Vol. 73, No. 3, March 2000

Managing Risk

Does the New "Dumpster Diving"
Law Apply to You?

Negligent disposal of medical and financial information could land your firm in hot water.

by Ann Massie Nelson

Lawyers who do not properly dispose of clients' personal medical and financial information could be subject to civil and criminal penalties under Wisconsin's new "dumpster diving" rules, which became law Feb. 1, 2000.

The new law for disposing of confidential medical and financial information was enacted by the Wisconsin Legislature to bolster individuals' rights to privacy, according to Scott B. Franklin, an attorney and tax manager with Kohler & Franklin CPAs, Milwaukee. A similar federal law is slated to take effect in November 2000.

Three types of enterprise were identified in the new law (Wis. Stat. section 895.505): financial institutions, medical "businesses," and tax preparation businesses. The rule also applies to persons under contract with these types of businesses. Law firms were not specifically named in the new rule, but then, neither were hospitals nor clinics, Franklin points out.

"Certainly, a law firm that prepares individual tax returns would qualify under this law," Franklin says. "Broadly interpreted, the law could apply to any law firm that handles personal injury, tax, bankruptcy, debt collection, divorce, estate planning, or other representation involving confidential medical or financial information."

The new law requires that personally identifiable records containing financial, medical, and tax information be shredded, erased, made unreadable, or otherwise disposed of so that no unauthorized person has access to the information. Businesses that fail to comply with the law are liable for any damages sustained by the person whose personal information was revealed and forfeitures of up to $1,000 per violation. Any person who possesses a disposed record with intent to use personal information (aka, the dumpster diver) is liable both to the individual and to the business for any resulting damages. The dumpster diver also may be fined up to $1,000 and imprisoned for up to 90 days.

Ethical Duty Hasn't Changed

"You may question whether the dumpster diving law applies to you, but keep in mind that - but for the new civil or criminal penalties imposed - nothing has changed vis-a-vis a lawyer's professional responsibility to maintain, dispose of, and destroy client files in an appropriate manner," according to Sally E. Anderson, claims counsel at Wisconsin Lawyers Mutual Insurance Co. (See SCR 20:1.6, Confidentiality of Information.)

Nonclient documents also may qualify under the new rule, Anderson says. For example, an insurance defense attorney in a personal injury case may be liable for carelessly discarding the claimant's medical records.

The new Wisconsin law elevates the disposal of all client records to a higher standard of care, according to Franklin. "Are you going to leave it to your support staff to determine if a file contains personally identifiable medical or financial information?" he asks. "Law firms need to shred everything before disposal so nothing falls through the cracks."

Your ethical and legal duty to safeguard documents from desktop to landfill begins with the first act of representation and continues through file closing and disposal. Paper you churn out during the representation - draft documents, photocopies, handwritten notes of conversations, telephone message slips - needs to be treated with the same care as a divorce decree or bankruptcy petition.

Recommendations to Consider

Anderson and Franklin offer the following observations.

• Develop a firm policy for document retention and disposal. Educate all members of your firm about your ethical and legal obligations to protect client confidentiality.

• Discuss file disposal with clients at the time they retain you. In your letter of disengagement, describe your file retention policy. Before destroying files, attempt to obtain clients' written consent.

• Purchase a high-capacity, electric shredder and install it where lawyers and staff members can access it easily. Make sure the shredded product is unrecognizable. The new rule does not define "shred," but ripping a paper in half or quarters probably doesn't cut it.

• Shred as you go. The new rule does not state when "disposal" occurs. When you toss documents in a "to-shred" box under your desk, are you disposing of them? Or, does disposal occur when the documents leave your locked premises? Personal shredders that fit over wastebaskets may be convenient but won't suffice for big shredding jobs.

• If you have a large volume of shredding to do, contract with a mobile shredding service to send a truck to your parking lot and shred documents in your presence. Consider sharing this expense with other tenants in your office building.

• Hire a bonded waste management company that uses locked dumpsters.

• Deliver disposed records to a bonded recycling service that allows you to watch the shredding.

• Emphasize to all members of your firm that simply pressing the delete key does not destroy an electronic document. If you are selling or disposing of computer equipment, make sure hard drives are reconfigured so that no records remain.

• Educate clients on their need to maintain confidentiality of legal documents and correspondence from your law firm.

• Keep an inventory of destroyed records. It will save you time spent later looking for documents that no longer exist.

Anderson cautions law firms to avoid simply shredding or erasing all records after a set length of time. The Wisconsin statute of limitation for legal malpractice claims is six years from the date of discovery, which means an error or omission may not come to light until long after the client file - often the only documentation - is destroyed.

Need More Information?

For information about the new rule and what it means for your clients, see Scott B. Franklin's article, "Disposing Medical, Financial Records," in the December 1999 Wisconsin Lawyer.

For staff training, consider purchasing "Law Office Confidentiality," one of the State Bar of Wisconsin's Law Office Videotape series. You may order videos online or by calling the State Bar toll-free at (800) 728-7788.

For recommendations about file management, see Wisconsin Ethics Opinion E-98-1: Disposition of Closed Client Files, July 1998 Wisconsin Lawyer; "Closed Files are Best Defense in Malpractice Claim," June 1995 Wisconsin Lawyer; and "File Custody Battles are Common When Lawyers Leave Firms," September 1998 Wisconsin Lawyer.

For a copy of the new law, see Wisconsin Statutes section 895.505.