Isle lawyer group against
insurance disclosure plan

Hawaii's main lawyer group is opposing a national industry proposal that is designed to help potential clients become better informed when hiring attorneys.

A committee of the American Bar Association, the national trade group, is proposing that the organization adopt a model rule that would require lawyers to disclose whether they have malpractice insurance.

Such information, which clients typically don't ask about, would be helpful when someone is choosing a lawyer, the committee says. Insurance protects clients if their lawyers commit malpractice.

The bar associations from New Mexico, Virginia, Washington, Illinois, Delaware and Ohio are among those supporting the controversial rule, which, if adopted, would serve as a guideline that states would be free to adopt.

But the Hawaii State Bar Association recently voted to oppose the proposal. Hawaii will voice its opposition when ABA delegates consider the model rule at a meeting this week in Atlanta.

Supporters of the proposed rule say many clients assume their lawyers have insurance, don't think to ask about it or are reluctant to ask, creating the need for an independent source of such information.

"Because of (ethics) abuses that have occurred here and the failure of the system to protect the public from unscrupulous attorneys, something like this would be very beneficial to the public," Honolulu attorney Madalyn Purcell said of the proposed ABA rule.

But Dale Lee, president of the state bar, said the board, while applauding the intent of the proposal, had concerns about practical aspects of it.

A system that discloses only whether an attorney has coverage without specifying details, such as policy limits, may give a client a false sense of security, particularly if the coverage doesn't apply to the client's situation, Lee said.

"It creates a problem that maybe is not anticipated and defeats the laudatory purpose that they're trying to accomplish," he said.

Supporters say that while the proposal has its shortcomings, it is better than having no mandatory disclosure at all, which is the case in most states, including Hawaii.

"In our view, clients already have a false sense of security" because they usually assume their lawyer has coverage, said Robert Welden, a Seattle attorney who chairs the ABA's committee on client protection, which drafted the proposal.

Asked if the Hawaii bar would support a tougher rule requiring details of a lawyer's coverage to be disclosed, Lee said the board didn't address that question, only the ABA proposal. He noted that the ABA committee on lawyers' professional liability has opposed the rule.

Attorneys who work at large firms generally are covered by insurance policies obtained by their firms. But solo practitioners and lawyers who work in small firms sometimes opt to go without coverage. Lawyers in Hawaii and most other states are not required to get malpractice insurance, though clients who hire attorneys without coverage take a big risk.

If malpractice occurs and there's no insurance, the client generally has no recourse, attorneys say. They say the client could sue the lawyer, but if the lawyer's assets are sheltered, little likely can be recovered.

For a disclosure requirement to take effect in Hawaii, the state's high court would have to revise its rules governing the legal profession. Many states follow ABA guidelines. If the ABA disclosure rule is passed and Hawaii adopts it, lawyers would have to disclose whether they are insured when they register annually with the state bar. They also would have to provide notification if their coverage lapses or ends during the year.

Anyone could then contact the Hawaii bar to check whether a lawyer has coverage.

As an example of what can happen when a lawyer is not covered, Purcell cited the case of one of her clients who last year successfully sued an attorney for malpractice.

Rieko Tanaka has a roughly $184,000 judgment pending against attorney Richard Y.S. Lee, a former state judge. But Tanaka has had difficulty collecting the money because Richard Lee doesn't have malpractice insurance, according to Purcell.

She also said Richard Lee has sheltered his assets, making collection all the more difficult.

In a written response, Richard Lee said attorney corporations for years didn't have limited liability when they incorporated, so for purposes of estate and asset planning it made sense to "structure one's holdings." Despite the jury verdict against him in the Tanaka case, he denied committing malpractice. He said he didn't care if insurance disclosure became mandatory.

In nine states, lawyers are required to disclose -- either directly to their clients or on annual registration statements -- whether they have malpractice insurance. Only Oregon requires lawyers to obtain insurance.

Several local lawyers said the Hawaii bar's opposition to the proposed ABA rule was not surprising considering the organization also opposed a recent change that made the secretive lawyer disciplinary system here more public. That change was likewise designed to help the public, but many lawyers believed it wasn't warranted.

American Bar Association
Hawaii State Bar Association


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