When must a Washington lawyer disclose to clients that they lack minimum malpractice insurance under RPC 1.4(c)?

Plain-English summary

The opinion answers seven questions about RPC 1.4(c), a rule the Washington Supreme Court adopted effective September 1, 2021, requiring a lawyer whose malpractice insurance does not meet minimum levels ($100,000 per occurrence and $300,000 in the aggregate) to disclose that to clients and prospective clients and obtain written informed consent. The rule applies to active WSBA members, emeritus pro bono lawyers, and APR 3(g) visiting lawyers, and exempts certain judges, arbitrators, mediators, single-entity in-house counsel, government lawyers acting as such, and adequately insured nonprofit and volunteer lawyers.

On retroactivity, the committee concludes RPC 1.4(c) does not apply to representations that commenced before September 1, 2021, because the rule requires notice only "before or at the time of commencing representation." However, an insured lawyer whose policy lapses or is terminated during a representation must give the termination notice even if the representation began earlier. On coverage, the opinion concludes that a wholly self-insured lawyer is "going bare" and must comply, while coverage through a captive insurer, risk retention group, or similar entity in good standing generally satisfies the rule; a policy with a self-insured retention or deductible does not by itself violate the rule unless the lawyer cannot pay it. The committee also concludes that the Oregon State Bar Professional Liability Fund, at qualifying levels, meets the rule.

The opinion further concludes that a lawyer doing work entirely unrelated to legal services (as a banker, orchardist, or bartender) is not subject to the rule, but a lawyer providing "law-related services" under RPC 5.7 is subject to it unless the lawyer satisfies RPC 5.7(a)(1) or (a)(2). A private-practice lawyer must comply whether representing one client or many. An in-house lawyer who also represents affiliates of the single employer is within the RPC 1.4(c)(4)(ii) exemption. Finally, a Washington-licensed lawyer is covered regardless of where the lawyer or clients are located, subject to the choice-of-law analysis in RPC 8.5(b).

In practice

Under this opinion, a Washington lawyer evaluating RPC 1.4(c) starts by asking whether coverage meets the $100,000/$300,000 minimum. If it does not, the rule requires written disclosure and informed consent at the outset of new representations and, for a policy that lapses mid-representation, within 30 days. The opinion holds the rule is not retroactive to representations that began before September 1, 2021, except for the lapse-notice duty.

The opinion applies the rule's exemptions to specific situations: single-entity in-house counsel (including representation of the employer's controlled affiliates) are exempt, while a private-practice lawyer is covered regardless of client count or location. A lawyer providing only law-related services is covered unless the lawyer makes the RPC 5.7(a) disclosures that the work is not legal services.

Common questions

Q: Does RPC 1.4(c) require me to notify clients I already had before September 1, 2021?

A: No, not for the initial disclosure. The opinion concludes the rule is not retroactive because it requires notice only before or at the time of commencing representation. But if you were insured and your policy lapses or is terminated during the representation, you must give the lapse notice even to pre-existing clients.

Q: I am self-insured. Does that count as malpractice insurance?

A: The opinion concludes that a lawyer or firm wholly self-insured with personal or corporate assets and no malpractice policy is "going bare" and must comply with the notice and consent requirements. Coverage through a captive insurer, risk retention group, or similar entity in good standing generally satisfies the rule.

Q: Does a policy with a high deductible or self-insured retention violate the rule?

A: Not by itself. The opinion concludes a self-insured retention, reserve, or deductible does not violate the rule unless the lawyer knows or has reason to know it cannot be paid if a loss occurs, in which case coverage is treated as insufficient.

Q: I am in-house counsel for one company and also advise its subsidiaries. Do I have to disclose?

A: No. The opinion applies RPC 1.4(c)(4)(ii), which exempts in-house counsel for a single entity, and concludes that representing the employer's controlled affiliates within the scope of employment remains within the exemption, subject to conflict-of-interest rules.

Q: I am licensed in Washington but practice elsewhere with no Washington clients. Am I covered?

A: Yes. The opinion concludes RPC 1.4(c) defines "lawyer" as an active WSBA member regardless of office location or client location, with the application to out-of-state practice determined by the choice-of-law provisions of RPC 8.5(b).

Background and rules framework

The opinion interprets RPC 1.4(c), Washington's malpractice-insurance disclosure rule (a state addition without a direct Model Rule counterpart, situated within Model Rule 1.4's communication framework), together with RPC 5.5(d)(1) on in-house counsel admitted elsewhere, RPC 5.7 on law-related services, and RPC 8.5(b) on choice of law. The rule sets the minimum coverage at $100,000 per occurrence and $300,000 in the aggregate and became effective September 1, 2021.

The opinion relies on the rule's own text and comments, including Comment [9] (deductibles and self-insured retentions), Comment [10] (out-of-state application via RPC 8.5(b)), and RPC 5.5 Comment [16] (in-house representation of affiliates).

Citations and references

Rules of Professional Conduct:

• MR 1.4 / WA RPC 1.4(c) (malpractice insurance disclosure)
• MR 5.5 / WA RPC 5.5(d)(1) (in-house counsel not admitted in Washington)
• MR 5.7 / WA RPC 5.7 (law-related services)
• MR 8.5 / WA RPC 8.5(b) (choice of law)

Statutes:

• ORS 9.080 (creation of the Oregon State Bar Professional Liability Fund)

See also

• ABA Formal Op. 481: Duty to Inform Client of Material Error

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1701

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 202202
Year Issued: 2022
RPCs: 1.4(c), 5.5(d)(1), 5.7, 8.5(b)
Subject: Malpractice Insurance Disclosure Requirements

FACTS: The Washington State Supreme Court recently adopted a new Rule 1.4(c) of the Rules of Professional Conduct. RPC 1.4 focuses on communication from a lawyer to a client so the client can make informed decisions regarding the representation. RPC 1.4(c) requires disclosure of a lawyer's malpractice insurance status to clients and prospective clients if the lawyer's professional liability insurance ("malpractice insurance") does not meet minimum levels. A lawyer must promptly obtain written informed consent from each client, and within 30 days obtain similar consent from each client when the lawyer's malpractice insurance policy lapses or is terminated. The minimum levels are $100,000 per occurrence and $300,000 in the aggregate. Affected lawyers include lawyers with an active status in the Washington State Bar Association ("WSBA"), emeritus pro bono status lawyers, and visiting lawyers permitted to engage in limited practice under APR 3(g). The disclosure requirements do not apply to judges, arbitrators, and mediators not otherwise engaged in the practice of law; in-house counsel for a single entity; government lawyers practicing in that capacity; and employee lawyers of nonprofit legal services organizations, or volunteer lawyers, when those lawyers are provided malpractice insurance coverage at the minimum levels. RPC 1.4(c) became effective September 1, 2021. The WSBA has received several questions regarding the meaning and applicability of RPC 1.4(c). These questions are addressed below.

QUESTIONS: 1. Does RPC 1.4(c) apply retroactively to existing clients of uninsured lawyers, or to new clients only? If an insured lawyer's insurance policy lapses or is terminated, must the lawyer disclose that fact and obtain waivers from all existing clients, including those who had engaged the lawyer prior to the effective date of the new rule? RPC 1.4(c) does not apply retroactively to an uninsured lawyer's clients whose representation commenced prior to the effective date of RPC 1.4(c), i.e., September 1, 2021. Indeed, RPC 1.4(c)(1) on its face requires an attorney to notify a client in writing of the absence of such insurance coverage only "before or at the time of commencing representation of a client," and thus the rule does not require notice of the absence of such insurance with respect to representation that commenced prior to September 1, 2021. With respect to the lawyer who is insured as of September 1, 2021, whose insurance policy lapses or is terminated during the representation, the duties set forth in the second and third sentences of RPC 1.4(c)(1) will apply. There is no language in those sentences which exempts an insured lawyer from the termination-of-policy notice requirements, even if the representation had commenced prior to September 1, 2021.

2. If a lawyer or law firm is "self-insured" at or exceeding the minimum coverage levels through the accumulation of reserved amounts or retentions, or covered by a "captive insurer," is that sufficient coverage by lawyer professional liability insurance as defined in RPC 1.4(c)? A lawyer or firm that decides to be wholly "self-insured" with personal or corporate assets and otherwise is without a malpractice policy issued by an insurance company, is "not covered by lawyer professional liability insurance" under RPC 1.4(c). Such an attorney or law firm essentially is "going bare," and therefore must comply with the notice and consent provisions of RPC 1.4(c). RPC 1.4(c)'s reference to "lawyer professional liability insurance" generally means coverage under a malpractice policy offered through the private, competitive insurance marketplace. However, there is nothing in RPC 1.4(c) that precludes insurance coverage from a "captive insurer," "risk retention group," "insurance purchasing group," or some other insurance entity that is in good standing, chartered or licensed as an insurer in its domicile jurisdiction, has assets that exceed its liabilities, has the ability to pay claims, and complies with all applicable statutory and regulatory requirements. A lawyer or law firm insured by such an insurance entity generally does not violate RPC 1.4(c). A liability insurance policy with a self-insured retention, reserve, or deductible, does not by itself violate RPC 1.4(c). However, as noted in Comment [9] of the rule, if the lawyer knows or has reason to know the deductible or self-insured retention cannot be paid by the lawyer or the law firm if a loss occurs, the attorney or firm's insurance coverage is insufficient to meet the minimum dollar amounts set forth in RPC 1.4(c).

3. Is coverage by a professional liability fund such as the Oregon State Bar Professional Liability Fund (PLF) "lawyer professional liability insurance" within the meaning of RPC 1.4(c)? The PLF website describes the PLF as follows: For over forty years, the Oregon State Bar Professional Liability Fund (PLF) has provided malpractice coverage to lawyers in private practice in the state of Oregon. The PLF is a unique organization within the United States. The Oregon State Bar Board of Governors created the PLF in 1977 pursuant to state statute (ORS 9.080) and with approval of the OSB membership. The PLF began operation on July 1, 1978, and has been the mandatory provider of primary malpractice coverage for Oregon lawyers since that date. Though a handful of other states in the U.S. require malpractice coverage for lawyers, Oregon is the only state that provides that coverage through a mandatory bar-related program. www.osbplf.org/about/who-we-are.html 11/21/2021. Based on this description and the answer to Question 2 above, coverage by the PLF at or exceeding the minimum levels required by RPC 1.4(c) meets the requirements of the Rule.

4. Are lawyers who only provide non-legal services, or "law-related services" as defined RPC 5.7, subject to RPC 1.4(c)'s disclosure and waiver requirements? A Washington licensed lawyer whose work is entirely unrelated to legal services would not be subject to the disclosure provisions of RPC 1.4(c). RPC 1.4(c)(4) implicitly establishes that the disclosure requirements apply to active members of the Washington State Bar Association who are engaged in the practice of law. A lawyer who provides no legal services and provides no legal advice, but instead only works, for example, as a commercial banker, an orchardist or a bartender, is not required to comply with the RPC 1.4(c) disclosure requirements. RPC 5.7(b) denotes "law-related services" as services that "might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer." Typical law-related services include title insurance and real estate work, legislative lobbying, accounting, financial planning, and certain human resources work. RPC 5.7 Comment [9]. RPC 5.7(a) states that when a lawyer is providing "law-related services," the lawyer will be subject to the RPCs unless those services are provided in circumstances that are clearly distinct from the lawyer's provision of legal services, or unless the lawyer makes it clear to recipients of the services that those are not legal services and that the protections of the client-lawyer relationship do not exist. A lawyer who provides only law-related services, including but not limited to the examples in RPC 5.7 cmt. [9], is subject to the RPCs, including the disclosure requirements of RPC 1.4(c), unless that lawyer complies with the provisions of either RPC 5.7(a)(1) or RPC 5.7(a)(2), i.e., by providing the services in a manner clearly distinct from legal services, or by taking reasonable measures to assure that a person obtaining the law-related services knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist.

5. Is a lawyer in private practice subject to RPC 1.4(c)'s disclosure and waiver requirements if the lawyer represents only one entity, or a group of corporate or LLC entities that are controlled by that single entity? A lawyer in private practice must comply with RPC 1.4(c) whether the lawyer represents a single client or many clients.

6. If a lawyer employed by an entity as in-house counsel advises that entity and also advises other corporate or LLC entities that are controlled by the single entity, will that lawyer be subject to RPC 1.4(c)'s disclosure and waiver requirements? RPC 1.4(c)(4)(ii) provides that the disclosure requirement of RPC 1.4(c)(1) does not apply to "in-house counsel for a single entity." It is not customary for an employee to purchase insurance to cover potential claims by the person's employer. If a lawyer's employer expects the lawyer also to represent its affiliates, such work would be considered within the scope of the lawyer's employment. In that situation, the lawyer must comply with applicable rules governing conflicts of interest, but the lawyer is not required by Rule 1.4(c) to notify the employer's affiliates of the absence of insurance meeting the requirements of this Rule. Cf. RPC 5.5(d)(1) and Comment [16] to RPC 5.5, permitting an in-house lawyer not admitted in Washington to represent the affiliates of the employer, as well as the employer, in circumstances meeting the requirements of that rule.

7. If a Washington licensed lawyer does not represent any clients within Washington State, will that lawyer be subject to RPC 1.4(c)'s disclosure and waiver requirements? Yes. RPC 1.4(c) defines "lawyer" as an active member of the Washington State Bar Association, without regard to the lawyer's office location and without regard as to whether the lawyer's clients are in Washington, in another state, or in another country. With regard to exercise of the disciplinary authority, Comment [10] to RPC 1.4(c) observes that whether the disclosure and notice obligations of that Rule apply to a Washington-licensed lawyer practicing in another jurisdiction is determined by the choice of law provisions of Rule 8.5(b).