The Case for Mandatory Legal Malpractice Insurance

By Seth Leventhal

Most of us carry insurance because we are required to by law (e.g., automobile insurance) or, by choice, to protect ourselves and our loved ones from unforeseen but known risks (e.g., life insurance, property insurance, etc.). Businesses carry insurance for the same reasons—that is, because they are required to by law or out of a sense of prudent business practices.¹

Lawyers should be required to carry professional malpractice insurance to protect their clients.

A significant part of my legal practice for the past 10 years or so has been bringing claims of legal malpractice against Minnesota lawyers. “Coming from a guy who makes his money by suing lawyers, you take a surprising position, advocating mandatory professional malpractice insurance for Minnesota lawyers,” some readers might cynically comment.²

To be clear, (1) my civil litigation practice is far broader than legal malpractice cases, (2) I turn away well over 95 percent of the potential legal malpractice claims that I encounter, and (3) frankly, if I had to live off of the money I recover in legal malpractice cases, my family would be living below the poverty line. Legal malpractice cases are extremely difficult and strong claims are relatively rare.³ In addition, in all but one of the malpractice claims I have pursued, or even investigated, over the past 10 years, the lawyers have carried legal malpractice insurance. In short, self-interest, financial or otherwise, has nothing to do with my opinion.

Having said that, my advocacy in favor of requiring Minnesota lawyers to carry mandatory legal malpractice insurance is informed by my experience suing Minnesota lawyers;⁴ it simply isn’t motivated by it nor by financial self-interest. My advocacy is motivated by a passion for the special role that lawyers play in our society and in the lives of their clients. 

As all lawyers know, lawyers are “officers of the court.”⁵ In all instances, they are (or should be) trusted fiduciaries. They owe their clients “something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive….”⁶ Clients often place a tremendous amount of trust, confidence, and faith in lawyers. And they should be encouraged to do so. The trust and confidence between lawyer and client are essential to the sound functioning of our legal system. 

Nevertheless, at the same time, most if not all lawyers are humans; they make mistakes. Sometimes those mistakes cause damages and sometimes those mistakes constitute professional malpractice.⁷ But approximately 10 percent of active Minnesota lawyers representing private clients carry no professional negligence insurance.⁸ The uninsured lawyers are generally solo or small-firm lawyers⁹ who tend to represent the least sophisticated, relatively poor, and most vulnerable clients.

Why don’t we require Minnesota lawyers to carry malpractice insurance? Minnesota, along with many states, does not require that its lawyers carry malpractice insurance; Minnesota just requires the lawyers to disclose whether they carry insurance or whether they are “going bare”—that is, practicing law with no professional liability insurance.

Disclosure is not enough

As of 2018, 24 states (including Minnesota) required lawyers who represent private clients to disclose whether they carry malpractice insurance.¹⁰ The nature of the required disclosure varies a lot from state to state.¹¹ In some states, lawyers must notify clients in writing if they carry no malpractice insurance or if their coverage is under a certain threshold dollar amount. In South Dakota, lawyers must specify on their letterhead if they carry no malpractice insurance or if their coverage is less than $100,000 per claim. Many states, like Minnesota, require annual certification as to whether the states’ licensed lawyers who represent private clients carry legal malpractice insurance.¹²

To be blunt, though, Minnesota’s disclosure rule is a joke. It is ineffective. The so-called public disclosure is almost impossible for prospective clients to find.¹³ It is nominal public disclosure, not meaningful public disclosure. (There is a name for “nominally public information:” “practical obscurity.”)

In theory, South Dakota’s rule requiring a disclosure on firm letterhead could genuinely inform clients that their lawyers have no malpractice insurance, but is that even enough? As discussed above, the point of malpractice insurance is that it is part of taking care of one’s clients. It is not consistent with the idea of fiduciary duty responsibilities to rely on disclosure. Would we countenance cruise lines operating without lifeboats or flotation devices on their vessels so long as they disclose their absence to passengers? Presumably not. 

The arguments against mandatory professional malpractice insurance for lawyers are unpersuasive

There are a number of arguments against mandatory professional malpractice insurance for lawyers, of which I’ll address two here.¹⁴ First, there are those attorneys who adopt an absolute ideological “free market”/anti-regulation position: “It’s not the government’s business to tell Minnesota lawyers that they have to have insurance; let clients decide for themselves whether that matters to them.” Call it “the libertarian objection.”

A second and far more common objection is that a mandate would raise costs for Minnesota lawyers and clients (“the money objection”).

The libertarian objection

Presumably, those who adopt the libertarian objection have to take the view that there should be no regulation of lawyers at all. “Let the client beware” is the logic of their ideology. As a fallback to this extreme (and widely rejected) position, they would presumably argue that if there has to be regulation, it should be minimal regulation; that is, disclosure should be enough. These two positions highlight the weakness of the libertarian objection: If you take the logic literally, it calls for a system that very few, if any, seriously want (no regulation of lawyers). But if you moderate this extreme position, the compromise fallback (disclosure) neither satisfies the libertarian objection nor offers any genuine remedy for the problem. Disclosure, particularly the kind of disclosure that Minnesota now provides for, is a useless, impotent, and inert remedy.

Again, it is important to keep in mind that the majority of uninsured lawyers tend to be solo and small firm lawyers. (See note 9.) These lawyers, in turn, have the least sophisticated clientele. Moreover, rare indeed is the client, sophisticated or not, who hires a lawyer and, at the outset, fully appreciates that a lawsuit against the very attorney just hired is remotely likely or even possible. Thus, disclosures of “no insurance” fall on deaf ears.

The money objection

Those who oppose mandatory malpractice insurance often suggest that it would be financially burdensome. But here’s the thing: Legal malpractice insurance is not very expensive.¹⁵ This statement is based, in part, on personal/anecdotal experience. The author’s premium for one year of coverage ($1 million/claim; $3 million/aggregate) is approximately $3,000. The annual mean wage for lawyers in Minnesota is about $120,000.¹⁶ Thus, the cost of malpractice insurance is the proverbial “drop in the bucket.” This anecdotal information is supported by broader scholarly research.¹⁷

Further, requiring all Minnesota lawyers who represent private clients to have malpractice insurance could lower insurance rates. As with health insurance pools, if one increases the pool of covered individuals, the risk spreading is broader and coverage is less expensive.¹⁸

Is mandatory malpractice insurance feasible?

Yes. The state of Oregon has had mandatory malpractice insurance for over 40 years.¹⁹ The Idaho Supreme Court adopted a similar requirement that went into effect in 2018.²⁰  California, Washington, New Jersey, Nevada and Georgia have all been studying the possibility of imposing mandatory malpractice insurance.²¹

Is mandatory malpractice insurance a critical need?

Yes (and no). Most Minnesota lawyers are thorough, honest, competent, and capable. Further, under Minnesota law, legal malpractice cases are very difficult to win. So the question of the availability of malpractice insurance will not be relevant to the vast majority of legal matters handled by Minnesota lawyers representing private clients. 

But think back to my analogy to lifeboats and flotation devices on cruise ships. Minnesotans do not need them on every boating outing or cruise ship. In fact, we all hope we’ll never need them and most of us won’t. But, in the rare and unforeseen disaster scenario, they will make all the difference. 

Minnesotans with strong legal claims (or defenses) who lose those claims (or defenses) due to their lawyers’ negligence need, deserve, and should have protection. Malpractice insurance should be mandated, in keeping with lawyers’ obligations to their clients and their roles as trusted professionals.

And, finally, an added benefit to mandatory legal malpractice insurance is that it would result in fewer (or no) self-represented lawyer-defendants in malpractice claims. We all
are well aware of the old adage, “Lawyers who represent themselves have fools for clients.” Mandatory malpractice insurance would ensure that lawyer-defendants have experienced, qualified, insurance-provided lawyers defending them. This, in turn, would make for better representation and more efficient dispute resolution.