Opposition to Proposed Rules of Mandatory Insurance Disclosure

The following is my statement of opposition to The State Bar of California’s proposed rule requiring attorneys to disclose when they do NOT have professional liability (malpractice) insurance.

Should you have any comments or new ideas, please e-mail.

The State Bar of California has sent for public comment 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.

Support for the rule is based on the supposition that the public will be better protected and that the Bar’s security fund has been paying more than it is receiving, causing a decrease in the remaining fund.

•    More than 70% of the lawyers in California are sole and small firm practitioners.
•    25% of California’s lawyers earn less than $50,000 per year; 49% earn less than $99,999 per year.
•    Professional liability insurance, on average, cost between $4,000 and $7,000; the cost is substantially higher in certain practice areas.
•    A California Bar Journal survey of 2001 found that 18% of private practitioners go “bare” or do not have professional liability (malpractice) insurance.
•    Illinois found that 40% of its sole practitioners do not have such insurance.
•    The professional liability insurance market is volatile and expensive.
•    There is no “affordable” malpractice insurance available in California for experienced attorneys.
•    The State Bar of California endorses a private insurance carrier’s offering of malpractice insurance and receives a substantial stipend from every policy written under this program.
•    Oregon has had mandatory malpractice insurance since 1977 and offers an affordable insurance program for its members.
•    Government and in-house counsel would be exempt.
•    Comment deadline: September 15,2006. Written comments are to be directed to Saul Bercovitch, Staff Attorney, The State Bar of California, 180 Howard Street, San Francisco, CA 94105. Fax: 415.538.2515.

Argument in Opposition to Proposed Rule Insurance Disclosure
•    This proposal pits the marginally profitable small firm lawyer against the large law firm lawyer with substantial economic muscle to afford malpractice insurance and who can more easily pass on the cost of such insurance to clients. Guess who wins if the current proposal is adopted?
•    It is not reasonable to expect a lawyer to spend 10% of his earnings (not gross revenue) for such insurance when he/she can barely subsist now.
•    One reason for this proposal given in the report of the committee at page 9 suggests that clients may have an expectation that lawyers have professional liability insurance; this conclusion is without support.
•    The security fund is used only for violations of client trust account rules, not disciplinary matters, and these proposed rules will have no impact on the Fund. •    If the public were to knowingly choose to engage a lawyer who does not have malpractice insurance, neither the Bar nor the public is improved.
•    If the public were to choose not to engage a lawyer who does not have professional liability (malpractice) insurance, because the The State Bar of California has raised this issue, the Bar will be responsible for disenfranchising 18% of its population (approximately 30,000 lawyers). Their sole crime will be to refuse to purchase malpractice insurance. These lawyers have no grievance against them other than that they lacked the economic muscle to purchase malpractice insurance.
•    The lack of professional liability insurance does not mean the lawyer is incompetent or a “bad guy.” That’s the inference, though, of the proposal.
•    Clients, at the time of engagement, generally focus on their problems. Inserting disclosure of lack of insurance will either have no effect or will disastrously impact the economic survival of a major segment of the Bar – sole and small firm practitioners.
•    If more information for clients is better than less, why do we not require lawyers to disclose their won-lost record or other evidence of the results they have obtained in the past for clients? If public information were truly the reason for the proposal, why not educate the public about the economics of law practice, so that they truly know what to ask their lawyer.
•    In fact, if public information were truly the reason for the proposal, why not educate lawyers about the economics of law practice so they would be better equipped to afford such insurance?
•    Other professions require neither professional liability insurance nor disclosure of the absence of such coverage. Not doctors, not accountants, not architects. Why should the legal profession?
•    The report further suggests that the rules should be viewed as consumer protection. Again, there is no support that this will have any benefit for consumers. If the Bar is truly concerned about consumer protection – beyond the existence of the Client Security Fund – then purchasing professional liability insurance should be mandated. And, as in Oregon, affordable professional liability insurance should be available.
•    Recently, the Board of Governors announced an effort to address the economic concerns of sole and small firm practitioners and to reverse the perception held by many that The State Bar fails to be concerned about their interests. The current effort flies in the face of such effort and calls into focus once again that The State Bar should be only a licensing agency.

There is no evidence that the public either asked for this information (disclosure) or that the public will do anything with this information if they receive it.

The proposal sub rosa demands something of lawyers – get insurance. But, the Bar fails to provide what they demand. The Bar will enable private enterprise, perhaps even its own insurance provider who pays the State Bar for every policy written, to write policies at premiums most lawyers in this category (currently uninsured) can’t afford.

Where is the Bar in all of this? What happened to the promises of the Board of Governors to work for the benefit of sole and small firm practitioners? What happened to the promise of a purchasing cooperative that would allow lawyers to purchase the needs of their practice for affordable prices, including professional liability insurance?

Paraphrasing a cry from our Forefathers, there should “No demand by the State Bar without the economic ability to enable fulfillment of that requirement!” The Bar is attempting to put the cart before the horse.

Respectfully submitted,

Edward Poll (as an individual)
LawBiz® Management Co.


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