A recent State Bar of California report surveyed small firms and solo attorneys regarding their views on legal malpractice insurance. Key findings included:
Given the risk of a claim (and the financial repercussions that come with it), why do so many firms choose to forgo malpractice insurance? Many attorneys are likely unaware of the insurance options structured to meet the needs of small and solo firms.
This post will explore the issues surrounding legal malpractice insurance for attorneys practicing in California.
While many professions mandate liability insurance, the legal field in most states, including California, does not require attorneys to carry legal malpractice insurance. Oregon and Idaho are the only U.S. states that legally obligate lawyers to maintain malpractice insurance coverage (as of writing).
Despite the lack of a universal mandate, California does impose a disclosure requirement on its attorneys. Under Rule 1.4.2 of the California Rules of Professional Conduct, lawyers who bill for more than four hours on a case must inform their clients in writing if they do not possess legal malpractice insurance. This rule aims to give clients transparency regarding their attorney's insurance status, allowing them to make informed decisions about their legal representation and understand the potential risks involved should a malpractice claim arise.
Learn more: State Requirements for Legal Professional Liability Insurance
An exception to the notification rule comes from working with freelance attorneys. If a firm hires a freelancer to ghostwrite or work on a case and the attorney does not carry malpractice insurance, the supervising law firm does not need to disclose it to the client, even if the freelancer bills over four hours.
The reasoning is that the supervising law firm is ultimately responsible for the work of hired freelancers and would therefore be liable for a malpractice claim. There are some exceptions to this rule, however. If a freelance attorney becomes a “significant development,” the supervising attorney should notify the client. This exclusion applies in several instances:
Alternatively, the client had a “reasonable expectation under the circumstances” that a contract lawyer would not be used to provide the service. A firm that works with contract attorneys may want to disclose the use of freelance attorneys without malpractice insurance as a precautionary measure.
The malpractice insurance policy determines whether a freelance lawyer is covered by a supervising law firm's malpractice insurance.
As previously discussed, two-thirds of California lawyers believe malpractice insurance is too expensive. This sentiment is understandable, as small and solo firms must closely monitor expenses to survive. However, the consequences of not carrying malpractice insurance or having inadequate coverage can be catastrophic. Even frivolous claims can cost a firm thousands in legal fees. An uninsured attorney must fund their own defense.
Attorneys can take steps to make coverage more affordable. Some carriers provide specialized coverage for solo firms, part-time firms, or pro bono cases. Additionally, some carriers offer custom rates for different areas of law, such as immigration or mediation. Both step-rating and an appropriately filled-out application can go a long way in keeping premium costs down.
It’s also worth considering that malpractice insurance providers offer additional resources at no extra cost. For example, these added benefits from Protexure include:
Insurance can also be written off as a deductible business expense. Simply filling out a malpractice insurance application highlights risk management practices that your firm can implement to lower premiums and minimize the risk of legal malpractice claims.
Learn more: How Much Does Professional Liability Insurance Cost for Solo Attorneys?
You can research insurance carriers on the American Bar’s list of carriers by state. A quality insurance carrier must be experienced, financially stable, well-regarded, and highly rated by AM Best. Additionally, you will want to work with someone familiar with the struggles of small firms and solo lawyers.
Protexure meets and exceeds all necessary qualifications. We are:
Learn more about our professional liability coverage for lawyers here.