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Insurance disclosure rule approved

Under a new Rule of Professional Conduct approved by the Supreme Court in August, lawyers who do not carry malpractice insurance must tell their clients — under most circumstances — that they are not insured. Rule 3-410 takes effect Jan. 1.

The five-part rule has these requirements:

  • Notification that a lawyer does not carry professional liability insurance must be made in writing at the time a client hires the lawyer, if it is “reasonably foreseeable” that the representation will exceed four hours.
  • If the insurance coverage later lapses, the attorney must tell the client within 30 days of the time he or she is no longer insured.
  • Government lawyers and in-house counsel are exempt.
  • The rule does not apply to legal services given in an emergency to avoid prejudice to a client’s rights or interests.
  • The rule does not apply if the lawyer previously informed the same client that he or she is not insured.

The rule was three years in the making and led to sharp division within the State Bar Board of Governors. The final proposal was the fifth version of a rule that was first recommended in June 2006.

The American Bar Association adopted a model rule in 2004 concerning malpractice insurance disclosure; 23 states have adopted some type of disclosure requirement.

Chief Justice Ronald George appointed a task force that proposed a new rule of professional conduct requiring disclosure to the client and a new rule of court requiring disclosure to the bar. The bar would, in turn, have identified those without insurance on its Web site.

The proposal sparked widespread opposition from solo and small firm lawyers, who complained they would be disproportionately affected, as well as the Conference of Delegates of California Bar Associations and other local bars.

Proponents, including bar committees on ethics, professional liability and mandatory fee arbitration, saw disclosure as a public protection measure and a way to provide important information about attorneys to prospective clients. Opponents, however, viewed disclosure as an expensive requirement that could stigmatize attorneys who do not carry malpractice insurance, could reduce the availability of legal services to low- and middle-income clients and could serve as an incentive for disgruntled clients to sue for a quick cash settlement.

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.

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.

The State Bar conducted an online survey during the summer on the availability and affordability of malpractice insurance and is analyzing the more than 1,600 responses.

Complete text of the rule is at the bar’s Web site, Go to Attorney Resources>Rules>Rules of Professional Conduct>Current Rules.

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