By Luz A. Carrion, Esq. and Terence J. Welsh, CPCU, AIS
Although attorneys in Massachusetts are not required to maintain professional liability Insurance (or malpractice insurance)1, they are required to certify to the Board of Bar Overseers (BBO) whether they are covered by malpractice insurance. See S.J.C. Rule 4:02, § (2A)(a). As discussed below, having malpractice insurance is advisable. There are ethical principles operating within the Rules and regulations pertaining to the disclosure of an attorney’s malpractice insurance information. The goal here is to identify the major rules related to malpractice insurance and describe the ethical principles that might arise.
Professional liability: Because the owner and law practice under a sole proprietorship are one and the same, you are not shielded from personal liability under this business structure. If your law practice operates as a professional corporation (PC), a limited liability company (LLC), or a limited liability partnership (LLP) and you are a shareholder, member, or partner, respectively, you are not shielded from personal liability “for damages which arise out of the performance of legal services” on behalf of any of the said entities and which are caused by your own “negligent or wrongful act, error, or omission.” S.J.C. Rule 3:06(3)(a). All of this means that your personal assets are at risk if you are sued for legal malpractice. This is one of the many reasons why obtaining malpractice insurance is strongly advisable.
Before deciding how to structure your law firm, it is important to review S.J.C. Rule 3:06 closely, because the rule imposes various obligations depending on the type of business entity you select.
Certification of malpractice insurance to the BBO: The SJC has superintendent power over lawyers and uses regulations to protect the public and the integrity of the bar. As in any regulated profession, the regulatory framework accounts for situations involving instances of lawyers who fail to make appropriate restitution following errors.
Attorneys provide certification of their malpractice insurance coverage through their annual registration statement with the BBO, pursuant to S.J.C. Rule 4:02, § (2A). Attorneys must also provide the following information in their annual registration statements:
- The name and address of the carrier
- The policy number, and
- The start and end dates of the policy.
S.J.C. Rule 4:02, § (2A)(a). Under S.J.C. Rule 4:02, § (2A)(b), this information will be made available to the public.
Attorneys with an active license status who report coverage “shall notify the Board in writing within thirty days if the insurance policy providing coverage lapses or terminates for any reason without immediate renewal or replacement with substitute coverage.” S.J.C. Rule 4:02, § (2A)(a).
Attorneys who fail to comply with subsection (2A) of S.J.C. Rule 4:02 could face suspension until they comply with the rule. See S.J.C. Rule 4:02, § (2A)(c). Furthermore, “[s]upplying false information or failure to notify the Board of lapse or termination of insurance coverage…shall subject the attorney to appropriate disciplinary action.” Id.
Any changes to the coverage information—other than a lapse or termination without immediate renewal or replacement with substitute coverage—must be reported to the BBO within fourteen days of the change. See S.J.C. Rule 4:02, § (1). One example is if you change carriers between registration renewal periods and there is no lapse in coverage because you obtained substitute coverage with the new policy. Another example is if you do not carry malpractice insurance because you are a government attorney, then decide to leave government and establish a solo practice and obtain malpractice insurance for this new endeavor.
For any questions regarding reporting requirements, please contact the Registration Department at the BBO.
The BBO’s Registration Department handles annual registration statements and changes/ supplements to annual registration statements. Changes related to malpractice insurance coverage are submitted via the BBO’s online registration system at massbbo.org. After logging into the system and reaching the insurance certification page, attorneys are able to update or make changes to the malpractice insurance coverage and details.
Other ethical considerations: What if you realize that you committed an error or omission in a client’s case? What if that client threatens to sue you for malpractice or to file a complaint with the BBO? What if you do not have malpractice insurance or decide to settle the matter with the client directly without involving your malpractice carrier? What if this client does not have the benefit of independent advice of counsel?
All these questions involve an imbalance of power between you and that client, and in the case of BBO complaints attempts to thwart the disciplinary process. Therefore, the Supreme Judicial Court has addressed these scenarios through two rules.
First, any attempts to settle malpractice claims, or limit liability, with a client who does not have the benefit of independent advice of counsel is a conflict of interest and a business transaction with a client under Rule 1.8(a) of the Massachusetts Rules of Professional Conduct. Additionally, Mass. R. Prof. C. 1.8(h)(1) prohibits an attorney from making “an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.” Similarly, attorneys cannot settle a claim or potential claim for malpractice liability “with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.” Mass. R. Prof. C. 1.8(h)(2). Attorneys have been disciplined for violating these rules of professional conduct.
Second, if a client files, or threatens to file a complaint with the BBO, an attorney cannot “as a condition of settlement, compromise or restitution, require the complainant to refrain from filing a complaint, to withdraw the complaint, or to fail to cooperate” with the investigation, which is conducted by the BBO’s Office of the Bar Counsel. S.J.C. Rule 4:01, § 10. Attorneys have been disciplined for violating S.J.C. Rule 4:01, § 10.
Also, please note that failure to notify your malpractice carrier of a potential claim or attempts to settle without notification can most likely void any defense or indemnity protection for that matter. Notification requirements are clearly detailed in the policy and policy language often default to operate under a “known of or should have known” methodology. It implies that a “reasonable” attorney should have known there would be a claim and by not reporting it, they forfeit coverage.
Who sells malpractice insurance? An insurance company (also known as “carrier” or “insurer”) issues the malpractice insurance policy. Some, but not all, carriers sell malpractice insurance policies directly to attorneys. These carriers are also called direct writers and use exclusive or captive agents to sell you the company’s malpractice insurance policy. If a carrier does not sell malpractice insurance directly to attorneys, then the attorney must go through an intermediary in order to purchase a malpractice insurance policy. An independent agent is a self-employed intermediary who represents several insurance companies and can sell you a policy. A broker represents you and searches the market for a suitable malpractice insurance policy, typically receiving a commission from the insurance company that ultimately issues you the policy. It is advisable, though not necessary, to use an agent or broker who has experience in legal malpractice insurance.
You can get malpractice insurance coverage through some bar associations. The Massachusetts Bar Association has its own insurance agency, the MBA Insurance Agency, which in turn provides malpractice coverage through CNA. The Boston Bar Association has an Insurance Program, and it uses USI Affinity as a broker. You may want to inquire from other bar associations as to whether they offer discounts or can assist you in obtaining malpractice insurance policies.
The American Bar Association’s Standing Committee on Lawyer’s Professional Liability has a list of lawyer’s professional liability insurance carriers in Massachusetts. This list can be accessed at: https://www.americanbar.org/groups/lawyers_professional_liability/resources/lpl-insurance-directory/massachusetts/. Please note that you may have to go through a broker for some of the companies listed on this ABA list.
Shopping around: It is not a wise idea to indiscriminately submit applications for malpractice insurance. It is not wise to carelessly complete an insurance application either. Denial by one insurance company could lead to denials by subsequent insurance companies. Firms are also required to disclose to other carriers if they have been declined by another carrier. Failure to disclose can result in rescission of coverage. Also, a careless or incomplete application for insurance could lead to a higher rate or denial of a subsequent claim.
You may want to start by educating yourself on this topic. Some resources to get you started in this endeavor include, but are not limited to:
- Understanding your Insurance Coverage from the American Bar Association’s Standing Committee on Lawyer’s Professional Liability. See Exhibit ___, and available at https://www.americanbar.org/content/dam/aba/administrative/lawyers_professional_liability/downloads/understandingcoverage.pdf
- Insurance Glossary from MBA Insurance Agency, available at Insurance Glossary (A) – MBA Insurance Agency
- FAQ’s on Malpractice Insurance for the New or Suddenly Solo Attorney from the American Bar Association’s Standing Committee on Lawyer’s Professional Liability, available at FAQ’s on Malpractice Insurance for the New or Suddenly Solo Attorney
What to consider in a malpractice insurance application and policy? The American Bar Association’s Standing Committee on Lawyer’s Professional Liability also developed a checklist with insightful questions to ask and consider when evaluating coverage. This checklist is available at https://www.americanbar.org/content/dam/aba/administrative/lawyers_professional_liability/downloads/checklist.pdf.
