as a condition of licensure.
“From my perspective, that is quite a risk to accept for a professional to go bare,” said Patrick F. Geary, a shareholder at Smith Haughey Rice & Roegge in Grand Rapids. “It’s certainly something that I would not do given any reasonable option — and there are reasonable options out there available.”
In fact, according to Paul Goebel Group Insurance in Grand Rapids, a solo practitioner can get insurance starting at $600. 
Strength in numbers
Of course, buying insurance is like building a house, Einhorn explained: you don’t just say, “Build me a house,” and get a set price. There are a lot of variables to consider, including location, practice area, background, deductibles, even which insurance company you use.
There are policies that include the amount spent on defense in the total coverage, as well as those that give a coverage amount but don’t deduct the cost of defense.
“It’s certainly a challenge and particularly to a small or sole practitioner, or a recent law school grad trying to start a practice,” Geary said. “It is an expense, and not an insignificant expense. And they sometimes defer it but that is an enormous risk to take — people should think long and hard before postponing that expense in favor of short-term considerations.”
Geary also mentioned that the SBM offers an insurance plan to members. The advantage would be the group aspect: like any group coverage, you should get the advantage of spreading the risk over a large population.
Policies are easy to come by, said Lynn Jekkals, resident managing director of Aon Risk Solutions in Grand Rapids.
“It is still a good marketplace and coverage is readily available,” Jekkals said. “Underwriters are using a lot of scrutiny; if you have claims that are less positive, you have to explain how you have executed risk management techniques and explain that to get the insurance.
“There are there a lot of carriers, and we consider it an overcapacity market, and that drives competition and that’s good for buyers,” she added.
“You see [malpractice] in certain practice areas more than others; some are fraught with emotionally charged feelings — divorce area is an example — and there are highly sophisticated areas like securities, its not an emotional decision but the risk can be enormous,” Geary said.
“And even the most able attorney can make a mistake or miscalculation completely innocently. But the risk is so significant that no one should proceed without very careful risk-reward analysis.” 
Mandated coverage?
James Brown, partner at Liskow & Lewis in New Orleans, is committee chairman of the ABA Standing Committee on Client Protection.
He said he was not speaking on behalf of the committee because it hadn’t come out with guidelines on insurance coverage; however, he said he has seen enough to know that practicing attorneys need coverage. He stressed practicing attorneys, not necessarily those in government jobs, for instance, or other non-practicing areas.
“It seems to me the best professional practices are to carry insurance, and if I were the law giver, I would mandate it …” Brown said. “I think that practicing without malpractice insurance is a bad idea and is troublesome and should be discouraged. I probably would mandate it.”
Einhorn said it would not bother him if practicing lawyers were compelled to buy insurance. But Geary said the issue becomes a bit murky for him.
“That’s a difficult question, I’m sure some would think that is an unwarranted intrusion on the independence of counsel,” Geary said. “It’s possible someone out there decided they could self-fund the risk. I do think it’s a serious consideration, because the insurance exists for the client as well as the lawyer.”
Fiduciary duty
Geary said at the least, there should be a rule requiring disclosure to the client that you do or do not have insurance; it should be part of informing the client of what they can expect.
“You owe a duty to your clients,” Brown said. “I don’t know of any case law that says that, but your professional duty is to take steps to protect your client, and that would be an important part of that.
“Unfortunately, even competent lawyers who do a good job can be faced with malpractice,” he added. “Even competent and diligent lawyers can make mistakes, and to have malpractice insurance to cover those eventualities — it’s the best practice.”
Neither Brown nor Einhorn say they had heard of any moves toward requiring malpractice insurance — except in Oregon, as noted above. Brown said there are always discussions about whether mandatory disclosure should be a rule — as it is in Arkansas, California, New Hampshire, New Mexico, Ohio, Pennsylvania and South Dakota — but he added that there is no real movement in requiring mandatory disclosure across the board.
One area that’s starting to receive a lot of interest is cyber risk liability, Jekkals said. She said policies are increasing to cover data, which is everywhere — phones, tablets, personal computers and networks.
“So if data is breached, that is what you are insuring,” she said, especially in health care, where there are numerous regulatory fines and penalties and expensive processes if health care records are breached or released. “And it could be a pretty significant exposure.”
If you would like to comment on this story, call Gary Gosselin at (248) 865-3103 or email gary.gosselin@mi.lawyersweekly.com. 
What are the top 5 things to consider when purchasing lawyers professional liability coverage?
1. What is the financial rating or strength of the underwriting company? In most cases you should look for companies with at least an A rating.
2. What option do you have in terms of limits of liability? Are defense cost inside the per claim limit or outside the limits of liability?
3. Does the policy include coverage for disciplinary proceedings? If so, what are the coverage limits?
4. What are the extending reporting period (tail) coverage options? Is the tail coverage provided at no cost in the event of death, disability, or retirement?
5. What is the experience level of the agent? Do they specialize in lawyers’ professional liability or are they a general agent? 
What will impact the cost (premium) of your lawyers professional liability policy?
1. What are the firm’s areas of practice and the percent of the firm’s total business derived from each area?
2. What is the firm’s claim history, including disciplinary proceedings?
3. What time period is being covered by the policy? Is the coverage for a new policy, protecting only the work following policy inception, or does it need to cover past work (prior acts coverage)?
4. What are the coverage limits the firm requires? Minimum limits are $100,000 per claim/$300,000 aggregate.
5. Does the firm have a history of filing suits for fees to collect payment?
**Numbers 1 and 2 will have the most impact in terms of initial quoted premium. 
Average cost
One attorney with an inception retro policy with limits of $100,000 per claim $300,000 and a $1,000 deductible would see average premium between $600 and $800.
One attorney with full prior acts coverage with limits of $250,000 per claim $750,000 and a $1,000 deductible would see average premium between $2,000 and $3,500.
Source: Kate Bystry and Joan Morris, Lawyer Professional Liability Account Managers, Paul Goebel Group Insurance, Grand Rapids