In February 2014, the Supreme Court appointed an ad hoc committee to address the questions of whether attorneys should disclose to clients and report on the annual registration statement whether they carry professional liability insurance; whether such a client disclosure requirement would unfairly burden small firms and solo practitioners; whether such a disclosure requirement is even necessary if there is no mandate to maintain professional liability insurance; and whether mandatory insurance itself would unfairly burden small firms and solo practitioners.
After extensive review and discussions of material contained in its 170-page report, the committee concluded that professional liability insurance should not be mandatory for New Jersey attorneys because it would be unworkable in the marketplace and unfairly punitive to small firms, solo practitioners and attorneys engaged in the part-time practice of law. Except for Oregon, other jurisdictions studying the question have determined mandatory malpractice coverage is neither practical nor necessary for attorneys to serve their clients competently. This conclusion has been echoed by the American Bar Association after study of the subject.
The ad hoc committee also concluded that a mandatory insurance requirement might well place the decision as to who is able to practice law in the hands of private insurance carriers, few of which write policies in this state, and those who do have strict underwriting criteria and detailed application processes. Unlike Oregon, which has guaranteed coverage, New Jersey attorneys might be unable to obtain liability coverage for any number of reasons, many of which are unrelated to attorney claims history, competence and integrity, or practice in what are believed to be high-risk areas of the law.
In 2003 the ABA charged one of its standing committees to consider if attorneys should be required to disclose whether they carry professional liability insurance coverage and, if so, the form of that disclosure. The ABA committee recommended a model court rule requiring lawyers to inform the highest court in their jurisdiction, or a designated entity, whether they have coverage. The thought was that consumers of legal services would then have access to this information and decide whether to hire a lawyer who does not maintain coverage. The ABA, however, rejected the recommendation that lawyers be required to disclose directly to clients whether they are covered by liability insurance. A minority of the committee contended that such a proposed registration rule does not truly help the public make fully informed decisions because it depends on prospective clients seeking out the information.
The New Jersey State Bar Association has filed comments to the ad hoc committee report opposing both mandatory coverage and disclosure.
Seven states now require lawyers to disclose directly to clients that they do not carry professional liability coverage, although 17 states require that lawyers make known to authorities the existence of liability insurance on some form of an annual registration statement.
On the premise that liability insurance coverage is a material fact that a prospective client has the right to know at the time of representation, without searching registration filings, the ad hoc committee recommended that the court require attorneys to provide liability insurance information, including the limits of coverage, on annual registration forms and that the disclosure be communicated to clients because of the need for transparency in attorney-client dealings, even though a professional liability policy does not, of itself, speak to an attorney’s ability, experience or competence.
In reviewing the comprehensive, well-documented and fully developed arguments for and against a mandatory disclosure system set forth in the report, we believe that the committee in its client disclosure recommendation has reached the right result in solving this difficult problem of weighing client interest with the interest of attorneys in terms of fairness and practicality.
We would, however, offer one caveat to the committee’s recommendation. The issue of whether failure to abide by a registration or disclosure rule should create a standard for civil liability or the basis for a malpractice claim has been left by the committee for development “through common law in the ordinary course.” Because there is an absence of evidence linking competence and integrity of attorneys to professional liability insurance, the failure to appropriately make disclosure by registration or to directly advise the client might have a disproportionate adverse impact on jury decisions, rather than the jury concentrating on the only salient liability determinant: deviation from an accepted standard of legal practice. Therefore, we would recommend that a violation of the disclosure requirements be barred from use in civil trials where deviation from accepted legal standard is the key to the verdict.