Rule 1.8 addresses conflicts that can arise between a lawyer and client (as opposed conflicts between clients). Prior to the adoption of Model Rule 1.8 in 1983, the ABA Model Code flatly prohibited agreements limiting liability. DR 6-102(A) provided that “A lawyer shall not attempt to exonerate himself from or limit his ability to his client for his personal malpractice.” This rule was in stark contrast to the rules governing many others, including large accounting firms and lawyers in Europe, who often had agreements limiting their liability to clients for their work on deals alongside American lawyers who could not limit their liability (which raised numerous problems with potential disproportionate liability for deals gone bad).
Model Rule 1.8 (adopted in 1983) softened the complete ban, adding conditions to make such prospective agreements permissible, yet still protecting client’s best interests in requiring the advice of independent counsel. The first part of the Rule would then read “A lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement…” This amendment put some American lawyers on the same footing as colleagues here and abroad, but it was not widely adopted.
In 2002, the ABA again amended Model Rule 1.8(h), to eliminate the “unless permitted by law” requirement. The drafters supported the deletion by explaining that they were not aware of any such law. Model Rule 1.8(h)(1) now states that “A lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement”.
Today, some states have adopted the revised rule. And many of the states that have amended their version of Rule 1.8 deviate from the language found in Model Rule 1.8, resulting in varied degrees of permissibility as to whether their lawyers may prospectively limit malpractice liability to clients. Approximately 28 states have adopted the language in Model Rule 1.8(h)(1) entirely. Seven states have similar language to that of the Model Rule but have added the requirement that such agreement must also be “permitted by law”. Nine states still outright prohibit such prospective agreement. The seven remaining states have language that does not squarely fit into any of the aforementioned categories. The reasons for wanting to limit your liability in any given situation are likely obvious, but whether or how you should pursue such endeavor is far less clear.
Choose your language wisely
Attorneys licensed in multiple jurisdictions and law firms spanning across multiple states must be keenly aware of any differences in the applicable rules. Even in jurisdictions that permit lawyers to prospectively limit malpractice liability, lawyers must be careful to stay within the confines of the rules when drafting. Ohio reminds lawyers that (their) Rule 1.8 allows for the prospective waiver of malpractice claims under certain conditions, but such permissibility does not extend to disciplinary proceedings. Limiting malpractice claims is not synonymous with limiting the client’s ability to file a disciplinary grievance. Using the wrong language could subject the lawyer to additional rule violations. Requiring a current or former client to refrain from filing a disciplinary grievance constitutes conduct prejudicial to the administration of justice under Rule 8.4(d) and conduct adversely reflecting on fitness to practice law under Rule 8.4(h).
In Illinois, the Rules do not permit lawyers to prospectively agree with their legal clients that advice given to such clients in connection with insurance or investment products is not intended to be and should not be deemed legal advice, even if such determination could be reliably made. The Committee opined that such agreement is effectively one that prospectively limiting the lawyer’s liability to the client. Such agreements are prohibited by Rule 1.8 unless the requisite conditions are satisfied.
Merely refraining from plugging in prospective agreements into your engagement letters will not ensure Rule 1.8 compliance. Lawyers barred in jurisdictions like DC, where such agreements are forbidden, must still examine less obvious conduct that may constitute a Rule 1.8 violation. For instance, many attorneys sit on boards of various entities. DC Opinion 382 reminds lawyers that while directors on boards can limit liability to an entity, a director may not do so, if he or she is a lawyer, otherwise it violates the rule.
While New York similarly prohibits lawyers from prospectively limiting malpractice liability, one New York opinion found that 1.8(h) is not violated simply due to a lawyer advising a client to accept a plea deal that includes waiving an ineffective assistance of counsel claim on appeal. The basis was that advising the client does not constitute “making an agreement” and the giving of such advice does not make the lawyer a party to such agreement. Plus, the lawyer could still be sued for malpractice.
What about employment concerns? Georgia opined that in-house lawyers employed by corporations do not violate 1.8(h) by entering into agreements with their employers which hold the lawyer harmless for malpractice committed within the course of his or her employment, if the employer is exercising an informed business judgment in utilizing the “hold harmless” agreement in lieu of malpractice insurance on the advice of counsel and the agreement is permitted by law. The position of the client as employer and the sophistication of those who employ in-house counsel satisfies the concerns of overreaching. Plus, such agreement does not limit liability to third parties affected by in-house counsel representation.
How about the structure of the firm? Mississippi opined that changing the form of practice from a professional corporation or general partnership to a “Professional Limited Liability Company” does not equate an agreement to limit liability under M.R.C.P. 1.8(h).
Lawyers may falsely see a green light if their state allows for the prospective limitation of malpractice liability. Prospectively limiting malpractice liability is a conflict of interest and compliance requires satisfaction of the Rule 1.8 conditions. Lawyers must be careful in choosing which words should or shouldn’t be used in the agreement. Lawyers in all jurisdictions, including where such agreements are prohibited, must also look beneath the surface of their conduct, and ultimately contemplate whether such conduct indirectly violates Rule 1.8(h).