Disclosing malpractice coverage

Heavy burden on lawyers that will restrict court access

By Kenneth G. Petrulis

Petrulis

While in principle it sounds good to say that consumers should be informed as to their attorneys’ malpractice insurance coverage, in practice the result of the proposed rules will be consumer misinformation, a disproportionate burden on the attorneys who need our help the most and restriction of consumer access to the court system. The proposed disclosure rules assume that malpractice insurance is something you have or you don’t. This is often not the case. The rules will put a disproportionate, perhaps impossible, burden on new and part-time attorneys. As a result, the provision of legal services to the poor and near poor in our state who are already severely under-serviced will be further inhibited.

Malpractice insurance is not like other types of insurance. Stating you have insurance or not is often not a yes or no answer. Typical malpractice insurance is a claims-made form of coverage, subject to many vagaries as to the existence and adequacy of coverage.

The proposed rule requires the member to inform all existing clients on the date of effectiveness of the rule if the member is not covered by professional liability insurance. Because the proposed rule is self-reported and not verified, it encourages noncompliance. If no notice is given, the consumer will feel protected even if the consumer’s attorney does not have adequate coverage. There is no procedure to confirm coverage, the lack thereof or its inadequacy or lapse. Inadequate insurance and lapse of coverage can occur inadvertently; for example, when changing carriers.

In addition, if the member subsequently ceases to be covered, the member must inform each client in writing within 30 days that the member is no longer covered.

The mechanics of the proposed rule will be a severe shock to lawyers who are currently without coverage. There will be not only the time and cost in notifying clients, but also the backlash when clients, receiving a notification that their attorney is not covered by insurance, decide to seek new counsel. The process becomes more onerous when malpractice is difficult to obtain or is accidentally dropped and additional notices need to go out to the client.

The member must also be concerned about the possibility of a gap in coverage when switching carriers. The failure to notify clients of such a gap, which may not be clear to the practitioner at the time it occurs, may subject the member to suspension, as called for by the rule. It may also give the malpractice plaintiff an unexpected bonus when suing.

We already know that most of the public cannot afford legal services. For this reason they turn to unlicensed legal practitioners. The proposed rule will make it more difficult for solo practitioners to start and maintain their businesses. While it is fine in principle to say that everyone should have an attorney who is covered by malpractice insurance, we need to recognize that this form of disclosure requirement is going to decrease the supply of available practitioners and the affordability of legal services.

The State Bar is currently launching its Pipeline to Diversity program to encourage diverse young people to enter the field of law. The added burden of the proposed disclosure rules on the already difficult road to a successful practice runs counter to the program’s inclusionary spirit.

By turning a blind eye to the needs of the poor and middle class poor, by focusing only on the theoretical benefit to be gained by forcing disclosure upon the public and their attorneys, we are ignoring the real problem. California should not implement a malpractice insurance disclosure law unless it is ready to ensure access to affordable insurance to every attorney so that everyone’s access to the justice system is protected.

One state, Oregon, has solved the insurance problem by requiring mandatory insurance and then providing affordable insurance for even the small practitioner. The importance of existing affordable insurance cannot be overemphasized. We have been through too many malpractice crises in this state to know that there will be occasions when not all competent, qualified practitioners will be continuously covered, even if they want to be.

The proposed disclosure rules are targeted at the economically disadvantaged and the attorneys who serve them. In contrast, firms, which typically service the more affluent and almost inevitably have insurance, will not have to state so. The proposed rules also exempt government lawyers, in-house counsel and counsel retained by an insurer to represent an insured. We already have a growing problem in providing affordable legal services to the entire population. Government is already denying access by restricting contingent fee agreements and taxing the attorneys’ fees portion of many contingent fee recoveries. 

The current disclosure rules would make it difficult or impossible for attorneys without malpractice insurance to continue to practice and still observe the rules. We should instead be fostering the financial viability of new attorneys, especially the solo and diverse practitioners who are most likely to serve the most underserved part of our population.

• Kenneth G. Petrulis is a principal with Goodson Wachtel and Petrulis, a tax and estate planning law firm in Los Angeles. He is a past president of the Beverly Hills Bar Association and a member of the board of directors of the Conference of Delegates of California Bar Associations.