More states consider requiring legal malpractice insurance

As more states move toward requiring attorneys to carry malpractice insurance, opinions on the matter among Hoosier attorneys remain unchanged: Many Indiana lawyers believe purchasing professional liability insurance should not be required to practice law. 

Currently, Oregon and Idaho are the only states that require attorneys to carry legal malpractice insurance coverage. Active consideration of the issue is taking place in Washington state, which has proposed that failure to comply with obtaining coverage would result in attorney suspension, as well as California, which has proposed similar amendments to its licensing rules. California is also proposing that attorneys be required to disclose if they are not insured.

Indiana does not require attorneys to do either of those things, leaving professional liability insurance optional. However, the state does require malpractice insurance be carried by limited liability companies and partnerships.

Those in favor of mandatory malpractice coverage argue public protection is at risk and that lawyers who fail to carry coverage may leave clients unable to secure relief in the event of malpractice. Those taken advantage of by attorneys acting fraudulently have limited recourse against lawyers who fail to exercise ordinary care.

On the flip side, opponents argue there’s insufficient data to prove the issue is large enough to warrant government intervention. Opponents also seem wary of handing over the reins to insurance markets, which they say could prove to be costly for attorneys in more ways than one.

Indianapolis malpractice attorney Jon Pactor said although he thinks all attorneys should carry professional liability insurance, he generally does not favor requiring them to do so.

“I don’t like the idea that the insurance industry can control who can practice law by whether they can get insurance,” Pactor said. “If a lawyer must have insurance to maintain a license, it effectively makes the insurance industry a quasi-licensing industry.”

Presumably, if lawyers must have insurance, that insurance should cover the specific work they perform, he said. But what if they can’t get that coverage? That means attorneys, clients and communities could suffer losses in the availability of legal services.

“If, for example, the attorney cannot get insurance for debt collections work, then that has a limitation not only on the lawyer’s practice but also on the availability of the lawyer’s services to the public,” Pactor said.

Jennifer Ritman agreed, noting that in her 30-plus years of providing professional liability insurance through Ritman & Associates, Inc., she’s never failed to find coverage for Hoosier lawyers. However, requiring that coverage for all attorneys could complicate things, especially if the insurance market nosedives or prices skyrocket and become unaffordable.

“I think it’s a slippery slope when you say your ability to practice hinges on something you have no control over — the insurance industry,” Ritman said. “That’s the tricky part for me.

“I’ve had issues when it becomes unaffordable for lawyers if they had a disciplinary complaint or were in a tricky area of law,” she added. “You can’t control what the market’s going to do. That’s the problem.”

Greenwood attorney Patrick Olmstead said the first thing he does when sought out for malpractice advice is to ask whether the attorney has insurance. Unfortunately, he noted, even if the answer is yes, their clients may be under a false sense of what they’re entitled to.

“Let’s say for sake of argument I was representing someone in 2013 and I screwed up her case and I didn’t tell her,” Olmstead posed. “It costs her a lot of money, she finds out in 2019 and sues me. Well, if I don’t have insurance in 2019, she’s out of luck. Even though I gave her a letter saying I was insured at the time, it doesn’t matter. I get to choose whether I get insurance or not.”

In the center of the dispute across the country, California legal ethics and malpractice attorney Jim Ham said he disagrees with mandatory malpractice insurance, but he does believe disclosures should be presented at the beginning of an attorney-client relationship for transparency. However, Ham said clients should educate themselves regardless of whether an attorney has coverage or not. 

“Insurance is no panacea. It’s not a replacement for doing your homework, and even if we had it, clients can’t assume that this is going to protect them, in their particular circumstances,” Ham said. “It’s better for the consumer to be informed.”

Ham said uninsured attorneys usually take responsibility for their mistakes. “Just because your uninsured doesn't mean you’re trying to hurt somebody,” he said.