The state Supreme Court is considering a proposal that would require California lawyers to tell clients from the get-go if they have malpractice insurance.
The State Bar’s Board of Governors, a 23-member board tasked with organizational, policy and professional issues, recently adopted a proposal that would require California lawyers to provide a written disclosure to clients and potential clients that they do not carry malpractice insurance.
The proposal has gone to the California Supreme Court for approval.
A ruling for the proposal has not been set yet, but the Supreme Court could adopt, deny or return the proposal for further review as soon as the end of this year.
California counts more than 160,000 practicing lawyers.
There isn’t a definitive number of how many California lawyers lack malpractice insurance. Legal experts estimate that some 15% to 20% of local lawyers don’t have it.
The proposed rule won’t likely have an impact on larger law firms in Orange County since the big firms already carry malpractice insurance.
But sole practitioners could be impacted, legal experts say.
Lawyers who do not carry malpractice insurance do not have any way of compensating clients if a case is mismanaged or goes awry, the backers of the proposal argue.
Supporters of the rule believe full disclosure will help individuals and businesses make better-informed decisions about where they will retain legal help.
“Certainly clients can hire uninsured lawyers if they want,” said James Towery, former chair of the State Bar’s Insurance Disclosure Task Force and partner at San Jose’s Hoge, Fenton, Jones & Appel Inc. “There’s nothing that requires them to get insurance. But just as dealing with your home contractor or anyone else, you want to know that the person you hired is insured.”
Opposition
But those who oppose the rule believe that it will make it more difficult for uninsured lawyers to generate business.
Some also worry that the proposed rule will hurt lawyers who simply cannot get insurance because of the amount of claims they already have against them.
Although the rule would not require attorneys to purchase malpractice insurance, lawyers believe that a possible adoption of the rule would pressure sole practitioners or small firms to acquire it to avoid losing clients.
The cost of malpractice insurance varies wildly depending on a lawyer’s specialty, claim history and location. With annual starting costs of about $4,000 per lawyer, it is an expense that some sole practitioners believe they cannot afford.
Others believe that a lawyer’s full disclosure of his or her malpractice insurance is too complicated to go over with clients because of the intricacies of policy coverage.
Despite the rule’s controversial nature, its possible adoption will help protect the public, local lawyers in favor of the proposal believe.
“The proposal, should it be adopted, will make it difficult for attorneys who do not possess malpractice coverage to attract and maintain clients. But I think the public will be better off,” said Wayne Gross, a partner at Arizona-based Snell & Wilmer LLP’s Costa Mesa office. “My sense is that the attorneys who don’t possess such coverage are probably the ones most likely to engage in malpractice. Thus, their clients should be put on notice of the risks they’re undertaking.”
There has been a slow and steady trend of states requiring lawyers to disclose their malpractice insurance coverage.
Alaska and South Dakota were the first states to adopt rules regarding lawyers and the disclosure of their insurance in the late 1990s.
More states started to adopt disclosure rules after the American Bar Association passed a model insurance rule in 2004 regarding lawyers’ funds for client protection.
Twenty-two states now have one type of disclosure rule or another for lawyers.
Oregon is the only state that requires its lawyers to have malpractice insurance.
It’s unclear how the proposed rule will play out in California.
Lawyers believe that all they can do is stand by and wait.
“No one can read the tea leaves of the Supreme Court,” Towery said.
