The Practice

California Malpractice Insurance Disclosure

Here is a copy of a letter to the editor that ran today in the Daily Journal. (I held on to it to give them a chance to publish it first.) Before I get hate mail, remember that I am the biggest fan of solo practice that you will find. Now, without further waiting, here is my letter:

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I read with interest the June 20, 2006 article "BAR WANTS INSURANCE DISCLOSURE." While I understand where Mr. Poll and Ms. Karpman are coming from, I believe they are missing the point.

The State Bar's proposal should be welcomed by our membership as a public protection issue. Clients have a right, and a need, to know about their attorney's malpractice insurance status. By making this information available, the client has better information to make an informed decision in choosing an attorney.

Mr. Poll's concern about the cost of insurance is unfounded. Currently, affordable malpractice insurance for solos is available through several insurance companies, including Lawyers Mutual. Further, if solos are concerned about the cost of insurance, there are a variety of options available including insurance pools, buying groups and other risk management techniques.

As for the idea that the State Bar should mandate insurance, this is just ridiculous. Mandatory insurance does not work in any area, including auto insurance. Further, state run insurance, as Mr. Poll has suggested before, is a recipe for disaster as can be seen from other attempts at government run insurance, such as the National Flood Insurance Program.

Ms. Karpman is concerned because clients will think they have a measure of protection that they do not have because the attorney may be underinsured. While underinsurance is an issue, it is also an issue with driving. Some estimate that 50% of all California drivers are uninsured, and of those with insurance, an alarmingly high percentage have minimum limits policies that do not adequately protect people who may be injured. However, most of us still drive, even though we know there are people out there who are underinsured. Further, clients would probably be happier to be able to recover something, instead of nothing.

Finally, by providing the information, a client has the ability to make a more informed decision. While it may not be a perfect decision, at the least, it provides the client with one more piece of information that can help the client.

I think this is a measure that is overdue. Clients are entitled to know the malpractice insurance status of their attorney, or potential attorney.

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------Jonathan

Disclosing Malpractice Coverage

Ed Poll on his LawBiz blog discusses a California proposed rule that would require attorney's to make public their malpractice coverage status. (Go read Ed's original post and some of the replies.) Ed's feeling is that this is bad. Basically, he thinks it doesn't protect the public and is only good if the state bar requires affordable insurance.

With all due respect to Ed, and I know a lot of you read him and respect him, he is just plain wrong. Let me address these in reverse order.

Affordable insurance: the State Bar cannot mandate that insurance companies provide affordable insurance. I know, they are doing it in Oregon. Great. They also allowed physician assisted suicide in Oregon. (This is not a political comment, but rather an argument that what  works in Oregon may not work in California.) The State Bar can come up with one thousand reasons why affordable insurance is a good idea, and it is. But the State Bar cannot mandate it. Further, in California, insurance falls under the Department of Insurance, who, in my opinion, can't figure out the basics of insurance, let alone attorney malpractice insurance. Further, the State does not regulate rates and when they try to, it fails miserably. Want proof? NFIP and CEA. Two programs of state run insurance that, for lack of a better term, blow. (Interestingly, if more solos would obtain insurance, the acturial tables would change and the rates would drop.)

Public protection: Does anyone really think that this is not good for the public to know? If the attorney does not disclose their lack of insurance, the client cannot make a fully informed decision. While there is no such thing as perfect information, there is pretty dang good information. Attorneys should be forced to tell clients that they have insurance - or maybe more importantly, do not have insurance. A client is entitled to know that if there is a problem and the attorney malpractices, they may have no recourse.

Finally, this is not a biglaw versus solo issue, at least to me. Everyone should have malpractice insurance, just like you have auto insurance or disability insurance. The big firms pay more in premium than you and I, and while they do have advantages, solos can utilize their leverage to get more affordable coverage.

-------Jonathan

Insurance Bad Faith Litigation: What do you do?

Marc Mayerson over at Insurance Scrawl has a great piece that you should read. This is especially true if you are a plaintiff's lawyer or involved in insurance litigation at all. You know it is good when I link to it, especially when it is about insurance.

Marc points out the potential conflicts that may arise when you represent a policyholder in an underlying case and then in the bad faith case. I always take the position in the underlying case that I may be a witness in the future. Thus, everything is in writing. And, when it comes to the bad faith case, I suggest the client find another attorney. At least in California, the attorney of record cannot testify as witnesses if there is a jury trial. So, you could put your client in a bind.

Read Marc's post and think about it. I think the safest bet on potential bad faith cases is to refer the client out.

-------Jonathan

BONUS POST: California Fair Claims Practices Act Manual Now Available

With the help of the wonderful skills of Lisa Solomon, who is among the best at what she does (and her timepieces are cool too), I am pleased to announce the release of the California Fair Claims Practices Act Manual. This is a book for attorneys who want to learn about the FCPA, need to deal with it, or are interested in handling PI cases. While it is a California book, we have had requests from people in other states for it as well.

You can get yours by sending me an email with your name, address and phone number.

One Way to Limit Your Malpractice Exposure: Statute of Limitations Forms

One of the easier malpractice claims to pursue against another attorney is a blown statute of limitations. It happens, we all know that. And, when it does, it can be a big problem. There is no foolproof method of not blowing a statute, but here is one idea.

I have a statute of limitations form. I do not use on it every case, but when I think I might need it, I bring it. The form is pretty simple. (Email me if you want a copy.) Basically, it states that the client is advising and I am relying on that representation that the date of loss is X.

Simpe enough? Now, if there is a police report, I do not bother with this form because I can rely, usually, on the police report. I can be sure that the police report is within a day of the date of loss, and since I always calendar my statutes one month prior to the date of loss, I am safe. But, sometimes there is no official record.

For example, I recently had a client come to me and she and the insurance company had two different dates for the accident. To be safe, I had her sign the SOL form. That way, if there was a problem, I had a defense that I relied on what the clent told me. While I would still have an independent duty to investigate, I do feel better having something that the client has completed and signed.

While this will not prevent a blown statute, it is one more way to protect yourself.

-------Jonathan

Life/Health Insurance for Your Law Practice

As promised, here is my discussion about life and health insurance. I know this is even more boring than the property/casualty insurance discussion, and much more complicated. So, I will try to hit only the highlights so you can quickly get on to reading our other posts!

Disability insurance covers you if you cannot work. You may have a state disability program, but some, like California, are elective for small business owners. So, you may want to look at a private insurer. You can find a deal through the ABA (Shawn Bingman over there is great), your State Bar or other organizations you belong to. Getting disability insurance through a group is much more affordable.  One caveat: as a solo, you may need a year or two of steady income before you can get a worthwhile policy.

Life insurance covers you if you die. If you have a family and are the sole earner, you should have a life insurance policy. If you are in a partnership, it is important to have a policy that covers each partner and pays the proceeds to the partnership. Again, you can get a group policy for a lot less money than an individual policy. As for choices, there are many different possibilities, including 10, 20 or 30 year term, whole, etc.... Talk to your broker about what is best for you.

Health insurance covers your medical bills. There are way too many types of health insurance to talk about. My broker walked me through all of my choices, and even I, as a self-proclaimed insurance geek, needed the help. (If you are in California and you want his name, I will be more than happy to provide it.) Just remember that you may be better off with an employee for purposes of insurance, and it is expensive!

I hope this little series on insurance helps. There are a lot of nuances within these generalities. If you have a question, just ask.

--------Jonathan

Property and Casualty Insurance for Your Law Practice

I previously posted about E&O (malpractice) insurance. I talked about different policies available and some ideas to help you keep your costs down. (I still swear by the Lawyers Mutual policy which provides first year coverage for a solo for $500, if you are a "new" lawyer.) But, you need more than E&O coverage for your firm. By my count, there are seven different types of policies you may need. These fall into two major categories: property/casualty and life/health. Today, I will focus on property/casualty. Tomorrow sounds like a good day for life/health. (Due to the breadth of these topics, I will only be giving a basic overview. If you have specific questions, email me.)

First, what do I mean by property and casualty? At its most basic, property insurance covers damage to your property, such as your office, your computer, your files, etc.... Casualty covers damage you cause to another person, such as when you injure someone in an auto accident or someone slips in your office and falls.

Property insurance will cover two major things: your office and your personal property (such as your computer). Your office, if you own it, should be covered under a policy that will pay you for the following:

1. Rebuilding or repairing your office
2. Extra expenses incurred for renting a space while your office is being rebuilt
3. Removing debris
4. Bringing your office up to code, if it is needed

Obviously, if you lease space, this is not necessary. If you are a home office lawyer, you may want to see if your "office" is covered or excluded by your insurance policy. Your personal property, sometimes called business personal property or BPP, should be covered for:

1. Replacing or repairing your personal property
2. Extra expenses incurred with recreating data

You may also want to consider coverage for lost income while your practice is closed. This will help you if you are down for a week or a month or longer while trying to get your practice back up and running.

Casualty insurance pays for injuries to another person. Your business policy should provide $1,000,000 or more in liability coverage. If someone is injured on your property, this will pay to defend you and pay any judgment against you. You should also consider med pay, or medical payments coverage, which will pay the medical bills of someone injured on your property without regard to fault. (Imagine a client comes in and is injured when they do something not so bright. You can now have their medical bills paid, and you do not have to worry about losing the client over this.) Since med pay coverage is cheap, I recommend it for most of my business clients.

Another form of casualty insurance is auto insurance. (Technically, it is both since it will pay for damage to your vehicle if you are in an accident.) Your personal auto policy may not cover you if you are involved in an accident. You need to check this. If you are not covered by your personal auto policy, then you need to make sure you have a commercial auto policy. Again, I recommend a $1,000,000 limit. (Face it, as an attorney you are a target defendant. Don't be cheap on something that can protect you.)

Finally, you may want to consider an umbrella policy. For $200 to $300 per year, you can get an extra $1,000,000 of coverage. This will pay if you injure someone and it is more than your underlying coverage limit. For example, the plaintiff slips in your office on your wet floor that has no signage and strikes his head, going into a coma. You have a $1,000,000 commercial liability policy and a $1,000,000 umbrella. The plaintiff can now recover $2,000,000 instead of $1,000,000. This extra coverage can be cheap if someone is seriously hurt.

E&O coverage is important, no, vital, for your practice. However, you need to make sure that you have the other insurance coverages as well so that your practice can continue to run in case of damage to your property or to someone else.

--------Jonathan

Why do we treat our clients like they do not matter?

I had two people in the last day come up to me with similar stories. The basic version: "I hired my attorney 2 months ago. I have not heard from him/her. I have never received a bill. I do not know what they are doing, but I paid them $X,000 up front and I cannot afford another attorney. What do I do?"

I always give them the same advice: Call or write your attorney, ask for a full copy of your file and an accounting. See what they have done and what they have charged you for. If you are still not happy, ask for a refund of either the entire retainer or the unused portion (depending on how unhappy you are) and find a new attorney.

Which leads me to this: Why are there so many attorneys who forget that our clients are the bread and butter of our practice? I wish I had an answer. I don't. I can tell you this:

1. Clients do not like being ignored. When a client is ignored, they are more likely to file a complaint with the state bar.
2. Clients file complaints for malpractice when they are not kept up to date.
3. Clients who are not happy will tell their friends that they are not happy.
4. More importantly, clients who are not happy will tell other attorneys, who may advise them to go to the State Bar or to file a malpractice claim.
5. Clients who are not happy will not pay your bill. I know there are books with secrets to write great bills that clients rush to pay. Here is my entire book: TAKE CARE OF YOUR CLIENT SO THAT THEY ARE HAPPY. I have never had a happy client refuse to pay me.

Keeping clients happy is not an optional thing for lawyers. Clients are your lifeblood. You must keep clients happy to keep your practice thriving - especially as a solo. Take care of your clients and things have a way of taking care of themselves.

-----Jonathan

What Area of Law Should You Practice In?

I received a call today from a law student. I happened to know this person from when she was a law student. She decided to open her own practice, but was unsure of what to do. She was always sure she wanted to work at a firm, but now that she has passed the bar, she has decided to try life as a solo. Her problem: she never really had a focus in law school and did not know what area of law she wanted to practice in.

I talked to her for some time about her likes and dislikes. It was obvious that certain areas of law were out. She does not want to deal with trials for a variety of very good reasons. She does not want to handle corporate law. But she had a few areas that sounded good to her, including estate planning, family law, and intellectual property.

I then posed to her a very simple question that you should ask yourself: What would her malpractice insurance cost? (I know, I have written about it before. But here is another angle.) Her answer was that she did not know.

Before you open your firm, you need to know your costs, so you can figure out your business plan. If you are like this woman, and you do not know what to do, this may be a consideration. The ABA just released a study of malpractice claims. (The link is to Ed Poll's blog, where I first read about it.) Personal injury and real estate law have the highest percentage of complaints. And almost 28% of complaints arise from poor management.

My point: if you will not qualify for a malpractice policy for a general practitioner, and you do not know what area of law you want to practice in, you may want to call around and find out what your insurance is going to cost. The difference between a $500 or $1,000 per year policy and a $5,000 per year policy, may make a difference in your choice.

---------Jonathan

E&O Insurance Top 10 list

Thanks to a post I read on a Google group, I present my top 10 list of things you need to know about E&O (commonly called Malpractice) insurance:

10. BUY FOR YOUR PRACTICE AREA. (In other words, dont buy a policy for a criminal defense attorney if you are only going to take 1 criminal defense case. Yes, people do it. Yes, you can buy for your practice area. My carrier offers 10 different choices alone!)

9. DO NOT SHOP PRICE ALONE. (Thats right. Do not do it.  Price is a consideration, but paying the lowest for premium does you no good when the carrier goes under. Shop for an A or A+ rated carrier with a good history.)

8. READ YOUR POLICY. (Some policies require you to report every POTENTIAL claim. Some just require you report actual claims. Some require you to notify them of bar complaints. You dont know what is required until you read your policy.)

7. CLAIMS MADE v. OCCURRENCE (Some policies will cover you for any claim made during the policy period. Some policies cover you if a loss occurs during the policy period, regardless of whether a clami is filed. Figure out which is best for you.)

6. GET A TAIL. (If you have a claims made policy and you retire or change to an occurrence policy, you will need a tail. This provides coverage for you if a claim is made after your policy expired. If you switch to an occurrence policy, the occurrrence policy will not cover you because the occurrence will have occurred prior to the policy taking effect.)

5. PUT AWAY YOUR DEDUCTIBLE. (Yes, you need to have your deductible saved. You may have to come up with it in a pinch, and not having it would then be a bad thing!)

4. WHAT ABOUT DEFENSE COSTS? {What? Huh? Some policies will reduce the amount of coverage for defense costs. Here is an example: Lets say you have a $100,000 policy. The insurance company pays out $20,000 in defense costs. The policy wlil then only pay out $80,000 in indemnity. Does your policy do this?)

3. DOES YOUR LIMIT REDUCE FOR EACH CLAIM? (Unlike most auto policies or umbrella policies, some E&O policies will reduce the amount available for future claims based on the amount paid on prior claims. Another example: You have a $1,000,000 policy. You have a claim and the insurance company pays out $50,000. For the next claim, you only have a limit of $950,000.)

2. WHERE IS YOUR POLICY? (Too many people do not know where their policy is. Follow the lead of my friend Scott Barer - scan your policy. Then just keep the dec page. You may need the policy one day and you do not want to rely on your insurance company to provide it!)

1. IT AINT YOUR FATHERS INSURANCE POLICY. (This is a different beast altogether. It doesnt matter if you call yourself an insurance defense attorney or a contracts attorney or whatever. This policy is completely different from anything else you may have had or read. If you dont understand what you are buying, call an expert and spend some money making sure you are buying what you need. The potential consequences of having the wrong policy are too great.)

And as a bonus...........

Remember, this policy will not cover you if you are involved in an auto accident while working. It will not cover you if someone is hurt in your office. And it will not cover you if your office burns up or your property is stolen. You still need other coverages. (Which will be discussed in another post!)