The State Bar of California
New Rule 3-410 (Disclosure of Professional Liability Insurance) of the
Rules of Professional Conduct of the State Bar of California
FAQs
1) Q: What is the new insurance disclosure requirement?
A: Under a new Rule of Professional Conduct, a lawyer who does not have
professional liability insurance must inform a client, in writing, at the time of the
engagement, that the lawyer does not have such insurance.
The rule’s key provisions are:
(1) written notification that a lawyer does not have professional liability insurance must
be made at the time a client hires the lawyer, if it is “reasonably foreseeable” that the
representation will exceed four hours;
(2) if the insurance coverage later lapses during the representation, the lawyer must
inform the client in writing within 30 days of the time that the lawyer no longer has
insurance;
(3) the rule does not apply to a lawyer who is employed as a government lawyer or as
an in-house counsel when that lawyer is representing a client in that capacity;
(4) the rule does not apply to legal services given in an emergency to avoid prejudice to
a client’s rights or interests; and
(5) the rule does not apply if the lawyer previously informed the same client that the
lawyer does not have insurance.
Note that the rule is limited to situations in which a lawyer does not have professional
liability insurance for an engagement that reasonably foreseeably will exceed four
hours, and that the rule only requires a disclosure in writing from the lawyer to a client.
In addition, disclosure is required regardless of the nature of the lawyer-client fee
agreement and thus includes flat fee and contingency fee arrangements as well as
hourly fee arrangements.
2) Q: When does the new insurance disclosure requirement become
operative?
A: The rule was adopted by order of the California Supreme Court dated August
26, 2009 to become effective on January 1, 2010.
3) Q: Does the new insurance disclosure requirement apply if a lawyer does
not have his or her own professional liability insurance, but is nonetheless
covered by the professional liability insurance policy of another person or
entity?
A: If a lawyer is covered by professional liability insurance – for example an
insurance policy of an employer or other entity – then disclosure is not required under
the rule, even though the lawyer does not have his or her own insurance or is not the
individual policy holder.
4) Q: What if a lawyer has professional liability insurance at the time of the
engagement and also throughout the lawyer’s performance of the services
contemplated, but thereafter the lawyer does not renew the policy or the
policy otherwise lapses or terminates prior to any professional liability
claim being asserted by the client against the lawyer?
A: The rule imposes a disclosure obligation if the lawyer no longer has
professional liability insurance “during the representation of the client.” Thus, it is
necessary to analyze whether the lawyer is still representing the client, e.g., if some act
remains to be done in relation to the representation. If the lawyer has completed the
engagement and communicated this to the client, no disclosure would be required.
However, if the engagement has not been closed, or if further action by the lawyer or by
a court or agency is anticipated, then it might be asserted that the client’s representation
remains pending and therefore written disclosure is required under Rule 3-410(B).
Moreover, if the terms of a lawyer’s retention agreement leave the scope of
representation open-ended in order to handle future matters for the client on an ad hoc
or as needed basis, or for any other reason, the lawyer assumes an obligation of
ongoing compliance with Rule 3-410 until the client’s representation comes to an end.
5) Q: What happens if the operation of the terms of an insurance policy
results in only nominal coverage (i.e., less than $100) at a certain point of
time during a client’s representation?
A: If a lawyer has insurance at the time of the client’s engagement of the lawyer,
then disclosure is not required. The rule does not specify any minimum amount of
indemnity that must be available to protect a client. However, a lawyer’s general
obligation to maintain good client communication militates in favor of informing a client if
that client has a mistaken belief that coverage is present in some specific amount. Also,
if coverage drops to zero, then the lawyer no longer has insurance for purposes of the
rule, requiring the lawyer to make disclosure to the client under paragraph (B) of Rule 3-
410.
6) Q: Isn’t there an existing insurance disclosure requirement imposed by
statute?
A: No. From January 1993 until January 2000, statutes in the Business and
Professions Code contained provisions requiring disclosure of lack of insurance in
written fee agreements. These former insurance disclosure requirements were
repealed by their own terms on January 1, 2000. As discussed in question 10 below,
unlike the former statutory requirement, the new rule does not require that the written
disclosure be included in the lawyer’s written fee agreement, but the fee agreement may
contain the required disclosure.
7) Q: Is a lawyer subject to discipline for failure to comply with the new
insurance disclosure requirement?
A: Yes, failure to comply with the new rule subjects a lawyer to discipline (see,
generally, Business and Professions Code §6077).
8) Q: Is California the only state with an insurance disclosure rule for
lawyers?
A: No. As of November 2008, when the new rule was submitted by the State Bar
to the California Supreme Court for approval, the State Bar reported that twenty-four
states had adopted an insurance disclosure rule.
9) Q: What about lawyers who practice as a law corporation or LLP, or a self-
insured lawyer?
A: The former statutory insurance disclosure requirement expressly addressed
the financial responsibility standards imposed on certified law corporations and an
option for self-insurance of non-law corporation practitioners by filing with the State Bar
an executed copy of a written agreement guaranteeing payment of all claims against an
attorney (see the 1999 version of repealed Business and Professions Code
§6148(a)(4)(A), (B) and (C)). In contrast, the new rule requires that services be covered
by a policy of insurance and does not include an exception for self-insurance or a law
corporation that does not have insurance. Similarly, the new rule does not include an
exception for a Limited Liability Partnership (LLP) that does not have insurance.
10) Q: Do lawyers have to submit a copy of their insurance policy or any other
proof of compliance to the State Bar?
A: No. The new rule is different from the former statutory insurance disclosure
requirement that included a self-insurance option with a State Bar filing requirement for
the lawyer’s executed written guarantee of payment of all client claims. The new rule
does not provide for a self-insurance compliance option and there is no filing
requirement.
11) Q: Does the Bar offer a form or template for complying with the new rule?
A: Comment [2] and Comment [3] to the rule provide compliance language for
the disclosure requirement. Although written disclosure may be included in a written fee
agreement, it is not required. To provide a sample disclosure in a written fee
agreement, the State Bar is considering a possible addition to the Bar’s current sample
written fee agreements.
12) Q: Does the new rule apply to services rendered on a pro bono basis?
A: Yes, the rule applies as there is no exception in the rule for services rendered
on a pro bono basis. However, note that if the pro bono services are covered by
insurance because, for example, the lawyer is providing services under the auspices of
a non-profit legal services program with insurance that covers the services being
provided by participating lawyers, then no disclosure would be required under the rule
even though the lawyer is not the insurance policy holder. (See also, question 3
above.)
13) Q: Does the exemption covering all government and in-house work apply
to any and all legal services performed by such lawyers, including work
performed for non-employer clients whether for additional compensation or
pro bono ?
A: No, see Comment [4] to the rule. The rationale for the exception extends only
to services rendered in the course and scope of a lawyer’s government or in-house
employment. Therefore, government or in-house lawyers must comply with the new
insurance disclosure requirement when performing legal services for a client outside the
scope of the government or in-house employment.
14) Q: Is the new rule retroactive such that a lawyer is required under the rule
to provide disclosure to relevant existing clients when the rule became
effective on January 1, 2010?
A: No. The issue of application of the rule to existing clients was specifically
discussed by the Insurance Disclosure Task Force. The proposed rule originally
circulated for public comment would have required notice to “existing clients” within 30
days of the effective date of the new rule, but that concept and the implementing
language was deleted in response to public comments. Accordingly, Comment [1] to
the rule clarifies that the disclosure requirement applies with respect to “new clients and
new engagements with returning clients.”
15) Q: Rule 3-410 contains an exception (E) “where the member has previously
advised the client under Paragraph (A) or (B) that the member does not have
professional liability insurance.” Does this mean that so long as a given client
has been advised appropriately at any earlier time, including at a time prior to the
effective date of Rule 3-410, no further disclosure is needed to comply with the
rule?
A: No. By its terms, this exception requires that the prior disclosure must have
been made “under Paragraph (A) or (B)” of Rule 3-410. Because Rule 3-410 was not
effective until January 1, 2010, disclosures made to clients before that date would not
be in compliance with the rule itself. As discussed in question 14 above, effective
January 1, 2010, the disclosure requirement in Rule 3-410 applies with respect to “new
clients and new engagements with returning clients.” Although disclosures made to
clients prior to the effective date of Rule 3-410 might be consistent with the public policy
underlying the rule, it is not clear that such disclosures would constitute substantial
compliance with the rule. In contrast, if a required disclosure is made with respect to a
new client or a new engagement with a returning client after January 1, 2010, then
consistent with Paragraph (E) no additional or subsequent disclosure would be required
to that same client during the course of that same engagement.
