By Gary Blankenship
Whether premiums for insuring litigation costs in contingency fee contracts can be passed on to clients if the case is won or settled will be studied by the Bar’s Professional Ethics Committee.
The committee considered the insurance, called litigation cost protection that was developed and is being offered by Miami attorneys Justine Leto and Larry Bassuk, at its June 23 meeting at the Bar’s Annual Convention in Boca Raton.
The issue came to the Bar’s ethics staff earlier this year when a lawyer who wanted to purchase the insurance asked if it could be charged as a cost to the client if the case settled or was won at trial. The Bar’s ethics staff replied it could not be charged to the client.
That caused Leto and Bassuk to file their own request with the ethics staff, saying the original inquiry left out pertinent information, but the reply was the same. The pair then appealed the staff opinion to the Professional Ethics Committee.
Leto told the PEC that the client would be told up front about the insurance when the contingency contract is signed. The lawyer can select an amount he or she expects to advance as costs, and the premium is 7 percent of that figure, he said.
Leto argued there are several benefits for the client, including the attorney will be less tempted to cut costs in hiring experts or ordering tests, it will protect the client if the defense attempts to drag out litigation to increase costs for the plaintiff, it will allow smaller firms to take contingency cases, and it will improve access to the courts because attorneys will be more likely to undertake risky cases if they know their costs will be reimbursed if they lose.
“It’s a brand new product. It’s never been done before,” Leto said. “It’s ethical because it’s fully disclosed [to the client]. . . . What this insurance does, in a sense, is it creates a level playing field.”
In response to questions from committee members, Leto said the insurance is purchased through a website (levelinsurance.com). Because the underwriting insurance company wanted an automated process, the insurance must be taken out within 90 days after service of process so that lawyers who realize well into a case they are likely to lose can’t buy the insurance, and the costs are reimbursed only if the case is lost at a bench or jury trial. He also said the insurance has been offered for about 10 months.
Leto and Bassuk said it’s proper for the clients, who would have been informed about the policy and given consent when they sign the contingency contract, to repay the premium as a normal court-related cost if the case is settled or they win at trial
The Bar’s staff opinion said while Bar Rule 4-1.8(e) allows lawyers to advance court costs and expenses of litigation, “[t]he insurance policy proposed by the inquirer does not constitute a court cost or an expense of litigation. The policy is not required by the court, does not have any direct effect on the client’s representation, and does not affect the outcome of the litigation.”
The rule also requires that the advanced costs must be tied to furthering the client’s interests, the opinion said.
It concluded: “Here, the proposed litigation insurance only provides a direct benefit to the attorney. As the inquirer has described it, claims on the insurance policy would only include the lawyer as a beneficiary, and not the client. To the extent that the insurance would benefit the client, the benefits are indirect and relate to existing obligations of the lawyer, such as the duties of competence, diligence, and the avoidance of conflicts of interest. For these reasons, the cost of the premium for this insurance is a business expense of the lawyer, should be accounted for in the lawyer’s overhead, and is not a cost of litigation that can be charged to the client if there is a recovery in the case.”
The committee rejected a motion to approve the staff opinion by a 10-13 vote and then voted 26-0 to refer the issue to a subcommittee for further study.