Board ducks malpractice disclosure

By Nancy McCarthy
Staff Writer

A proposal to require California lawyers to tell their clients if they don’t carry malpractice insurance once again ran into controversy last month when the board of governors sent the disclosure recommendation back to a committee for more study.

By a 10-9 vote, it approved an amendment endorsing the concept of disclosure, but only in those client matters for which a written retainer agreement is required by law. When bar President Jeff Bleich said the amendment is “very problematic” and contains “some seriously flawed aspects,” the board decided to kick it back to its Committee on Regulation, Admissions and Discipline.

The amendment, offered by Richard Frankel of San Ramon, would tie disclosure to two Business & Professions Code sections that govern written fee agreements. Lawyers would be required to tell clients that they do not carry insurance at the time a fee agreement is signed.

B&P §§6147 and 6148 require written fee agreements for contingency fee contracts and for any matter that likely will generate fees of more than $1,000.

However, those sections also contain exceptions that may not dovetail with an insurance disclosure rule: They don’t apply to corporations or to matters where an attorney was hired previously to provide similar counsel. That last exception prompted the clearly annoyed Bleich to suggest that clients who come back to an attorney a second time could believe their lawyer carries insurance when in fact the insurance may have lapsed.

“This effectively permits people to commit a fraud on consumers of legal services who can believe an attorney has insurance if they come back on a second matter,” he said.

The board’s action was the latest twist in the bar’s year-and-a-half effort to respond to a request for a recommendation on a disclosure rule, touted as public protection, from Chief Justice Ronald George. A task force appointed in June 2005 recommended a dual-disclosure rule that would require lawyers to tell both clients and the State Bar their insurance status.

But it sparked opposition from solo and small firm attorneys who claimed it would brand the uninsured as second-class, prompt malpractice suits and be too costly, thus resulting in less representation for middle- and low-income clients. After a lengthy discussion in September in which it appeared that a majority of the board favored disclosure, the deal-breaker turned out to be a requirement that lawyers’ insured status would be posted on the State Bar Web site. Then-bar President Shelly Sloan broke a tie by voting against the web posting.

The web disclosure question never arose in last month’s contentious, and confusing, discussion.

Opposition has been led by Auburn attorney John Dutton, whose District 1 constituents are mainly small firm or solo lawyers. Dutton complained that the disclosure rule would be both awkward and impractical in situations where an individual who is not a client asks a casual legal question. “We get those calls on a regular basis,” he said, adding that he receives three to five phone calls a week seeking casual advice.

Attaching disclosure to a threshold of a fee statement “will avoid the problem of cocktail advice or phone advice,” he said.

But Jim Penrod, a San Francisco attorney who has handled many malpractice cases, said the attorney-client relationship is clearly defined and would not be changed by the amendment. “Any time you give anyone legal advice and someone relies on it, you have an attorney-client relationship,” he said.

Saul Bercovitch, a bar attorney who staffs the insurance disclosure task force, said disclosure was once included in the B&P statutes governing fee agreements, but that doesn’t necessarily mean that the exceptions in the code should be part of a new rule of professional conduct.

An estimated 30,000 California lawyers — about 20 percent of active practitioners — currently do not carry professional liability insurance. In general, malpractice policies cost between $3,000 and $7,000 a year.

Twenty-three states have adopted some type of disclosure rule.