California Lawyers E&O Insurance Requirement
Although the purpose of lawyers is to ensure protection to their best ability for their client's case, sometimes lawyers make mistakes that negatively impact their clients. In instances where lawyers perform negligently, resulting in a lawsuit by a client, lawyers need their own form of protection. Errors and omissions insurance protects lawyers in situations where clients pursue lawsuits. The State Bar of California has set requirements regarding errors and omissions insurance for practicing lawyers.
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Function
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Errors and omissions insurance, which is commonly known as E&O insurance, is a form of insurance coverage for professionals, such as lawyers. E&O insurance is sometimes called malpractice insurance or professional liability insurance. E&O insurance protects professionals who give educated and professional advice that did not work favorable for the client from lawsuits. E&O insurance ensures protection and representation from a professional's error or negligence in handling the case.
Significance
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Before lawyers can be registered with the state, the State Bar of California requires cooperation regarding E&O insurance. Section A, Line 7 of the State Bar of California requirements for an issuance of a certificate of registration states it is necessary that an "applicant has provided and will maintain in effect security for claims against it by its clients for errors and omissions arising out of the practice of law as required by Section B of this Rule IV."
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Considerations
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According to the California State Bar Certificate of Registration, any law corporation registered before October 27, 1971, that faces a security for claims against it by its clients because of errors or omissions should possess a "policy or policies of insurance insuring the corporation against liability imposed upon it by law for damages arising out of claims against it by its clients for errors and omissions ... for each claim of at $50,000 multiplied by the number of its employees who are practicing law and an aggregate maximum limit of liability per policy year of at least $100,000 multiplied by the number of its employees practicing law." However, law corporations that registered after October 27, 1971, and face security for claims against it by its clients for errors or omissions "arising out of the practice of law shall consist of an executed copy of the agreement specified in subsection (1) (c) of this Section B.
Benefits
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Some lawyers receive their clients through a lawyer referral service, which is a service usually offered by local and state bar associations that recommends private practice lawyers or legal organizations. A lawyer referral service recommends successful lawyers in particular areas of law, such as bankruptcy law or family law. In order for a lawyer to be part of a certified lawyer referral service, she must possess "a policy of errors and omissions insurance in an amount not less than one hundred thousand dollars ($100,000) for each occurrence and three hundred thousand dollars ($300,000) aggregate, per year." Therefore E&O insurance plans can be beneficial to advancing one's legal career by allowing a venue such as a lawyer referral service to obtain more clients.
Time Frame
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Similar to car or health insurance, the most advantageous time to purchase an errors & omissions insurance policy is before any current or past client has attempted to pursue a lawsuit. The advantage of purchasing the E&O insurance before any lawsuits is the lawyer will not be considered high-risk and will receive a lower insurance rate.
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