Mandatory malpractice insurance in the works?

As I discussed in a previous column ("Is mandatory malpractice insurance coming to California?" Sept. 28, 2018), the State Bar of California's Malpractice Insurance Working Group has asked for public comments "on the options under consideration" for mandating or encouraging lawyers to buy minimum limits of malpractice insurance. The deadline to submit comments is Monday, November 5, 2018. Naturally, attorneys qualify as members of the public and are allowed to comment. It is recommended that we do so.

However, it is doubtful that the State Bar will receive many comments on this proposal. Although the working group has been meeting since January, most attorneys have no idea that the working group exists or what exactly it is doing.

The request for public comment provided doesn't shed much light on what the working group is doing either. For instance, the request states that one option being considered is "[m]andating legal malpractice insurance for attorneys as a condition of licensing." True, but being stated this way, the request doesn't really tell the public the extent of what is being considered so that focused comments can be made. Lawyers who routinely buy professional liability insurance may think this whole effort has nothing to do with them. Those who believe that, however, would be in error.

Perhaps the request should have said something like this: "There has been a great deal of discussion not only about mandating that all attorneys have insurance, but also what the minimum amount of insurance should be and from whom that insurance may be purchased. The working group has heard that a minimum of $100,000 should be recommended, but there has also been discussion that the minimum should be $500,000, and that the insurance may need to be purchased through a specified provider." That sort of disclosure and clarity likely would generate more public comments than the generic statement.

It is possible that clarifying that mandatory insurance provisions would exempt only "in-house counsel and government attorneys" will create a stir. Such a provision might prompt some careful thinking by general counsel, law professors, mediators, lobbyists (who are attorneys but may not carry a policy), pro bono attorneys, low bono attorneys and criminal defense attorneys who could face stiff new expenses should they have to buy an insurance policy, which may be required to have minimum limits as high as $500,000.

In Oregon, every attorney in a law firm must purchase their own $300,000 policy. If the request for public comment made it clear that the Oregon model is under consideration, that such a model may require large law firms to have each and every attorney have their own policy ($100,000; $300,000; $500,000, whatever amount is finally agreed upon), despite the firms providing coverage for their attorneys on a national basis with limits much greater than these minimums, and that such policies could not be "stacked" should there be a malpractice action, there might be more input from the larger law firms. But, as currently stated, such comments may be few.

The request for public comment mentioned "options" for how such mandatory malpractice insurance would be obtained or purchased. It mentioned the "private insurance market," which it called the "Open Market Model," which is what California currently has. An attorney who wants to purchase malpractice insurance has many companies to choose from on the open market. Pricing is competitive and should become even better -- the insurance commissioner has stated that under Proposition 103 he expects carriers to reduce rates given the federal tax reduction for corporations from 35 to 21 percent.

The other purchasing "option" being considered is listed as the "Insurance Fund -Model." The request for comment states that under this model an "insurance fund" would be established, by statute, and would provide minimum insurance coverage for all attorneys. Well, that's one way of stating it, but within the working group it has been stated another way -- as the "Captive Carrier Model."

The Captive Carrier Model exists in only in Oregon, where they have rain, Ducks and Beavers, not sunshine, Bears, Bruins and Trojans. More significantly, the Oregon legal market is a tiny fraction of the size of the California legal market, and differs in numerous respects. The Oregon State Bar created a state bar-run captive carrier. Attorneys must not only have malpractice insurance in Oregon (it is one of only two mandatory insurance states), but they must purchase from the bar-run captive carrier. (In Oregon, everyone must have a $300,000 policy at an annual premium of $3,500). At a recent ABA Legal Malpractice Conference, a member of the working group, in response to a question, said that the working group was looking at a $6,000 premium payment if California were to adopt a bar-run captive carrier.

In conclusion, the request for public comment appears to some to be "transparency without any transparency." As written, the request cannot possibly result in a great deal of public comment, such as there was in response to the California Law Review Commission's recommended legislation on mediation confidentiality. In that case, there was actual proposed language upon which the public could comment. This is in stark contrast to mandatory malpractice insurance, where there are just "options under consideration," and even then, the options are not fully disclosed or discussed.

The final recommendations will come in a report sometime in March 2019. But the public comment period ends Nov. 5 -- about four months before anyone knows what the working group will be recommending. Not only does this seem to be a classic case of "putting the cart before the horse" but America's "Horse With No Name" comes to mind.

So, go to the State Bar website. Try to find out more. Make public comments over the next few days, even if your comment is that there isn't enough information being provided to make an informed public comment. Better yet, write to Linda Katz at State Bar of California, 180 Howard St., San Francisco, California, 94105 or email her at linda.katz@calbar.ca.gov.