May 2019 – Mandatory Malpractice Insurance: An Attack on Access to Justice

by Scott B. Garner

Primum non nocere, which means “First do no harm,” is a maxim that is believed to be derived from the Hippocratic Oath that has been familiar to doctors since ancient times. The California State Bar was close to rushing into a plan to mandate that all California lawyers carry legal malpractice insurance, which could have done harm to the very public it professes to be protecting. Although the State Bar voted at its March 15, 2019 meeting not to recommend a mandate, the issue is far from dead and likely will be revived after the State Bar attempts to collect additional data. It remains to be seen whether the data it collects will be sufficient to justify the imposition of mandatory insurance or will simply provide the State Bar with cover to do so.

The State Bar’s mission includes the words, “to protect the public.” It also pledges to support “greater access to, and inclusion in, the legal system.” But what happens when a future State Bar proposal to protect the public is inconsistent with promoting or enhancing access to justice? Specifically, can the State Bar, consistent with its mission, implement a mandatory insurance regime without widening the already massive access-to-justice gap?

Although many non-lawyers, and even some lawyers, in California believe liability insurance already is mandatory for lawyers, it is not. Rather, California’s Rules of Professional Conduct merely require that any lawyer who does not have insurance disclose that fact to his or her clients. See Rule 1.4.2. Currently, only two states mandate the purchase of professional liability insurance: Oregon and Idaho. Oregon is somewhat of an anomaly in that it foregoes the insurance market in favor of a state-controlled insurance fund. The state of Washington currently is considering a mandatory insurance proposal. Many other states have considered mandating insurance for lawyers, but have not done so.

The California State Bar does not know exactly what percentage of lawyers do not have insurance because it currently does not require lawyers to report whether they carry it or not. Studies conducted in 2017 and 2018, however, revealed that approximately 7% of all California lawyers do not have malpractice insurance—almost all of whom are either sole practitioners or members of small firms. In a 2018 survey of just solo and small firm lawyers, it was reported that approximately 39% of sole practitioners do not carry liability insurance, while approximately 12% of small firm lawyers (defined as firms with two-to-five lawyers) do not carry liability insurance. Of those who responded to the survey, 66% reported that the reason they do not carry insurance is they cannot afford it.

To study these issues, the legislature added provisions to the 2018 State Bar Fee Bill providing: “(a) In recognition of the importance of protecting the public from attorney errors through errors and omissions insurance, the State Bar shall conduct a review and study regarding errors and omissions insurance for attorneys licensed in this state.” The working group formed to conduct this study was specifically tasked with studying, among other things, (1) “[t]he adequacy, availability, and affordability of errors and omissions insurance . . .”; (2) “[t]he advisability of mandating errors and omissions insurance limits for attorneys licensed in this state,” and (3) “[t]he adequacy and efficacy of the disclosure rule regarding errors and omissions insurance, currently embodied in Rule [1.4.2] of the Rules of Professional Conduct.” Cal. Bus. & Prof. Code § 6069.5.1 The appointed Malpractice Insurance Working Group then would report its findings to the State Bar, who would make its own recommendation to the supreme court or the legislature regarding mandatory liability insurance for lawyers. This process was to be completed by March 31, 2019.

The State Bar Working Group met throughout 2018 to discuss the various issues mandated by the legislature. In January 2019, it voted 8-6 that it could not recommend that the State Bar mandate that all California lawyers purchase professional liability insurance unless and until additional extensive data was collected. In other words, by a slim margin, the Working Group recommended that, at least at this time, the State Bar (and legislature) should not pass a rule or law mandating legal malpractice insurance. The Working Group also voted that, if mandatory insurance were implemented, the coverage should be $100,000 per occurrence/$300,000 aggregate. The Working Group also approved several recommendations for strengthening California’s existing disclosure rules.

Notwithstanding the Working Group’s vote, concern still abounded that the State Bar would move forward with the mandatory insurance plan at its March 15 meeting, as the State Bar leadership appears to be in favor of it. Although the State Bar’s Board of Trustees voted unanimously to accept the recommendation of the Working Group (that is, no mandatory insurance), the issue is far from dead, as the State Bar may try to gather the data that the Working Group felt was missing. Thus, it remains relevant to ask, what are the arguments for and against mandatory insurance?

The problem identified, and that mandatory insurance supposedly addresses, is that of clients being economically damaged by a lawyer providing negligent legal services, where the client subsequently is unable to recover from that lawyer. (Economic harm caused by lawyers stealing from their clients, as opposed to their lawyer’s negligence, is addressed through the State Bar’s client security fund, and was not a concern of the Mandatory Insurance Working Group.) This can happen where the client obtains a negligence judgment against the lawyer, but the lawyer does not have insurance or sufficient assets to pay the judgment. It is unclear how often this happens, as there is no clear data about it. A related problem is that some plaintiff-side malpractice lawyers may not want to take a client’s case when they learn the lawyer-defendant has no insurance. There also is no data about this phenomenon, other than anecdotal evidence. For those of us who field calls from lawyers without insurance who nonetheless have been sued for malpractice, we know there are at least some plaintiff’s lawyers who are more than willing to file a malpractice lawsuit against a lawyer without insurance.

To be sure, there are some clients who have been wronged by a lawyer’s negligence and are unable to recover because the lawyer does not have insurance or enough assets to satisfy a claim or judgment. But nobody knows how many such clients are out there. The State Bar apparently sees its mission of protecting the public as including the protection of these clients. This non-quantified increase in client protection, however, must be weighed against any costs—monetary and otherwise—of forcing lawyers to purchase malpractice insurance.

Because the State Bar’s mission of protecting the public does not include protecting lawyers (to the contrary, many would argue the State Bar is attempting to protect the public from lawyers), any argument that requiring lawyers to purchase insurance will harm lawyers would fall on deaf ears. At a minimum, however, it is reasonable to conclude that some lawyers simply could not afford to practice law at all if the expense of insurance were imposed on them. The countervailing interest, then, is not the harm that would come to lawyers, but rather the harm that would come to the non-lawyer public in the form of a wider access to justice gap.

Many would argue that the biggest problem California—and, in fact, the entire nation—has with its legal system is that so many individuals cannot afford to participate in that system. And the biggest cost barrier to participation is the cost of hiring a lawyer. The reality is that many of us could not even afford to hire ourselves. Thus, any solution to the problem identified above—that is, clients left without redress for the negligent acts of their attorneys—should not exacerbate the more urgent problem of people not being able to afford lawyers.

Although several scholars who have addressed these issues downplay the effect mandatory insurance will have on access to justice (see, e.g., Levin, Leslie, “Lawyers Going Bare and Clients Going Blind,” Florida Law Review, Vol. 68, Issue 5 (Sept. 2016)), there is little to no data on the subject. The reality is that many lawyers practice on a very tight profit margin, for myriad reasons. Some simply do not have enough clients. Some practice part time. Some choose to serve underserved and underprivileged client populations at below market rates (sometimes referred to as “low bono”). Some practice heavily in the pro bono space. Some are mostly retired but still desire to maintain their license. For these lawyers, taking on the extra cost of malpractice insurance—likely to be at least $3,000-$3,800 per year in what is thought to be a fairly open insurance market, and potentially significantly more if the market tightens—simply is not possible. Faced with the expense of mandatory malpractice insurance, at least some of these lawyers will choose (or will have no choice but) to close up shop and stop servicing their clients. Other lawyers may continue practicing, but will cut back on their pro bono or low bono practices in order to make enough money to pay for insurance. The supply of lawyers will go down, and fewer clients will be served. It is simple economics.

These economic concerns no doubt will be exacerbated by the State Bar’s recent decision to propose to the legislature a $100 fee increase per lawyer, plus a special assessment of $250 for capital and technology investments, plus an $80 increase in the client security fund fee—all to go along with another $75 or so that each lawyer has to pay for fingerprinting. Again, simple economics dictates that the supply of lawyers will go down.

One possible solution would be to exempt from the mandate certain categories of lawyers. The problem, however, is that myriad public comments were received requesting categories of exemptions—including for retired attorneys, part-time attorneys, low bono attorneys, pro bono attorneys, educators, government attorneys, attorneys who do only expert work, criminal defense attorneys, attorneys making under $50,000 per year, immigration attorneys, mediators, new attorneys, and freelance attorneys, to name just a few. It is highly unlikely, however, that the State Bar would exempt all of these categories; more likely, it would reject all exemptions to avoid having the exemptions swallow the rule.

So what does this mean for access to justice? Again, the problem is a lack of data. Although we can say with some economic certainty that there would be fewer lawyers and, consequently, fewer options for clients looking to hire a lawyer, we simply do not have data measuring this effect. Put another way, we do not know how many potential clients who otherwise would be able to hire a lawyer will not be able to find and hire a lawyer because of a mandatory insurance requirement. It is very possible—and even likely—that, in trying to protect the public, the State Bar will actually end up hurting the very people it is trying to protect. Primum non nocere. First do no harm. Until the State Bar knows, based on actual data, (a) how many clients will be helped by having better recourse to recover for a lawyer’s negligence, and (b) how many clients will be unable to find and afford a lawyer because fewer lawyers will be offering low cost services, it cannot responsibly implement a mandatory insurance requirement.

And, the State Bar is not without other avenues to protect the public in the event it abandons the mandatory insurance path, at least until it has adequate data. For example, although the precise impact is difficult to quantify, there are some indications that a stronger disclosure rule would increase lawyers’ willingness to carry malpractice insurance.

Currently, lawyers without insurance only need to provide a very brief, non-detailed disclosure in their engagement letters in order to comply with Rule 1.4.2. Comment [2] to the rule provides the following safe harbor language: “Pursuant to rule 1.4.2 of the California Rules of Professional Conduct, I am informing you in writing that I do not have professional liability insurance.” Other states have more stringent disclosure requirements, with some reported success. By far the most stringent requirements are in South Dakota, where lawyers without professional liability insurance are required to disclose that fact in each and every communication with their clients (not just a single time, as in California). See Levin at p. 19. Whether these disclosure rules are the cause or a mere correlation, it has been reported that 94% of South Dakota private lawyers carry professional liability insurance. See H. Dritzer & N. Vidmar, When Lawyers Screw Up: Improving Access to Justice for Legal Malpractice Victims 41 (University Press of Kansas 2018). Other states, including Virginia and Alaska, with significant disclosure requirements also have reported upticks in the percentage of lawyers carrying insurance. See Levin at 23 n.119.

This is not to say California is like South Dakota, or that we can confidently predict that heightened disclosure requirements would lead to more lawyers carrying insurance. But it is a reasonable assumption—particularly when 75% of consumers that responded to the State Bar’s 2018 survey stated they think it is moderately, very, or extremely important that their lawyers have insurance. If it is so important to consumers, then, as long as those consumers are properly informed, the market should point them in the direction of lawyers who have insurance.

At a minimum, there is no reason to think that increased disclosure requirements would have the adverse effect of driving lawyers out of the market. Those lawyers who truly cannot afford to buy insurance still will not carry it, and those clients who either may not care if their lawyer has insurance or just want any lawyer they can find and afford will still utilize those lawyers. But at least those clients who do choose to go with uninsured lawyer will have a better chance of understanding what that means if things should go sideways during the relationship.

The State Bar seeks to protect the public, and that public includes some unknown number of clients who have been the victim of their lawyer’s malpractice, but who cannot recover because the lawyer lacks insurance and assets. Mandating that lawyers procure professional liability insurance will reduce that number. On the other hand, compelling lawyers to spend thousands of dollars on professional liability insurance will cause some unknown number of lawyers to shutter their practices, or at least curtail their low cost services, thereby abandoning current and future clients. This, of course, will have a negative impact on access to justice—particularly since many of the lawyers who will be most adversely affected are those most likely to serve underserved client populations.

Any policy change to address these issues must be based on actual data: How many wronged clients will the policy help to recover their losses? How many clients will the policy preclude from finding a lawyer in the first place? Until we know these numbers, we will be shooting in the dark—trying to fix one problem while potentially causing an even greater one.


  1. The statute refers to Rule 3-410, which was re-numbered as Rule 1.4.2 when the Rules underwent a significant revision on November 1, 2018. The substance of the rule, however, was not materially changed.

Scott B. Garner is a partner at Umberg/Zipser LLP in Irvine, California, where he practices complex business litigation, with an emphasis on representation of law firms and lawyers in professional liability and ethics disputes. He also counsels lawyers on ethics issues, and serves as an expert witness on legal ethics and standard of care. Mr. Garner is the President-Elect of the OCBA and the Co-Chair of the OCBA’s Professionalism and Ethics Committee. He served as a member of the State Bar’s Malpractice Insurance Working Group. He can be reached at sgarner@umbergzipser.com. The views expressed herein are his own.