Dodging a High Cost Bullet— For Now

Published October 30, 2007

A little more than a year ago I strongly argued in this newsletter and elsewhere against a proposed new California Rule of Professional Conduct that would have required each California lawyer to disclose in writing at the start of an engagement and on the State Bar web site if the lawyer does not have malpractice insurance coverage. One of my strongest objections was that such a rule would disproportionately penalize the small firms and sole practitioners that make up the majority of State Bar members. Many of these lawyers typically don’t earn much more than $50,000 a year, and would find the $4,000-plus annual cost of malpractice insurance to be prohibitive.

In late September the California State Bar Board of Governors defeated this proposal by a 9-8 vote. An amended version of the proposal that would merely delete putting the malpractice disclosure information onto the State Bar’s website was then proposed, discussed, and then tabled. The issue will be discussed in November with one-third of the current Board having been replaced by its annual election. This turnover could well be positive because, as was pointed out late in the discussion, the task force that proposed the rule failed to have on its panel any representative of one of the important constituencies most affected by this proposal: the sole and small firm lawyers who are in the trenches and who cannot afford it, and the low- to middle-income clients they serve.

Dodging this bullet still does not change the basic problem. The vast majority of lawyers are ethical and do not commit malpractice. The vast majority of clients do not sue for malpractice. But mandatory disclosure of the absence of malpractice insurance waves a red flag that could spur clients to file actions against the lawyers who are helping them, but simply cannot afford the insurance. A recent front page story in The Wall Street Journal showed just how bad the affordability problem for most lawyers is, by highlighting these facts:

  • Law school can leave a new lawyer with debts that exceed $100,000
  • During the last 20 years the inflation-adjusted growth in the demand for legal services has risen just 1.2% a year—less than half as fast as the overall economy
  • According to the IRS, the inflation-adjusted income of sole practitioners has been flat since the mid-1980s
  • Yet despite high tuition, low service demand, and flat income, the law schools continue to churn out J.D.s—nearly 44,000 last year, compared to 38,000 in 2002

The conclusion is obvious: Mandatory malpractice insurance disclosure symbolizes a massive cost that most lawyers simply can’t afford. And that’s why I continue to oppose it.

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Audience type: Administrators, Associates, Large Law Firms, Small Law Firms, Sole Practitioners