Introduction I. The Limited Liability Movement: Where Were the Lawyers? II. Mandatory Legal Malpractice Insurance: How the United States Differs from Other Countries (In Not Protecting Consumers) III. Mandatory Disclosure of Insurance: What the Debate Reveals about Lawyer Attitudes Conclusion: Embracing Accountability and Distinguishing Law Practice as a Profession INTRODUCTION
In asserting that law is a profession and not a business, lawyers often refer to the role self-governance plays in the legal profession. Julius Henry Cohen captured this sentiment in making the following exhortation: "Ours is a profession.... We are all in a boat. The sins of one of us are the sins of all of us. Come, gentlemen, let us clean house." (10 As members of a profession, Cohen asserts that lawyers may be brought to prompt and summary accountability through a collective enterprise. (2)
When Cohen and other bar leaders speak of accountability, their focus is often on the role that professional discipline plays in protecting the public. A similar concern relates to protecting the public by limiting law practice to attorneys who complete a course of education and demonstrate the requisite character befitting a member of the bar. (3)
In his essays, Cohen recognizes the disparate positions of lawyers and their clients. For example, he notes that clients may not have the background or expertise to make informed judgments in retaining a lawyer. (4) Because lawyers stand in a position of trust and confidence, Cohen advocates limiting law practice to persons who possess "adequate learning and purity of character." (5) This approach to public protection targets the qualities of those who enter the door of the profession. Once admitted, the focus turns to policing those practitioners whose conduct runs afoul of the minimum standards to avoid professional discipline. (6) Far less attention is devoted to considering accountability of lawyers who depart from standards of care applicable in professional liability cases.
This Article will address this gap by examining accountability in the context of professional liability. To do so, it will consider select developments that required lawyers, the organized bar, legislators, and jurists to balance lawyer self-interest and public protection. Specifically, this Article will consider lawyers' collective campaign to limit their vicarious liability, as well as developments related to lawyers carrying legal malpractice insurance. An examination of legislation and regulatory decisions related to lawyers' professional liability over the last two decades reveals that accountability concerns may not have been adequately considered because of the absence of advocacy on behalf of consumers and the public. For lawyers and law professors committed to advancing the status of law as a profession, this Article ends by urging them to take steps to promote financial responsibility as a basic tenet of professionalism and to support initiatives that protect consumers injured by lawyers' professional misconduct.
THE LIMITED LIABILITY MOVEMENT: WHERE WERE THE LAWYERS?
Over the last century, the limited liability movement resulted in the most radical departure from a civil liability regime holding lawyers accountable for the acts and omissions of their law partners. Unlike the business and tax-related interests behind allowing lawyers to practice in professional corporations, the push behind the limited liability partnership structure was the desire of lawyers to limit their vicarious liability for their partners' professional malpractice. (7) In lawyers' campaign for limited liability, public protection was largely a secondary concern. (8) While a few states included insurance requirements and other protections to provide some degree of public protection, injured parties' ability to hold firm partners jointly and severally liable was virtually eliminated once the law firm converted to limited liability status. (9) As the limited liability structure spread nationwide, few lawyers and commentators critically questioned the limited liability organizational structure as a retreat from public protection in favor of lawyer protection. The following account of the genesis and growth of the limited liability partnership form illustrates that lawyers' own interest in self-protection dominated both the discourse and outcome.
The birth of the LLP structure dates back to the 1980s and the savings and loan debacle involving the collapse of numerous financial institutions insured by the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation. (10) In an effort to recoup hundreds of millions in losses, the government filed numerous cases against lawyers, accountants, and other professionals, alleging that the defendants' conduct caused the financial institutions (and eventually the government) to suffer damages. (11) In addition to suing the professionals' firms, the government pursued claims against individual law firm partners, including those who were directly involved in the representation of the failed institutions, as well as other partners whose liability arose from their status as general partners in the defendant law firms. (12) In various cases, the amount of damages that the government alleged far exceeded the amount of legal malpractice insurance available to the defendant firms. (13)
To many, the government appeared to have both an unlimited war chest and zeal to recover as much as possible, even if it meant pursuing the personal assets of partners who were not directly involved in this representation of the failed financial institutions. (14) This was dramatically played out in litigation against Jenkens & Gilchrest (J & G), the now defunct Dallas-based law firm. In a meeting with J & G lawyers and their defense counsel, government lawyers made their intentions clear when they used an overhead projector to show their analysis of the non-exempt net worth of J & G partners. (15)
Beyond the individual defendants involved in the actions filed by the federal agencies, the litigation and the government's aggressive posture captured the attention of thousands of lawyers who represented financial institutions. (16) Other lawyers familiar with the litigation became concerned about the prospect of "innocent" partners being held jointly and severally liable for the acts and omissions of their peers. (17)
In Lubbock, Texas, the city where the government had sued J & G in federal court, partners in Crenshaw, Dupree and Milam (CDM), a twenty-one-person law firm, first proposed the limited liability partnership concept. (18) Because this was an established principle of partnership law, the CDM lawyers evidently recognized that it would take legislative action to eliminate unlimited liability for partners' malpractice. (19) The proponents elicited the assistance of a powerful state senator who introduced Texas Senate Bill 302, exclusively providing for limited liability for certain classes of professionals, including lawyers and accountants. (20) The legislation eliminated vicarious liability for torts claims by adding the following language to the Texas version of the Uniform Partnership Act:
A partner in a professional partnership is not individually liable, except to the extent of the partner's interest in partnership property, for the errors, omissions, negligence, incompetence or malfeasance committed in the course of rendering professional service on behalf of the partnership by another partner, employee, or representation of the partnership. (21) The bill that created a "limited liability partnership" structure passed the Texas Senate with little attention or comment. (22)
The initial reception in the Texas House of Representatives was far more negative. (23) In the House, critics questioned the following features of the proposed legislation:
(1) Including only professionals, particularly lawyers,
(2) Relieving partners from responsibility for misconduct of those they directed or supervised (such as a doctor's nurse or technician, a lawyer's junior associate),
(3) Failing to signal to patients and clients that their professionals' liability was limited in complete reversal of historic and familiar partnership law, and
(4) Failing to provide any substitute source of recovery for injured patients and clients. (24)
Despite these objections, the pressure to pass the legislation was substantial. Professor Alan R. Bromberg, a partnership law expert who had originally criticized the limited liability concept at the House hearing, later agreed to draft revisions to the bill to make it more acceptable. (25) The revisions were designed to address the concerns by doing the following:
(1) Extending the liability limitation to all partnerships,
(2) Denying protection to partners for misconduct of those working under their supervision or direction,
(3) Requiring annual registration [of the firm] with the state and the inclusion of "L.L.P." or "registered limited liability partnership in the firm name," and
(4) Requiring [the L.L.P. to carry] liability insurance in an arbitrary and admittedly often inadequate amount of $100,000. (26)
With these changes, the revised bill was "quietly attached" to an omnibus bill proposed by the Texas Business Law Foundation, a not-for-profit corporation organized by a group of corporate lawyers from major Texas law firms. (27)
With the enactment of the first limited liability legislation in Texas, the ember of change that started in a conference room of a small law firm in Lubbock, Texas spread like wildfire. (28) State by state, professionals lobbied for adoption of new legislation, arguing that it would be essential for the state to remain competitive in attracting and retaining business. (29)
While lawyers and bar-related groups were lobbying for adoption of limited liability statutes, there appeared to be little resistance to passing legislation. One...