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Lawmakers consider attorney anti-indemnification bill

February 22, 2017

A bill designed to prohibit attorneys from indemnifying themselves from legal malpractice claims is up for consideration by the Indiana House of Representatives, but some malpractice attorneys say the measure may not be necessary in light of existing rules of conduct.

Through Senate Bill 84, Sen. Liz Brown, R-Fort Wayne, said she is seeking to hold attorneys to the same level of accountability that is legislatively demanded in other professions, such as medicine. The bill says that any provision in an attorney-client agreement that seeks to prospectively release an attorney from legal malpractice liability is “against public policy, void and unenforceable.”

brown-liz-mug.jpg Brown

Brown, who is the owner of Brown Mediation LLC and is licensed to practice law in three states, said she was prompted to author SB84 after learning about the case of Central Indiana Podiatry, P.C., Northwest Surgery Center, LLC, d/b/a Foot & Ankle Surgery Center, f/k/a Foot & Ankle Surgery Center, LLC and Anthony E. Miller, D.P.M. v. Barnes & Thornburg, LLP, 49A02-1603-PL-498. In that case, Barnes & Thornburg LLP successfully defended an order in its favor after the firm was sued in a legal malpractice case.

idemnification-factbox.gifB&T represented the medical centers and Anthony Miller in a lawsuit filed by a podiatrist. After the medical centers and Miller sought a reduction in legal fees and a cap on fees related to the litigation, the firm provided a release agreement and advised the parties to retain independent counsel to review the agreement before the firm would sign it. The release stated the parties would pay B&T $145,000 but also contained a provision that the parties would “release and forever discharge B&T, and all predecessor and successor firms … from any and all claims, of any nature, known or unknown, which the (parties) now have, have had, or may later claim to have arising from or related to any aspect of B&T’s representation … .”

“I just didn’t think that was really possible, and I wanted to make sure going forward that we didn’t do that,” Brown said.

Brown’s bill passed the full Senate earlier this month with a 45-3 vote, with Republican Sen. Aaron Freeman and Democratic Sens. Lonnie Randolph and Greg Taylor opposing the measure.

Hoosier attorneys working in the legal malpractice realm say such provisions referenced in SB84 are incredibly rare.

Under Indiana Rule of Professional Conduct 1.8, “agreements prospectively limiting a lawyer’s liability for malpractice are prohibited unless the client is independently represented in making the agreement.” With that rule in place, Patrick Olmstead of Patrick Olmstead Law LLC in Greenwood said SB84 is unnecessary.

“It’s a solution in search of a problem,” he said.

Aside from the rarity of prospective liability releases, Olmstead is concerned that SB84 allows the General Assembly to wade too far into the waters of the judicial branch. In the third branch of the government, the Indiana Supreme Court is the authority on judicial conduct, Olmstead said, and other organizations such as the American Bar Association have processes in place to ensure that the rules that govern judicial practice are properly discussed and vetted.

bowling-neal-mug Bowling

Neal Bowling with Lewis Wagner LLP agreed that SB84 addresses a problem that is not very common, but he doesn’t think it is problematic for the General Assembly to craft legislation related to the judicial branch, as long as that legislation doesn’t step on the Supreme Court’s authority. The language of SB84 doesn’t seem to be in conflict with Indiana judicial rules, Bowling said, so the bill does not seem harmful to the judicial branch’s authority.

Jon Pactor, a malpractice attorney in Indianapolis, supports the general policy concept behind SB84, but agreed with Olmstead that such matters might best be addressed by the Supreme Court. Additionally, Pactor said he sees the potential for the bill to be broadly expanded. For example, the measure could possibly extend to arbitration requirements, which could be seen as a way to prospectively limit liability.

pactor-john-mug.jpg Pactor

“When an attorney requires arbitration in the contract, the client gives up the right to get punitive damages, the right to a jury trial and the right to appeal as well as negotiating leverage,” Pactor said. “The arbitrator is usually a lawyer, and the client may have to pay some or all of the arbitrator’s fees. Those factors reduce or aim to reduce prospectively the lawyer’s exposure to malpractice liability.”

But from Olmstead’s perspective, any legislation regarding attorney liability should be headed in the other direction.

With the dramatic increase in unrepresented litigants in state and federal proceedings, Olmstead said attorneys are now being “conscripted” to help represent those litigants. While he would prefer that this didn’t happen, Olmstead thinks there should be mechanisms in place for attorneys to limit their liabilities depending on how much those litigants can pay for representation.

He gave the example of agreeing to represent a company at trial for $5,000 instead of $10,000, because that’s all the company can afford.

“You do your best, but it doesn’t work out. It’s not fair for that company to then turn around and sue you for malpractice because they got hit with a big verdict,” Olmstead said. “That’s a real-life situation.”

Bowling said Rule 1.8 and other provisions allow attorneys to limit the scope of their work with a client, which can help guard against the type of situations Olmstead described.

Legal malpractice insurance is also available to protect attorneys, though it’s only required for limited liability partnerships in Indiana, and there is no disclosure rule in the state. Despite that, the attorneys said more often than not, lawyers purchase malpractice insurance as a safeguard.

While Olmstead said he would like to see the state adopt an insurance disclosure rule, Pactor expressed some concern about adopting a rule that would require all attorneys to carry malpractice insurance.

olmstead-patrick-mug.jpg Olmstead

If the insurance market shrank after malpractice insurance was mandated, then one or two companies would have the ability to decide who can practice law in Indiana by way of deciding whom to cover, Pactor said.

Additionally, because attorneys can only be covered by the malpractice insurance they have when a lawsuit is filed against them, not the insurance that was in place at the time they worked on the specific case that led to the suit, it can be misleading to clients if the attorney loses his coverage after the case concludes.

“It’s somewhat deceptive unless the client knows that the attorney may not have insurance two to four years down the road,” Pactor said.

As of Indiana Lawyer deadline, a hearing on SB84 in the House of Representatives had not yet been scheduled.•

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