If you're starting or running a law firm in California, you might be surprised to learn that the state doesn't require most attorneys to carry malpractice insurance. But here's the catch: that doesn't mean you should skip it. Understanding California's insurance landscape for law firms is crucial for protecting your practice, staying compliant with state regulations, and maintaining client trust.
While California takes a relatively hands-off approach compared to states like Oregon and Idaho (which mandate malpractice coverage for all attorneys), there are specific situations where insurance becomes legally required. Whether you're structured as an LLP, employing staff, or practicing solo, knowing what's mandatory versus what's optional can save you from costly compliance issues down the road.
Professional Liability Insurance: Who Actually Needs It?
Here's the thing most attorneys don't realize: California's Rules of Professional Conduct don't require you to carry professional liability insurance. Instead, they require something else entirely—disclosure. If you choose to practice without malpractice coverage, you must tell your clients in writing. This disclosure requirement kicks in when you know or reasonably should know that you'll spend more than four hours on a client's case.
But there are important exceptions where insurance becomes mandatory. If your firm is structured as a Limited Liability Partnership (LLP) or you're a shareholder in a professional law corporation, California statute requires you to either carry malpractice insurance or establish alternative financial responsibility arrangements. This isn't a suggestion—it's the law.
For LLPs, California Corporations Code Section 16956 spells out specific coverage amounts. If your partnership has five or fewer licensed attorneys, you need at least $1 million in total aggregate liability coverage. For each additional attorney beyond five, you'll need an extra $100,000 in coverage—though the maximum required amount caps at $5 million. So a 10-attorney LLP would need $1.5 million in coverage, while a 50-attorney firm would need the maximum $5 million.
Despite insurance being optional for most California attorneys, over 90% of those in private practice carry it anyway. Why? Because in any given year, five to six out of every 100 insured lawyers will face a malpractice claim. Those are odds most attorneys aren't willing to gamble with, even if the state doesn't force their hand.
Workers' Compensation: The Non-Negotiable Requirement
Unlike professional liability insurance, workers' compensation insurance isn't optional if you have employees. Whether you're running a two-person operation or a 200-attorney firm, California law requires you to carry workers' comp coverage for all employees. This applies regardless of your firm's legal structure or practice area.
Starting January 1, 2025, California employers must update their workers' compensation posters to comply with Assembly Bill 1870. This new law amends Section 3550 of the California Labor Code and introduces an important change: employees must be informed of their right to consult a licensed attorney regarding workers' compensation claims. Make sure your break room and employee areas display the updated notice.
For 2025, the minimum temporary total disability (TTD) payment is $252.03 per week, while the maximum is $1,680.29 per week. These figures matter because they determine what your workers' comp policy needs to cover when an employee is injured on the job and unable to work.
Disclosure Requirements: What You Must Tell Your Clients
California's Rule 1.4.2 of the Rules of Professional Conduct creates a clear disclosure obligation. If you don't carry professional liability insurance and you're taking on a client matter that will exceed four hours of billable work, you must provide written notice to your client at the outset of the attorney-client relationship. This isn't a casual conversation—it must be in writing.
But here's what catches some attorneys off guard: if you had coverage when you started representing a client but then lost it, you have 30 days to notify that client in writing once you know or reasonably should know about the coverage lapse. Failing to provide this required disclosure can have serious consequences, including potential grounds to void your fee agreement or fee-sharing arrangement.
Think of this disclosure requirement as protecting both you and your clients. It ensures clients can make informed decisions about who represents them, and it protects you from claims that you misled clients about your coverage status. Many attorneys find that simply maintaining insurance is easier than managing ongoing disclosure obligations.
Additional Coverage Considerations for Law Firms
Beyond professional liability and workers' comp, your law firm may need other types of insurance depending on your specific circumstances. If you lease office space, your landlord likely requires commercial general liability insurance—this protects against claims like a client slipping and falling in your office. These policies typically start around $500 to $1,000 annually for small firms.
If your firm owns vehicles or your attorneys use personal vehicles for firm business, you'll need appropriate auto insurance. California requires minimum liability coverage for all vehicles operated or parked on state roads. For firm-owned vehicles, you'll likely want higher limits than the state minimums to adequately protect your practice.
Cyber liability insurance has become increasingly important as law firms digitize client files and face growing cybersecurity threats. While not legally required, a single data breach could cost your firm hundreds of thousands of dollars in notification costs, credit monitoring, legal fees, and potential liability. Many firms now consider cyber coverage as essential as malpractice insurance.
Getting Your Coverage Right: Next Steps
Start by evaluating your firm's legal structure. If you're operating as an LLP or professional corporation, you'll need to meet California's statutory insurance requirements—there's no way around it. Solo practitioners and those in non-LLP associations have more flexibility, but the risk of going uninsured often outweighs the premium savings.
The State Bar of California offers sponsored insurance programs through Calbar Connect, which can be a good starting point for comparing professional liability coverage options. These programs are designed specifically for California attorneys and often provide competitive rates along with coverage tailored to law practice needs.
If you do choose to practice without malpractice insurance, create a system for providing timely written disclosure to clients. This might mean adding standard language to your engagement letters or creating a separate disclosure form. Document everything—if a client ever claims you didn't disclose your uninsured status, you'll need proof that you did.
Running a law firm in California means balancing legal requirements with smart risk management. While the state gives you latitude on professional liability coverage, the reality is that most successful practices prioritize insurance as part of their business foundation. Whether you're launching a new firm or reassessing your current coverage, understanding California's requirements helps you make informed decisions that protect both your practice and your clients.
