Friday, August 27, 2009
Supreme Court Adopts Malpractice Insurance Disclosure Rule
By STEVEN M. ELLIS, Staff Writer
The California Supreme Court has adopted a new rule requiring attorneys who do not have malpractice insurance to directly notify their clients about the lack of coverage.
The court on Wednesday adopted Rule 3-410 of the California Rules of Professional Conduct, which mandates that disclosure to a client be made in writing at the time the attorney is hired by the client if the representation exceeds four hours.
The new rule, which was recommended for adoption by the State Bar of California, will take effect Jan. 1.
After that date, attorneys who do not have malpractice insurance coverage must disclose the lack of insurance in writing to all existing clients. Attorneys who elect to drop coverage they previously held will be required to advise clients in writing within 30 days of the termination of the insurance coverage.
The rule applies to any legal matter where it is “reasonably foreseeable” that the total amount of legal representation in the matter will exceed four hours, but does not apply to attorneys employed by governments or in-house counsel when representing or providing legal advice to a client in that capacity.
It similarly does not apply to legal services “rendered in an emergency to avoid foreseeable prejudice to the rights or interests of the client,” or where an attorney has previously advised the client about a lack of coverage.
A discussion adopted in connection with the rule by the Supreme Court indicated that the disclosure obligation is intended to apply to new clients and new engagements with returning clients.
The discussion also provided draft language for compliance with the new rule, which reads: “Pursuant to California Rules of Professional Conduct 3-410, I am informing you in writing that I do not have professional liability insurance.”
The discussion stated that the exemptions for government lawyers and in-house counsel were included because an entity employing or represented by such an attorney “presumably knows” whether or not the attorney is covered.
It also indicated that the exemptions were “limited to situations involving direct employment and representation, and do not, for example, apply to outside counsel for a private or governmental entity, or to counsel retained by an insurer to represent an insured.”
The State Bar Board of Governors adopted the proposal in May 2008 by a vote of 16-4, ending a three-year process that began with the 2005 appointment of an insurance task force by then-State Bar President John Van de Kamp.
After studying the issue and accepting public comment, the task force proposed both a rule of professional conduct requiring disclosure to clients and a rule of mandating disclosure to the bar, with uninsured attorneys to be identified on the State Bar website.
The latter idea was shelved after then-President Sheldon H. Sloan cast the tie-breaking vote to defeat it, 9-8, at the board’s meeting in September 2007.
The board then opted to concentrate solely on the client disclosure aspect, and members proposed linking disclosure to fee agreements on the grounds that the proposal raised compliance problems for attorneys giving advice in a “cocktail party” situation and over the phone, including those staffing hotlines for victims of wildfires.
Over the concerns of some members who argued that linking disclosure to fee agreements would import further exceptions from the fee agreement requirement into the disclosure context, the board amended the proposal to its current form at its November 2007 meeting, and sent the revised proposal out for further public comment.
In its resolution adopting the proposed disclosure requirement in May 2008, the board also instructed the State Bar to study ways to make professional liability insurance more available and affordable, and to look for ways to compensate clients harmed by uninsured lawyers.
Twenty-three states have adopted some form of insurance disclosure rule, with 18 following the ABA model requiring lawyers to disclose on their annual registration statement whether they maintain professional liability insurance. Oregon is the only state that requires lawyers to carry malpractice insurance.
Copyright 2009, Metropolitan News Company