Will California Have Mandatory Malpractice Insurance for Attorneys and What Will it Look Like?
| Publication year | 2019 |
| Author | By James I. Ham |
By James I. Ham
James I. Ham is a solo practitioner from Glendale, CA who provides legal ethics and malpractice advice, and defends attorneys in State Bar discipline investigations and trial proceedings. He recently completed service as a Commissioner of the State Bar Commission on the Revision of the Rules of Professional Conduct. He can be reached at JHam@ HamLawOffice.com
The California State Bar Board of Trustees appointed a Malpractice Insurance Working Group to conduct a legislatively mandated review and study of malpractice insurance for licensed California attorneys. California Business & Professions Code section 6069.5 orders the State Bar to conduct the review. Findings must be reported to the supreme court and the Legislature by May 31, 2019.
The Legislature's approach towards the issue can be determined from the language of the statute, which "[recognizes] the importance of protecting the public from attorney errors through errors and omissions insurance . . ." This language can arguably be read as suggesting that the legislature has already decided that the public needs protection through insurance.
Based on available data, any mandatory malpractice insurance requirement would likely have the most direct impact on solo and small firm practitioners - those who traditionally have had the weakest voice at the State Bar and in the legislature - at least in terms of requiring lawyers to carry malpractice insurance. However, a mandatory malpractice insurance scheme can also have significant and far reaching ramifications for other attorneys who are already insured. A mandatory scheme could disrupt long standing relationships between attorneys and their insurance carrier of choice. Indeed, many larger law firms utilize risk retention groups to insure against malpractice. It is not clear how such groups would be affected by a mandatory insurance scheme. Thus, the choice of whether to require mandatory malpractice insurance, and the manner in which such a choice is implemented, is a complex one that could affect the choice of insurance carrier and the terms under which coverage is offered, potentially in ways disadvantageous to California attorneys.
According to the State Bar, the Working Group's membership represents a "broad range of interests to ensure the voices of the Legislature, the bench, legal consumers, lawyers and insurance industry representatives are included in the study."
Solo and small firm lawyers are represented on the working group by one representative nominated by Local Bars. The State Bar Board of Trustees appoints four members to the Working Group. California Lawyers Association appoints two litigators, one defense and one plaintiffs, to the group. The Assembly and Senate Judiciary Committees each get to appoint one member. Other stakeholder members include a California Lawyers Association Sections Representative, an Ethics Attorney (nominated by the Committee on Professional Responsibility and Conduct), a California admitted insurance broker (who places policies with solo/small firms), an Affinity Bar appointed by the Minority Bar Coalition, and a Judge appointed by the California Judges Association.
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In support of the Working Group's efforts, the State Bar's Office of Research and Institutional Accountability conducted a survey of attorneys regarding legal malpractice insurance. While 25,000 California attorneys were surveyed, only 1,450 responses were received. 84% of those responding were private practitioners. 62% of the responders were solo practitioners and an additional 25% worked at law firms with five or less lawyers.
The survey revealed that 39% of solo practitioners were uninsured and 12% of attorneys in firms of two to five lawyers were uninsured. 4% of firms having six to ten lawyers were uninsured. In response to questions about the reasons why lawyers chose to be uninsured, 71% of solo practitioners identified cost as a factor. 35% said that it was not worth the money. 29% said they did not believe they would be sued. 24% said that working part time was a factor in their decision not to be insured. (Respondents could apparently list more than one reason; hence the percentages do not total 100%). The survey also revealed that 67% of the clients served by uninsured attorneys were individuals or families, with small businesses (less than 10 employees) making up another 14% of the client base.
It may come as no surprise that 70% of law firms with six to ten lawyers believe that insurance should be mandatory, compared to only 35% of solo practitioners who believe that insurance should be mandatory. There are many reasons for this difference, including the logical need for larger legal enterprises to provide insurance to their members to protect them against the mistakes of their colleagues in an environment where liability for legal malpractice can extend to other members of the same law firm to varying degrees depending upon the law firm's structure.
What would mandatory insurance look like, and who would it cover? Mandatory Insurance is the concept that carrying legal malpractice insurance must be a requirement for all practicing lawyers in the state. The Working Group is considering mandating legal malpractice insurance for attorneys as a condition of licensing, except for in-house and government attorneys. There are also viable options short of mandatory insurance. Other options include keeping or strengthening California's existing rule1 requiring attorneys...
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