Lawyers battle over state malpractice proposal

A hot issue among California lawyers -- whether tens of thousands of them should be required to tell prospective clients that they carry no malpractice insurance -- isn't just a legal abstraction to San Francisco attorney Paul Frassetto or the destitute businessman who recently approached him.

As Frassetto described it, the man had spent years refurbishing a low-rent San Francisco hotel to qualify it for a city-funded temporary housing program, and ran out of money as he finished the repairs. When he tried to file for bankruptcy, a local attorney mishandled the filing, the lender foreclosed on the building and the client lost his life's savings, more than $1 million in equity, Frassetto said.

It was only then that the client, whom Frassetto declined to identify, learned that his lawyer had no malpractice insurance or other assets that would cover his losses, he said.

Frassetto, who has spent the last 20 years suing fellow lawyers, said he has agreed to handle the man's malpractice case. But that's unusual, he said -- for the most part, he and his colleagues won't sign onto lawsuits against uninsured lawyers because their fees depend on winning an award for damages, and there's little prospect of collecting damages from an attorney without coverage. The clients, he said, are generally out of luck.

Such horror stories would be less common, Frassetto said, if the State Bar adopted a proposal before it to require lawyers who have no malpractice insurance to notify prospective clients of that fact, as well as the bar. The bar would post that information on its Web site.

"It's unfair to a client for a lawyer to represent them without having insurance," Frassetto said. Requiring lawyers to disclose that they don't have coverage "at least would let the client make an informed decision."

But opponents say such a rule would actually hurt more consumers than it helps.

Los Angeles attorney Diane Karpman, who writes a legal ethics column for the State Bar Journal, said the proposal would hit hardest at the lawyers least likely to be insured, those who represent lower-income clients and middle-income clients in small or one-person firms. Some would lose business; others would buy coverage to avoid public stigma, adding $4,000 to $7,000 a year to their operating costs, she said.

"Who's going to end up paying this? The poor and the middle class," Karpman said.

Her views are widely shared among lawyers. Nearly 80 percent of the more than 100 attorneys who have commented on the proposal to the bar oppose it. A resolution denouncing the plan was approved overwhelmingly by delegates of local bar associations at last year's State Bar convention.

"It sets up a two-tiered bar, those with insurance and those without," said Los Angeles attorney J. Anthony Vittal, co-author of the resolution with Karpman.

Another critic, attorney John Dutton of Auburn (Placer County), is a member of the State Bar Board of Governors, which is scheduled to take up the issue this fall. He said the proposal would unfairly brand uninsured lawyers with a "scarlet letter."

Malpractice insurance protects clients who lose money because of a lawyer's negligence -- missing a filing deadline, for example, or providing incompetent representation that affects the outcome of a case.

A lawyer's insurance status is "a highly relevant piece of information that a new client deserves to know," said San Jose attorney James Towery, a former State Bar president and head of a task force that drafted the proposal.

The proposed California requirement would be the most stringent of its kind in the nation.

Only one state, Oregon, requires lawyers to carry malpractice insurance. Twenty other states have insurance disclosure rules, but none requires that lawyers notify both the bar and their clients, officials say.

Most of California's 142,000 private lawyers are insured through their firms, but State Bar officials say about 1 in 5 is uninsured. Nearly all of those are in one-person or small firms, said bar official Starr Babcock.

The proposal before the bar's governing board would require that uninsured lawyers notify new clients and the bar, which could suspend lawyers who failed to comply.

The bar's Web site now lists lawyers' educational backgrounds and fields of specialty, and states whether they have been disciplined for misconduct. No public agency keeps records showing whether a lawyer has been successfully sued for malpractice.

Towery, who was appointed by the State Bar's then-President John Van de Kamp in 2005 to lead the organization's task force on malpractice insurance, acknowledged that mandatory disclosure would chiefly affect lawyers who practice by themselves or in small firms. But he said those lawyers' clients are among the ones most in need of protection against legal blunders.

Towery, a partner in a corporate firm, said small-firm lawyers typically handle cases involving issues such as consumer law, personal injuries, immigration, bankruptcy and family law. "When those lawyers make mistakes and don't have insurance, it really creates the potential to cause harm," he said.

But co-author Vittal, who handles business litigation as the sole lawyer in his Los Angeles firm, said compulsory disclosure would cause more harm than good. Prospective clients who learn that a lawyer is uninsured will probably be misled into thinking the lawyer is incompetent and go elsewhere, he said. Clients who get no such notice may be reassured, but they won't know whether their lawyers' insurance is enough to cover their cases.

The result, he said, will be that some lawyers serving needy clients will lose their practices, others will face discipline for conduct that "has nothing to do with ethics," and the bar will have done nothing to make insurance more available or affordable.

Babcock, who oversees the bar's low-cost insurance program for new lawyers, agreed that the organization "ought to have some kind of carrier of last resort." But he said such a program might require legislative action.

He said the disclosure proposal, now in its final round of public comment, would go before the Board of Governors for a vote in November and, if approved, would be submitted to the state Supreme Court for final review. Implementation is probably at least a year away, Babcock said.

Online resources

Information about the State Bar's proposal to require lawyers to reveal that they don't carry malpractice insurance can be found at:

links.sfgate.com/ZHJ
by:bob egelko, chronicle staff writer