Depending on how you operate your law practice, some insurance may be mandatory. Do you have employees? If so, you are required to carry Worker’s Compensation Insurance. Have a commercial lease? You likely are required by your landlord to carry commercial general liability insurance. A law firm owned vehicle? Yep. California imposes mandatory minimum liability insurance on all vehicles operated or parked on its roads. How about malpractice insurance, sometimes called errors & omissions insurance or professional liability insurance? If you practice as a shareholder of a professional law corporation, a partner in a firm organized as a Limited Liability Partnership (“LLP”), or as a Registered Foreign Legal Consultant, statutes and the State Bar rules require you to carry malpractice insurance or establish other financial responsibility arrangements. (e.g., Cal. Corp. Code § 16956.) Oh, you are a solo practitioner or practice in association with other solo practitioners? Notwithstanding several attempts at mandating malpractice insurance, you are not required to carry professional liability insurance. Phew, that’s good! Or is it?

Professional liability insurance covers a lawyer and/or entity (such as a professional law corporation) for monetary damages resulting from claims made by clients (and in some circumstances other third parties) based upon the rendering of, or failure to render, professional services as an attorney. According to surveys conducted on behalf of the State Bar, over 90 percent of California attorneys in private practice are covered by malpractice insurance. (See https://www.mybarbenefits.com/business-insurance/professional-liability/professional-liability/professional-liability.html.) Current statistics show that in any given year, a minimum of five to six insured lawyers out of every 100 in private practice will experience a malpractice claim.

“Even though the frequency of legal malpractice claims remains relatively flat, claim severity [the cost of a claim] continues to spike. Among other factors, elevated claim costs have been driven by an increase in legal defense costs due to court delays arising from the impact of COVID-19, aggressive tactics deployed by plaintiffs’ counsel, and the overall increasing complexity of cases.” (See Ames & Gough LPLI 2022 Claims Survey; https://www.claimsjournal.com/app/uploads/2022/05/Ames-Gough-LPLI-2022-Claims-Survey67.pdf.)  Lawyers practicing in the areas of trusts and estates, business transactions, and corporate and securities are among the most vulnerable to claims, followed by matters involving insurance defense, taxation, and general litigation. Conflicts of interest continue to be the number one driver of claims.  Since the exposure to legal malpractice is greater now than ever before, it is a prudent part of law office management to establish meaningful loss prevention practices, including the purchase of proper lawyers professional liability insurance coverage.

Unfortunately, to hedge against rising costs and larger malpractice damages, insurers are projecting rising insurance premiums on law firms this year. You may be pleased to learn, however, that a bit of legwork may yield dividends or at least lower premiums. Be sure to shop the market. It’s OK to be pleasantly pushy with your broker or to work directly with carriers to obtain quotes. Notwithstanding anticipated rising premiums, there are many carriers in California competing for your business. More information on some of the carriers can be found on the websites for the State Bar of California and American Bar Association. (See https://www.calbar.ca.gov/Attorneys/For-Attorneys/Opening-and-Managing-Law-Office/Insurance-Programs and https://www.americanbar.org/groups/lawyers_professional_liability/.)

You may also find that even if you cannot reduce your premium, you may increase the limits of coverage or add additional policy benefits. For instance, coverage for State Bar disciplinary proceedings or reimbursement for investigation expenses are often overlooked until they are needed. Some carriers may permit you to select counsel of your own choosing in the event of a claim rather than the carrier appointing counsel for you. Coverage for cyber losses is quickly becoming a “must have” for the modern practice of law. Some policies include some protection from cyber claims, while a standalone cyber policy may provide you more robust coverage. Some carriers offer tools to assist you in your practice, such as hotlines and access to MCLE courses.  If you are planning a switch in insurance, however, be cautious that changing carriers does not create any gaps in your coverage. Your new policy should cover “prior acts” for claims made on insurable events that occurred prior to the purchase of the policy.

If you are going to forgo professional liability insurance, with limited exception, you are required to inform a client in writing at the time of the client’s engagement that you do not have professional liability insurance. (See Cal. Rules Prof. Conduct, Rule 1.4.2.) Failure to provide the required disclosure may be grounds to void your fee agreement and/or fee sharing agreement. (See Hance v. Super Store Industries (2020) 44 Cal.App.5th 676.)

In short, now is not the time for a “set it and forget it” strategy with your malpractice insurance.

Tom D’Amato, D’Amato Law Corporation

Certified Specialist, Legal Malpractice Law, The State Bar of California Board of Legal Specialization