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professional liability insurance

Professional liability insurance—sometimes called malpractice insurance or errors and omissions insurance—is insurance that may be purchased by attorneys and law firms to pay the costs of defending legal malpractice claims, and the costs of settling such claims or paying the judgment awarded to a plaintiff on such a claim. Most states do not require attorneys to purchase professional liability insurance, but some states require attorneys who do not carry professional liability insurance to provide notice to their clients of that fact. Some states require attorneys to have their clients sign a written disclosure that the attorney does not have professional liability insurance.

In Texas, attorneys are not mandated by state law to carry professional liability insurance, commonly known as malpractice insurance or errors and omissions insurance. However, the Texas Rules of Professional Conduct require attorneys who do not have professional liability insurance to inform their clients of this lack of coverage in writing if they do not maintain such insurance in amounts of at least $100,000 per occurrence and $300,000 in the aggregate, per year. This disclosure must be made at the time of the client's engagement of the attorney, and the attorney must obtain a signed acknowledgment from the client. Failure to comply with these disclosure requirements can result in disciplinary action by the State Bar of Texas. It is important for clients to be aware of their attorney's insurance status, as it may affect their decision to engage with a particular attorney or law firm.


Texas Statutes & Rules

Texas Government Code, Title 2, Subtitle G, Chapter 82, Subchapter G, Section 82.0651
This statute is relevant because it outlines the requirements for attorneys practicing in Texas regarding notification to clients about their professional liability insurance status.

Under Section 82.0651, an attorney who does not have professional liability insurance is required to inform a client in writing at the time of the client's engagement of the attorney, or at any time the attorney's insurance coverage lapses or terminates. The notice must be acknowledged by the client in writing or be delivered in a manner that provides proof of delivery. This requirement applies to attorneys engaged in private practice who offer legal services directly to the public, and it does not apply to attorneys who are employed by a governmental entity or in-house counsel. Failure to comply with this notification requirement may result in disciplinary action by the State Bar of Texas.

Texas Disciplinary Rules of Professional Conduct, Rule 1.04, Comment 19
This comment to the Texas Disciplinary Rules of Professional Conduct provides guidance on the ethical considerations related to professional liability insurance for attorneys.

Comment 19 to Rule 1.04 of the Texas Disciplinary Rules of Professional Conduct suggests that lawyers should consider obtaining professional liability insurance to protect their clients and themselves. While it does not mandate that attorneys must carry such insurance, it implies that having professional liability insurance is consistent with the lawyer's responsibility to protect their clients' interests. The comment also indicates that lawyers without such insurance should be mindful of their financial responsibility to their clients in the event of a claim of malpractice.

Texas Rules of Disciplinary Procedure, Rule 8.04(a)(11)
This rule is relevant because it addresses the professional misconduct related to the failure to comply with the requirements of professional liability insurance notification.

Rule 8.04(a)(11) of the Texas Rules of Disciplinary Procedure states that it is professional misconduct for a lawyer to violate any provision of the Texas Government Code, Title 2, Subtitle G, Chapter 82, which includes the requirement to notify clients about the status of the lawyer's professional liability insurance. Therefore, an attorney who fails to provide the required notice to clients about not having professional liability insurance may be subject to disciplinary action, including reprimand, suspension, or disbarment.

Federal Statutes & Rules

Federal Rules of Civil Procedure, Rule 11
While not directly mandating professional liability insurance, Rule 11 of the Federal Rules of Civil Procedure is relevant as it sets standards for attorneys' conduct in federal courts, which can relate to legal malpractice claims.

Rule 11 requires attorneys to ensure that pleadings, motions, and other papers filed with the court are not being presented for any improper purpose, such as to harass or cause unnecessary delay. Documents must be supported by evidence, where appropriate, and by a legal theory that is warranted by existing law or a nonfrivolous argument for extending, modifying, or reversing existing law. Violation of Rule 11 can result in sanctions, which may include monetary penalties. While Rule 11 does not directly address professional liability insurance, compliance with Rule 11 can help attorneys avoid conduct that could lead to malpractice claims.

Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act impacts attorneys as it sets forth requirements for attorneys to report evidence of a material violation of securities law or breach of fiduciary duty by the company or any agent thereof.

Under the Sarbanes-Oxley Act, attorneys who represent public companies are required to report up the ladder if they become aware of evidence that the company is engaging in actions that violate securities laws or breach fiduciary duties. Failure to comply with these requirements can lead to professional liability claims. While the Act does not require attorneys to carry professional liability insurance, it establishes standards of conduct that, if violated, could result in claims against attorneys, thereby highlighting the importance of such insurance for legal professionals involved in securities law.

Title 28 U.S. Code § 1927 - Counsel's liability for excessive costs
This statute is relevant as it addresses the liability of attorneys for certain types of conduct in federal court, which could be related to legal malpractice.

28 U.S. Code § 1927 allows federal courts to require an attorney who unreasonably and vexatiously multiplies the proceedings in any case to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct. This statute does not mandate professional liability insurance but highlights the potential financial risks attorneys face when their conduct in court is deemed inappropriate. Professional liability insurance can help cover the costs associated with such sanctions.

American Bar Association Model Rules of Professional Conduct
While not a federal statute, the ABA Model Rules provide a framework for ethical conduct by attorneys, which many states adopt or use as guidance. Violations of these rules can lead to malpractice claims.

The ABA Model Rules of Professional Conduct outline the ethical obligations of attorneys, including competence, diligence, and communication, among others. Violations of these rules can form the basis of legal malpractice claims. Rule 1.4, for example, requires attorneys to inform clients about the status of their case and to promptly comply with reasonable requests for information. Failure to adhere to these rules can result in professional discipline and may also lead to malpractice claims. While the ABA Model Rules do not require professional liability insurance, they underscore the importance of such insurance as a risk management tool for attorneys.