The state Supreme Court has formed a committee to weigh the benefits and burdens of mandatory malpractice insurance and a requirement that lawyers disclose whether they have such coverage.

The Ad Hoc Committee on Attorney Malpractice Insurance came into being on Sept. 29, following the recommendation of its Professional Responsibility Rules Committee. The panel will include representatives from the bar, professional liability insurance industry and other affected groups.

The PRRC proposed the new committee in its 2010 report, issued last March. The report noted that a model rule issued in 2004 by the American Bar Association calls for lawyers to disclose on their annual registration forms whether they have malpractice insurance.

The model rule’s purpose is “to provide a potential client with access to relevant information related to a lawyer’s representation in order to make an informed decision about whether to retain a particular lawyer,” the ABA Standing Committee on Client Protection said when it adopted the rule.

New Jersey has not adopted the model rule. Lawyers in the state who practice in a professional corporation, limited liability company or limited liability partnership must have at least $100,000 of coverage under Rule 1:21-1A, B and C.

The PRRC said in its report last March that “at first glance, mandatory insurance seems worthwhile because it would close the claims circle by providing coverage for attorney negligence, which is not covered by the Lawyers Fund for Client Protection.”

But the PRRC added that compulsory coverage would also raise questions, such as whether an unmet need would be satisfied by mandating professional liability insurance; whether such a mandate would unfairly burden small firms and solo practitioners, who might have difficulty finding affordable coverage; and, if coverage is required, what policy limits and terms should be required.

Requiring lawyers to disclose whether they have insurance raises a number of questions, the PRRC also said in its report:

  • If the existence of insurance is required, should the amount of coverage also be disclosed?
  • Should disclosure be made only on the annual attorney registration, or to clients at the outset of representation?
  • Would a disclosure rule encourage more attorneys to obtain insurance?
  • Would solos and small firms be unfairly burdened by a disclosure requirement?
  • Would a disclosure requirement be an empty gesture if insurance is not mandatory?

The PRRC concluded that information from a range of sources is needed to gauge whether mandatory coverage is a good idea.

The Court’s order did not specify when the new committee would begin its task. A judiciary spokesman, Mike Mathis, says no action has been taken on selecting committee members or setting a schedule for deliberations.

The PRRC’s chairman, Walter Barisonek, a former Union County assignment judge now with Porzio, Bromberg & Newman in Morristown, declined to comment on the matter.

State Bar Association President Richard Steen says the Bar voted about 15 years ago to oppose mandatory disclosure of whether lawyers carry insurance. Steen expresses concern that mandatory insurance would be a burden to solos and small offices.

David Dugan, chair of the Bar’s Professional Responsibility Committee, says imposing mandatory coverage would be insensitive to lawyers experiencing financial difficulties. “There are a lot of people who are struggling to establish a law practice. These are hard times for lawyers, [especially] people who have left firms where there wasn’t enough work and are establishing solo practices,” says Dugan, a Medford solo.

As of last November, 18 states required attorneys to disclose on registration documents whether they had malpractice insurance, while seven others required disclosure to clients. Four other states were considering a disclosure rule and four others decided against enacting one, the PRRC report said.

Only one state, Oregon, requires lawyers to have malpractice insurance. Bennett Wasserman, a professor of legal ethics at Hofstra University School of Law, says Oregon’s experience has been very positive, with premiums being held down by greater participation.

Wasserman, of Stryker, Tams & Dill in Newark, says he is delighted the court is studying mandatory malpractice insurance. He rejects the argument about solos being hard hit, noting that most legal malpractice claims are made against solos. “The client’s protection is more important than a few dollars the lawyer is going to make,” he says.