Another voice on mandatory insurance disclosure

How to Hurt California’s Lawyers:  Mandatory Malpractice Insurance Disclosure

The unusual "How To" theme of this month’s column addresses a vital issue for all California lawyers.  The State Bar of California has sought public comment on a proposed rule of professional conduct and rule of court that would require all attorneys to make disclosure to their clients when they do not have professional liability (malpractice) insurance.

Malpractice allegations are obviously a major concern for the profession.  In California, lawyers spend 80% of their dues each year to support the State Bar’s disciplinary system, typically to deal with client complaints alleging practice management failings by their lawyers.  Because such complaints are so prevalent, even experienced attorneys have no "affordable" malpractice insurance.  Annual premiums generally range from $4,000 to $7,000 per lawyer, and are far greater for certain practices, personal injury included. 

The primary problem with the mandatory disclosure proposal is that it disproportionately burdens sole and small firm lawyers, who often cannot afford or secure insurance and cannot pass on its cost to clients.  Consider these statistics on legal practice in California:
•    More than 70% of the state’s lawyers are small and sole firm practitioners.
•    One quarter of all lawyers statewide earn less than $50,000 a year, while nearly half earn less than $100,000 annually.
•    A California Bar Journal survey in 2001 found that nearly one in five State lawyers (approximately 30,000) go without malpractice insurance.

The lack of professional liability insurance does not mean the lawyer is incompetent or a danger to clients.  That, however, is the inference of the proposal.  Assertions that the public "expects" malpractice insurance, or is "protected" by its presence, simply have not been proven.  Lawyers with no malpractice insurance invariably have no grievance against these lawyers  other than their lack of economic muscle to purchase it. 

If this information benefits clients, why do we not require lawyers to disclose their won-lost record or other evidence of past results? If public information drives the proposal, why not educate the public about how much malpractice claims drive up the cost of legal services?  Most importantly, if malpractice insurance is important, why not require all lawyers to purchase it, then offer a statewide affordable insurance program as Oregon has done?  That Oregon State’s Professional Liability Fund provides coverage of $300,000 per claim to all attorneys for an annual assessment of $3,000 per attorney – well below average national insurance costs.  This is a more manageable burden for lawyers, and the public is truly protected. 

The real issue here is that law firms are businesses.  Running a law firm in a businesslike way improves the professionalism of the practice of law.   Yet, the Bar Associations continues to hold the archaic attitude that The Business of Law® is unprofessional.  As a result, the Bar seeks to impose an unaffordable malpractice insurance burden on those who can least afford it. They are not being direct by requiring insurance; they are seeking to go through the “backdoor.” And, the Bar is not disclosing that it  will benefit economically by every such insurance policy the State Bar endorsed insurance program sells.


Categorized in: