Finally, board approves an insurance disclosure rule

The State Bar Board of Governors finally adopted a proposal last month that will require attorneys to tell their clients if they do not carry malpractice insurance.

Sometimes.

By a vote of 16-4, the board accepted a compromise rule of professional conduct that a lawyer who does not carry professional liability insurance must disclose that to a client (a) in writing, (b) at the time of engagement and (c) if the representation exceeds four hours.

The recommendation now goes to the California Supreme Court for approval.

“This proposal should not be troubling to the board,” said bar President Jeff Bleich, adding that the “parade of horribles” suggested by opponents to disclosure has not happened in any state with more aggressive policies.

But John Peterson, a governor from Fresno who favors both a disclosure requirement and posting a lawyer’s insurance status on the bar’s Web site, described the proposed rule as “an unnecessary irritant to the attorney-client relationship.”

And to board members who described the compromise as a half loaf that was better than nothing, he retorted that a “moldy half loaf” was not acceptable.

The vote ended a three-year process that began with the 2005 appointment by former bar President John Van de Kamp of an insurance task force. After a year of study and a round of public comment, the task force proposed both a rule of professional conduct that would require disclosure to clients and a rule of court mandating disclosure to the bar.

Opponents, mostly small firm and solo attorneys led by Chico Governor John Dutton, said the disclosure requirement would affect them disproportionately, stigmatize those who do not carry insurance and ultimately reduce the availability of low-cost or pro bono services to clients who cannot afford to hire a lawyer.

More revisions led to a second and then a third round of public comment. As public member George Davis noted at last month’s discussion, “We’ve beat this to death.”

Supporters of a disclosure requirement believe it enhances public protection and is material to a potential client’s decision in hiring a lawyer.

James Penrod, a governor from San Francisco who has litigated numerous malpractice matters, called the arguments opposing disclosure “red herrings to push off the reality that the public wants to know.” Nevertheless, Penrod voted for the final compromise because “I don’t want to lose a half a loaf. I don’t like it either. You can do a hell of a lot of damage in four hours.”

Dutton reiterated his argument that a disclosure requirement is “oppressive” and damages both the bar and small and solo practices. He believes if any information should be disclosed, it should be facts such as whether an attorney lost a trial because of an error or whether malpractice claims have been filed against him.

Twenty-three states have adopted some form of insurance disclosure rule; 18 follow the ABA model that requires 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.

Jim Towery, the former State Bar president who chaired the task force, said he was pleased the board adopted “a portion” of his group’s recommendation. “I think this is an important step towards achieving client protection in California and if the Supreme Court adopts disclosure in any form it will add California to a growing list of states that have this element of client protection.”

The bar’s Law Practice Management and Technology Section and its Committee on Professional Responsibility and Competence opposed the disclosure requirement.

The proposed rule does not apply to government lawyers or in-house counsel or to lawyers who previously advised clients that they do not carry malpractice insurance. If a lawyer no longer carries insurance during the representation, he or she must inform the client within 30 days.

In addition, the rule does not apply to legal services rendered in an emergency to avoid prejudicing a client’s rights or interests.

The resolution also instructed the bar to study ways to make professional liability insurance more available and affordable and to look for ways to compensate clients who are harmed by uninsured lawyers.