Lawyers Must Now Disclose Lack of Malpractice Insurance
The court adopted a new rule last August—which was recommended for adoption by the State Bar of California—making it mandatory for attorneys who do not have professional liability (malpractice) insurance to advise clients that they do not have this insurance coverage.
The disclosure to a client must be made in writing at the time the client hires the attorney. The new rule, 3-410 of the California Rules of Professional Conduct, goes into effect January 1, 2010.
After that date, attorneys who do not have coverage must also disclose the lack of insurance in writing to all existing clients. Additionally, if an attorney has had insurance but elects to drop his or her malpractice coverage, clients must be advised in writing within 30 days of the termination of the insurance coverage.
The rule applies to any legal matter that will require four hours or more of legal representation. It does not apply to attorneys employed as a government lawyer or in-house counsel when representing or providing legal advice to a client in that capacity. The rule also does not apply to legal services provided in an emergency.
While this new rule may be unpopular in some legal circles, it is designed to protect the client, many who assume that it is mandatory for attorneys to carry professional liability insurance. As a result of this new rule, attorneys should consider that whether or not they carry professional liability insurance may be an important factor to some potential clients and could determine whether or not the client hires a certain attorney.
In California, attorneys are not required to carry professional liability insurance, although most do. It is estimated that approximately five to 10 percent of attorneys do not carry professional liability insurance.
Those who are now tasked with obtaining insurance may find the process daunting, but working with an insurance brokerage that specializes in the needs of law firms is helpful. An insurance brokerage will have access to multiple insurance carriers and can help you determine what type of coverage you need.
There are several factors to consider when determining how much coverage you should secure.
Your specific area(s) of practice should be considered, as certain areas have higher frequency of claims than others. As an example, personal injury (plaintiffs) and real estate attorneys often have the highest amount of claims.
You should also consider the monetary value of your firm’s cases and consider the potential damages if a claim arose from your biggest case. Your personal assets and those of your partners may also determine your coverage limits. Typically, younger attorneys have accumulated fewer assets, indicating a need for less coverage. However, over time this will change, and your coverage should be expanded accordingly.
If you are a law corporation or limited liability partnership, make sure you also review “Law Corporation Rules” of the State Bar of California, which requires certain limits based on the firm’s size and structure.
A brokerage will be able to compare rates as well as help you through the application process. Also, check with your local bar association, which may offer insurance through its member benefits program.
Once an attorney obtains professional liability insurance, the policy should be reviewed annually to ensure that a firm’s coverage remains adequate regardless of this new rule.
Ahern Insurance Brokerage (AIB), one of the largest independently owned insurance brokerage firms, specializes in the insurance needs of law firms. AIB presently insures over 2,500 law firms and is the Endorsed Professional Liability Insurance Broker for the Los Angeles County Bar Association. For more information on AIB, please visit http://www.aherninsurance.com/.