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2002 FINAL STATELEGISLATIVE PROGRAM MIDDLE RANGE ISSUE ISSUE: CLIENTS' SECURITY TRUST FUND SUMMARY: The Clients' Security Trust Fund (CSTF) was created in 1965 to protect the integrity of the legal profession by reimbursing losses caused by attorney misconduct. A total of 29,800 active lawyers (as of 7/11/01) in Maryland are charged a $20 annual fee to finance the CSTF. Trustees of the Fund are concerned over recent trends because of the large volume of pending claims. As of June 30, 2000, the assets of the Fund totaled $3,696,298 compared with $3,241,210 the previous year. In FY 2000, the fund paid 37 claims for a total of $197,285. This amount was a decrease of nearly $55,000 from FY 1999, enabling the Fund reserves to increase by about $442,410. As of June 30, 2000, there were 58 pending claims totaling $2,119,305 with six additional pending claims with no specific amount stated. Total exposure of the Fund is estimated at over $2,000,000. CSTF officials fear an increase in claims because of the greater number of lawyers and the tough economic conditions facing some attorneys. As a means of removing the temptation to steal a client's money, the CSTF asked the legislature to pass a bill that would require insurers to notify third party claimants in cases involving $2000 or more that payment had been delivered to their attorneys. Supporters of the measure cited similar laws or regulations in New York, Pennsylvania and New Jersey that had resulted in a significant decline in the number of claims against lawyers in these types of cases. Opponents of the proposal representing insurance companies and trial lawyers criticized the underlying premise of the bill ("LAWYERS CANNOT BE TRUSTED") and argued that the cost of administering the new law would be passed on to all policyholders in the form of higher premiums. A modified version of this bill passed the General Assembly in 1995 which authorizes insurers to send notice of payment to claimants in bodily injury cases after payment has been specifically authorized by the claimant's attorney, and at least five working days after payment has been delivered to the attorney. Attempts to eliminate the five working days waiting period and the attorney authorization requirement failed in 1998, 2000 and 2001. Another proposal permitting a raise in the cap on the annual CSTF fee from $20 to $50 was introduced in the 1995 session, but was rejected by the Senate Judicial Proceedings Committee. The fee hike was resubmitted in a more modest form ($20 to $30) in 1997, but this version also was killed, this time by the House Judiciary Committee. The CSTF took a new tack in 1998 by seeking to remove the authority of the General Assembly to set the fee, and place this power with the Court of Appeals, but the legislature balked at this approach and killed the bill. Two bills calling for a raise in the cap to $35 and $100 respectively, were defeated in the House Judiciary Committee in 1999. In 1996, a CSTF-supported measure that would have required lawyers to reimburse the Fund for payments made to claimants as a consequence of those attorneys’ action was defeated. A similar proposal, introduced in 1997, was reviewed by the MSBA Section of Litigation which developed amendments to clarify the bill’s provisions concerning reimbursement. These revisions were opposed by the trustees of the CSTF, but the State Senate sided with the MSBA and adopted the amendments on the Senate floor. The changed bill was reviewed by the House Judiciary which gave the measure an unfavorable report in the closing days of the session. MSBA 2002 POSITION: Support legislation requiring insurers to notify third party claimants that payment has been delivered to their attorneys. Support efforts to increase the statutory cap on the $20 annual fee charged by the Clients' Security Trust Fund. SAMPLE LEGISLATION: NOTE: The MSBA opposed the bill submitted in the 2000 session that would have changed the present law on notification of third party claimants, and monitored a similar bill in 2001.
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