Dangerous Myths About Malpractice Insurance Coverage

April 2024 

Editor’s note: This article was previously published in the Daily Journal and is reprinted here with permission.

By Hellen Hong and Suma Mathai

Malpractice claims are most often made against solo practitioners and small firms, comprised of two to five attorneys, many of whom do not carry malpractice insurance. In 2019, the State Bar of California (State Bar) reported^[1] that 39% of solo attorneys—an estimated 13,000 solo attorneys—and 12% of small firms surveyed did not have malpractice insurance. In the same year, the American Bar Association’s (ABA) Profile of Legal Malpractice Claims Report^[2] found that these two segments have the most malpractice claims (32% and 30%, respectively). So why would the firms most at risk of claims not have insurance?

When asked why they were not insured, the California attorneys surveyed by the State Bar cited cost as the top reason—66% believed they could not afford it. However, many solo attorneys (29%) revealed that they don’t have insurance because they believe they are unlikely to be sued due to the nature of their practice. Many attorneys thought malpractice insurance was not worth the cost (35%), thought it was unnecessary because they were working part-time (23%), or that it was not necessary for their area of practice (18%).

Beyond cost, the attorneys surveyed by the State Bar seemed to feel that a malpractice claim just wouldn’t happen to them. But malpractice claims do happen, especially to solo practitioners and attorneys at small firms. The ABA report found that claims were most often made for alleged substantive errors (more than half of claims), administrative errors, and client relations issues. The report also found that claims were most often filed in personal injury, family law, real estate, and probate (trust and estate) cases. Interestingly, the study highlighted a marked increase in claims in immigration cases.

There are many different carrier options in California and a variety of policy options for malpractice coverage. For example, reputable insurers offer a range of policies for new attorneys, part-time attorneys, and specialty rates for specific practice areas such as immigration, arbitration, and mediation. There is also very affordable coverage for attorneys concentrating on low-bono services that may cost less than $1,000 annually. Talking with a broker or getting a quote from one or more insurance carriers can help contextualize the cost and value.

Some carriers also offer valuable benefits at no additional cost. These may include legal research accounts, MCLE, and other risk management resources such as templates and lawyer-to-lawyer hotlines. In addition, professional liability insurance is a business expense and is tax deductible.

Deciding whether malpractice coverage is worth the cost should, like any investment, be weighed carefully. The sticker shock of an initial quote might be enough for an attorney to conclude that coverage is not affordable. However, looking at average billable hours for a month or year and factoring in a proportionate amount to account for insurance coverage may mean a relatively small increase in an hourly billable rate. Comparing that cost with the potential costs of defending and paying one or more claims is critical. In addition, filling out an application may help build risk mitigation practices in the firm.

Beyond peace of mind, malpractice insurance can be a marketing tool for solo practitioners. The State Bar’s study found that malpractice insurance is important to consumers as they select an attorney. In addition, attorneys must have coverage in order to participate in a State Bar Certified Lawyer referral service. In addition, California Rule 1.4.2^[3] requires attorneys to inform clients if they do not have professional liability, with some limited exceptions.

Carrying malpractice insurance provides protection to the insured attorney and to the consumer. While it can be expensive, factoring coverage into overhead costs can help alleviate stress and defray potential costs of defending and paying claims. At a minimum, it is worthwhile to spend the time it takes to make an informed decision. Get one or more quotes and assess the benefits and drawbacks of paying for malpractice coverage. Coverage is an investment in yourself and your business.

Hellen Hong, Esq. is the CEO of CalBar Affinity, Inc., which operates CalBar Connect. She has held multiple positions in public interest law firms, the State Bar of California, and nonprofit organizations.

Suma Mathai, Esq., MSW, is a legal consultant with the Judicial Council of California and an adjunct lecturer at the University of Southern California Gould School of Law. She previously practiced family law at public interest law firms in Los Angeles.

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^[1] https://www.calbar.ca.gov/Portals/0/documents/reports/Malpractice-Insurance-Report_Summary_and_Supreme-Court-Cover-Letter.pdf

^[2] https://www.americanbar.org/products/inv/book/405555870/

^[3] https://www.calbar.ca.gov/Portals/0/documents/rules/Rule_1.4.2-Exec_Summary-Redline.pdf