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Bar board will tackle malpractice insurance disclosure again

By Nancy McCarthy
Staff Writer

A sharply divided State Bar Board of Governors will again tackle the thorny issue this month of whether to require California lawyers to inform their clients if they do not carry malpractice insurance. The board has been split on both the disclosure to clients proposal and a second proposal to require disclosure of a lawyer’s insured status to the bar and the posting of such information on the bar’s Web site. At its last meeting, a tie vote was broken when former bar President Sheldon Sloan voted against the proposal because he opposes posting the information online.

Opponents of the measures are firm in their belief that forcing a lawyer to inform clients that he or she does not carry professional liability insurance will create a second-class tier of attorneys and ultimately reduce the availability of legal services to low- and middle-income clients. Proponents view disclosure as protection for both clients and lawyers, and say it is the “right thing” for the bar to do.

“I have always argued that strong client protection is in the interest of the bar. It is one of our raisons d’etre,” said Jim Towery, a former bar president who chaired a task force to study the disclosure question. “There is no question this benefits the public. Clients ought to be empowered with information.”

Although 20 states have adopted a disclosure rule of some kind, the California proposal is the only one that would require dual disclosure — to both clients and the State Bar. A new rule of professional conduct would require disclosure to the client and a new rule of court would require disclosure to the bar. Both were developed by a task force appointed after the American Bar Association approved a model court rule and urged Chief Justice Ronald George to consider implementing it in California.

A lawyer’s failure to report his or her insurance status to the bar could lead to non-disciplinary administrative suspension. Attorneys employed as government lawyers or in-house counsel and do not represent or provide legal advice to clients outside that capacity would be exempt.

First proposed in June 2006, the recommended rules generated two rounds of public comment and sparked opposition from solo and small firm practitioners, who complain they would be disproportionately affected. 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 $4,000 and $7,000 annually.

John Dutton

John Dutton, a bar governor from northern California, led the opposition to the proposal. In addition to its adverse effect on his constituents, Dutton said the rules were written without information about the number and amount of judgments that are not satisfied. “We need to know if there is a problem and if so, what is its magnitude?” he said.

Dutton predicted that adoption of disclosure rules will create a storm of protest. “There is insufficient evidence to support the proposals,” he said. “If this were in court, summary judgment would be issued against them.”

JoAnn Grace, a former governor from Los Angeles, called the disclosure proposal “bull pucky” that amounts to nothing more than posturing. It will stigmatize uninsured lawyers, added Ed Pohl, former chair of the bar’s Law Practice, Management & Technology Section. “Why don’t you give them a yellow armband?” he asked. “If you want to protect the public, make E and O (errors and omissions insurance) mandatory and provide affordable insurance.”

Other critics said disclosure could be misleading and give clients a false sense of security, and complained that no other professional is required to inform clients of their insured status.

Supporters of the proposal said the level of opposition actually demonstrated the need for a disclosure rule, because it is material to a client’s choice of lawyer. They also pointed out that a lack of data about claims in California can lead to conclusions opposite those reached by opponents; there is no basis to suggest claims will increase or that lawyers will be harmed, they said.

Jim Penrod, a San Francisco governor who has handled many malpractice and insurance cases in his practice, said the negative reaction to the proposed rules “is virtually useless” because it came from about 150 lawyers, a miniscule portion of the bar’s 210,000 members. “If you ask the average citizen,” Penrod said, “90 percent or more would say yes, they think they ought to know if their attorney carries malpractice insurance.”

A partner with Morgan, Lewis & Bockius, Penrod said he has carried insurance throughout his career and has never had a claim. “Do people feel ripped off because they carry life insurance and are still alive?” he asked. “Do they feel ripped off because they have fire insurance and never had a fire? This does matter to a client. The fact that there’s so much opposition proves it does matter.”

Indeed, Rob Saul, former chair of the bar’s fee arbitration committee and a former member of a bar ethics panel, said clients he has represented who had a beef with their lawyer are shocked if they learn the attorney has no insurance. “Most clients think lawyers are required to be insured,” he said.

Although California required a form of malpractice disclosure that began in 1992, a sunset clause was added to the legislation the following year and the statute was repealed by its own terms in 2000.

The bar contacted other states that have a disclosure requirement and asked whether the number of malpractice claims have increased, whether the cost of legal services has increased, if there was less access to legal services and whether attorneys’ ability to maintain their practice had changed. The bar also sought to learn what the impact of a disclosure requirement was on the insurance market.

Some states had not done any studies, but among those that monitored the results of a disclosure requirement, there appeared to be little change — the number of claims did not increase, access to justice remained the same and lawyers were not harmed. They also reported no noticeable impact on the insurance market.

Bar president Jeff Bleich, who voted for a disclosure rule, acknowledged that the bar has not addressed the issue of mandatory insurance or the question of disclosing other types of information. But he said there is ample evidence that “the public will feel better protected and better served if we have disclosure. I don’t see a single argument that this will have a negative public protection effect.”

Penrod also suggested that regardless of any action taken by the bar, the Supreme Court is likely to adopt some kind of disclosure rule.

The board was scheduled to take up the issue at its Nov. 9 meeting.

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