Are Attorneys in Texas Required to Maintain Insurance?
No. Of the thousands of lawyers who practice across the United States, it is estimated that only 60 percent have malpractice insurance. Unlike attorneys in Oregon and Idaho, lawyers practicing law in Texas are under no obligation to carry malpractice insurance. Similarly, even though many physicians working in hospitals and other professionals throughout Texas are required to show proof of financial responsibility or maintain insurance to receive a license, attorneys are not.
Are Attorneys in Texas Required to Disclose Insurance Status?
No. Even more disturbing is the fact that an attorney in Texas is not required to disclose whether they carry professional liability insurance. Unlike attorneys practicing in sixteen other states, lawyers in Texas are under no obligation to disclose their lack of professional liability insurance to their clients. Therefore, the only real way to determine if a Texas lawyer has insurance is to file the lawsuit.
If There Is Insurance, What Happens?
If there is insurance coverage when the client files suit, typically two things will happen. First, the insurance company will assign a law firm to defend the client’s former lawyer against the claims. Second, the insurance company will allocate money to pay the client if the accused lawyer and insurer are not successful in their defense. The amount of money set aside is typically the “value” of the client’s case as assessed by the insurer.
Should Maintaining or Disclosing Malpractice Insurance Be Required?
Yes. But because attorneys in Texas are the ones making the laws, clients should not expect this anytime soon. In fact, by letter dated April 14, 2010, to the President of the State Bar of Texas, the Supreme Court of Texas declined to adopt an insurance disclosure rule.
Those states that have adopted mandatory malpractice insurance have done so to protect the public. Requiring mandatory insurance will also prevent damage to the legal profession because when uninsured lawyers aren’t held accountable for what they do, the standing of the profession is diminished. Mandatory insurance will lead to greater lawyer competence because more lawyers will be trained on risk management. Those for mandatory insurance have also argued that responsible lawyers who maintain insurance shouldn’t have to bear a disproportionate amount of responsibility in the event that they are joint defendants in a lawsuit simply because the plaintiff views them as the source of recovery.
Not surprisingly, the efforts to impose mandatory malpractice insurance have been met with lawyer resistance. Those opposing mandatory malpractice insurance argue that it is cost-prohibitive and that if they couldn’t afford it, or if they were for some reason denied coverage under an open market model, then the private insurance market and not the bar would determine who could practice law. Yet, in one study done by New Mexico attorneys, more than 40% of lawyers who indicated they were uninsured because of cost also indicated that they had never actually applied for insurance. Moreover, after the mandatory insurance rule went into effect in Idaho, no lawyer who sought insurance in the public market was turned down.
As an alternative to mandatory insurance, 24 states have taken a middle ground approach that requires lawyers to disclose either directly to the client (direct disclosure) or to some regulatory unit (indirect disclosure) whether they maintain professional liability insurance.
Those states which require direct disclosure argue that a client has a right to be fully informed about all material facts concerning the representation, which of course flows from those rules of professional conduct requiring attorneys to be completely candid with their clients. Not surprisingly, in the states in which disclosure is mandatory, the number of lawyers who maintain malpractice insurance has increased. In other words, more clients are protected if their lawyers make a mistake. At the end of the day, despite lawyer resistance, mandatory insurance and disclosure rules are necessary to protect the public and provide accountability.
What Can Clients Do?
Although it may be uncomfortable, the client should ask his or her lawyer at the beginning of the relationship if he or she carries malpractice insurance and the amount of the coverage. Clients should also write to their Congressmen and the Texas State Bar and request that insurance for lawyers be mandatory or, at minimum, insurance status should be disclosed to the client.
David Eric Kassab is the author of the article Avoiding Accountability: The Rise of Mandatory Legal Malpractice Insurance and Disclosure which was published in the American Bar Association’s Lawyers’ Manual on Professional Conduct.