It’s going to be one of those bad days. You can tell because you show up at the office to find an envelope in the day’s mail with one of those sickening royal blue return addresses from the Disciplinary Commission with the ominous disclaimer “personal and confidential.”  This can’t be good.  Sure enough, the envelope contains a letter that begins: “This is a demand for a written response.  You are required to provide a written response within twenty (20) days of the date you receive this letter, or such additional time as you are granted upon request.  You could be suspended from the practice of law for failure to respond to this grievance and cooperate with the investigation.”

What are you going to do? I suggest the following in roughly this order:

  • Take a deep breath and engage the rational side of your brain.
  • Calendar the 20-day initial response deadline.
  • Think hard about hiring a lawyer to help you out.
  • Dig out your malpractice insurance policy and read it.

What’s with that fourth point? More than likely, buried in the small print of your policy are provisions providing some coverage to defend a disciplinary grievance.  You obviously have no indemnity rights (don’t even dream that your insurer will serve a license suspension for you or take a reprimand in your place), but there is a high likelihood that your insurer will provide some resources to defend the matter.

No Deductible or Reduction of Liability Limits: Not all malpractice policies are created equal and disciplinary defense coverages vary greatly.  Typically, though, the benefit is not subject to any deductible that would otherwise apply if it were a claim for money damages.  And, just as often, the benefit is on top of the policy’s liability limits and does not reduce the amounts that are available to defend and indemnify against civil liability claims.

Those two major points in common aside, policies differ. Based on my review of policy language from four carriers who write a lot of legal malpractice insurance in Indiana, here are some observations on the points of distinction.

Coverage Limits:  Coverage limits vary wildly.  The most restrictive I have seen is a limit of $10,000 per proceeding with an aggregate limit of $10,000 in a policy period.  Another company limits coverage to $15,000 per proceeding and $15,000 in aggregate.  Another limits coverage to $25,000 per proceeding, with a $100,000 policy period aggregate limit.  The most generous disciplinary defense coverage is an aggregate limit of $100,000 per policy period with no per proceeding limitation.

Scope of Coverage: Two companies offer disciplinary defense coverage for “any investigation by a State Bar or peer review committee” and “any proceeding … to investigate charges alleging professional misconduct.”  This coverage may well not extend to the costs of defending a matter where misconduct is formally charged after an investigation.  On the other hand, another company limits its coverage to formal scheduled hearings[s] … to adjudicate charges against an insured alleging professional misconduct….”  This appears to mean that this company will not provide coverage for representation during the investigation stage; only if and after a formal charge of misconduct has been filed.  The fourth company I looked at appears to extend disciplinary defense coverage to both the investigative and charging phases of the lawyer discipline process.

Of the four policies I reviewed, the disciplinary defense benefit will be provided for a disciplinary proceeding (however defined under a particular policy) that is either initiated or about which the insured receives notice during the policy period. The exception to this general rule is one policy that extends the benefit to the defense of a disciplinary proceeding that arises out of an act or omission committed on or after any applicable retroactive date and before the policy ends.  Thus, in this one case, it is the timing of the events out of which the disciplinary proceeding arises, not the time of the proceeding itself, that will determine coverage.

Coverage Exclusions: All of the policies provide payments for costs of defense only and will not indemnify the lawyer for any payments the lawyer is required to make as a part of a disciplinary proceeding in the way of assessed costs, penalties or fines.  One company excludes defense of actions by regulatory agencies, such as the SEC, IRS and Patent and Trademark Office.  This makes general sense if the regulatory action is not against the lawyer acting strictly as legal counsel, but a number of federal agencies, the PTO in particular, have specialized bars with varying degrees of regulation of lawyers appearing as practitioners.  The PTO is the best example because it has its own patent bar requiring separate admission and with its own Office of Enrollment and Discipline that is responsible for regulating the lawyers in that bar.  Discipline imposed by that office could form the basis for reciprocal disciplinary action by the states in which the lawyer is also admitted to practice law.

One policy is limited to paying costs of defending disciplinary proceedings arising out of the performance of “legal services,” which are defined to mean services provided for others as a lawyer for a fee or on a formal pro bono basis. This language might well exclude assistance in the defense of a disciplinary investigation or action that does not relate to conduct involving client representation, such as lawyer advertising or personal misconduct unrelated specific client matters, such as a discipline investigation growing out of a drunk driving charge.  In fact, one of my clients, whose policy with another company included similar language, was denied coverage in a case where the disciplinary investigation related to advertising.  The other policies I reviewed did not seem to be limited in the same way and appear to apply on the basis of the nature of the proceeding (“disciplinary”) versus the nature of the conduct out of which the proceeding arises.

Notice: Notice is vitally important.  Most policies will contain a general requirement that, regardless of disciplinary defense coverage, the insured must give notice of any disciplinary grievance.  Thus under these policies, whether a lawyer is eligible for or wishes to take advantage of disciplinary defense coverage is irrelevant to the duty to report.  Reporting must be taken seriously because non-reporting of a disciplinary grievance could jeopardize rights to defense or indemnity in the event a civil liability claim arises out of the same facts as make up the basis for the grievance.

All of the policies I reviewed explicitly or implicitly require reporting in writing of the disciplinary matter during the current policy period in order to avail oneself of the disciplinary defense coverage. In some cases it is not clear whether the benefit would pay for or reimburse defense expenses that were incurred before notice was given.  In one case, it is clear that there will be no coverage for defense costs incurred before notice.  All the more reason to report promptly.  One policy in particular is restrictive and detailed in its notice requirement.  It requires a report of the disciplinary allegation within the current policy period and within twenty days of the date the insured receives notice of the allegation.  In some cases, delayed reporting might jeopardize the right to claim the benefit for the cost of representation even after notice is given.

Effect on Premiums: Lawyers might hesitate to take advantage of disciplinary defense coverage out of concern that it will increase their premiums.  They shouldn’t.  From what I have been able to determine, it is the fact of the grievance, which typically must be reported anyway, not whether the lawyer accesses the disciplinary defense benefit, that will be drive the setting of future premiums or availability of insurance.  I don’t mean to be alarmist.  It is unlikely that a single disciplinary grievance or a small number spread out over years, particularly grievances that are dismissed on their face or after a short investigation, will affect premium rates or insurance availability.

Choice and Compensation of Counsel: Policies vary regarding the ability of the insured to select counsel in the event the insured wishes to take advantage of the disciplinary defense benefit.  Two policies simply make available the allotted amount of funds to be paid toward the costs of independent counsel of the insured’s choosing.  Counsel does not have to be preapproved or work within a rate structure set by the insurer, although fees must be “reasonable.”  Another policy requires counsel to be designated by the insurer or by the insured with the insurer’s written concurrence.  The most restrictive policy contemplates that the insurer will actually provide the defense up to the designated limit and appoint counsel to defend.  This suggests that this insurer will designate counsel without insured input, probably from a panel of pre-approved lawyers, who must work within the insurer’s rate structure.  This latter approach is curious since the insurer  is exercising the degree of control over the defense that it would have if it had a duty to indemnify, even though it does not..

A Final Word About Malpractice Insurance: Indiana is among a decreasing number of jurisdictions that does not have some generally applicable regulation regarding lawyer malpractice insurance.  Exactly half of the states now have a requirement that, at a minimum, lawyers must notify clients or make some public disclosure about whether they have  malpractice insurance coverage.  The rest are like Indiana where malpractice insurance coverage is not generally required, nor are lawyers explicitly required to inform clients about their insured status.  The important exception to this in Indiana is that lawyers who organize to practice law in the form of limited liability entities must have “adequate professional liability insurance,” defined to be a minimum of $50,000 per claim per insured lawyer in excess of deductible, and $100,000 per year in aggregate per insured lawyer for all claims, with an upper limit of $5,000,000/$10,000,000 regardless of firm size, or equivalent alternative proof of financial responsibility.  Indiana Admission and Discipline Rule 27, section 1(g).

Conclusion: As is readily apparent, disciplinary defense coverage in lawyer professional liability insurance policies is common, but coverage details vary greatly.  This important  supplemental benefit might not be significant enough to drive a law firm’s decision about which carrier to use, but it is one consideration that should be taken into account in the process of obtaining malpractice insurance coverage.

Lawyers should know about disciplinary defense coverage. Statistically, more than one lawyer in ten will be grieved each year.  A good number of those grievances are dismissed on their face and the lawyers will incur no cost of defense.  Others are formally investigated, and it is almost always beneficial for a respondent lawyer to have the assistance of knowledgeable counsel from the outset of the matter.  The disciplinary defense benefit can take a lot of the financial sting out of finding oneself in the barrel over at the Disciplinary Commission.  Don’t leave it on the table.