This Insurance Issues:
- reports on the 2014 insurance program and policy revisions
- reviews statistics on claims and potential claims
- highlights new aids to help prevent claims
- reports on a new resource – “My Claim: Questions and answers”
The Lawyers Insurance Fund (LIF) manages the Law Society’s insurance program for BC lawyers. The program provides professional liability insurance for negligence (Part A), trust protection coverage for dishonest appropriation (Part B) and, since January 1, 2012, trust shortage liability insurance for reliance on fraudulent certified cheques (Part C).
Insurance assessment
The insurance fee remains at $1,750 for the fourth consecutive year. In retrospect, we managed to weather the 2008 recession relatively well with only two modest adjustments to the fee. Despite heightened claims activity, we achieved this through effective claims handling, risk management and investment policies. We are optimistic that we will be able to maintain the current fee next year, thanks to last year’s strong investment performance.
The insurance fee in the other Canadian jurisdictions continues to trend upwards. In 2013, BC was one of just four jurisdictions that managed to avoid a fee increase (see chart on page 2). In the other 10 jurisdictions, lawyers saw an average increase of close to $575. We are still unique in charging one flat fee for both negligence (Part A) and theft (Part B) insurance.
Compulsory policy wording
LIF issued a consolidated policy for 2014, which was included with the December 2013 Member’s Manual amendment package.
The wording changes for 2014 are of a housekeeping nature only. Changes made after the last consolidated policy was issued in 2012 are also incorporated.
GENERAL
Some lawyers carry on permanent practices as members of law societies or bars outside of Canada. The word “jurisdiction’s” is added before the words “law society or bar” in Exclusion 8 to ensure that our policy does not respond to any claims that might arise out of that non-Canadian practice.
The reference to “writ of summons” in Condition 4.2 is replaced with “notice of civil claim” to accord with the current Supreme Court Civil Rules. That Condition obliges lawyers to forward proceedings and full information immediately if a claim is made or suit is brought.
Condition 7 is amended to clarify that, in the event of a coverage dispute between the insured and the insurer, each will be solely responsible for their own costs.
Some revisions are also made to the reimbursement provisions set out in Conditions 3 and 10. Although these revisions apply to all parts of the Policy, they relate primarily to recovering Part B theft payments from lawyers. These are addressed in detail under part B below.
LIF’s floor address has changed. Condition 4.1 now references the 8th Floor instead of the 5th when giving us notice of a claim or potential claim. The administrative office reference on the Declarations page is also revised.
Part A: Professional Liability (for negligence)
MOBILITY
The National Mobility Agreement 2013, once implemented, will allow BC lawyers to practise law as members of the Barreau du Quebec, insured in both jurisdictions. In anticipation of implementation, the definition of “reciprocal jurisdiction” is amended to ensure that mobility operates as intended both for the Barreau and the common-law jurisdictions. Implementation is anticipated sometime in 2014, and LIF’s online information on mobility within Canada will be updated at that time.
CYBER RISK
The policy provides coverage for claims arising out of a lawyer’s negligent provision of legal services. However, Exclusion 12 makes it clear that the business risk of a third party accessing confidential information, electronic or paper, is not covered. For 2014, Exclusion 12 is amended to specifically exclude coverage for any claim arising out of or connected to the receipt by or transmission to a third party of malware or malicious code. Malware planted on a computer can not only allow access to confidential information, but can cause additional problems through inadvertent transmission to others.
Commercial insurance is available to protect against cyber risks. Protect yourself. Talk to a broker.
Part B: Trust Protection (for dishonest appropriation)
LEGISLATIVE AMENDMENTS
Changes to two statutes, the Legal Profession Act and the Limitation Act, required us to make consequential changes to policy wording.
Part B responds to claims formerly dealt with by the Special Compensation Fund. The Legal Profession Amendment Act, 2012 recognized that shift by removing all references to the Fund from the Legal Profession Act. As a result, the policy’s definition of “compensation program” is revised to reflect the Fund’s status as a former compensation program.
The Limitation Act applies to Part B claims. With the new Limitation Act’s shorter limitations, LIF is obliged to require notice within six months of the claimant becoming aware of a lawyer’s theft. We retain the discretion to extend that six-month notice period to ensure that no injustice results.
REIMBURSEMENT
If payments are made under Part B, the responsible lawyer must pay LIF back.
Two modifications are made in relation to the reimbursement provisions in Condition 3. First, the provisions are amended slightly to reference that damages or claims expenses “may be paid” or “are paid” rather than “we may pay” or “we pay.” This reflects the fact that payment may be made by either the Law Society or the LSBC Captive Insurance Company Ltd. Second, the Condition’s terms now clarify that amounts owing by the responsible lawyer are payable on demand, with the timing of that demand in our sole discretion. This ensures that the limitation period for suing a lawyer for recovery will not start running until we make demand.
In addition, Condition 10.2 now clarifies that the arbitration clause in relation to policy disputes does not apply to a claim for reimbursement.
As noted above, these revisions also apply to any claim for reimbursement that might be made under Part A or C.
A review of claim and potential claim reports
Part A (negligence)
The chart on page 4 shows the number of reports and their frequency (reports divided by insured lawyers) over the past five years. As in 2012, the 2013 numbers are consistent with those of 2007 and earlier. It appears that frequency has now returned to pre-recession levels.
The two charts on page 5 provide information about the 2013 claims experience based on area of law. The first chart shows the percentage of reports generated by the different areas of practice. As usual, civil litigation – plaintiff and motor vehicle – plaintiff account for almost one third of all reports. This claims activity likely reflects the higher risk of a missed deadline or “settler’s remorse” claim that these areas attract. The second chart shows the areas of practice according to severity – the actual or expected cost of reports. The recession continued to reverberate last year in terms of severity. As in the previous two years, the conveyancing and commercial areas of law accounted for roughly half of all dollars spent or reserved.
Part B (theft)
Since this coverage was introduced in May 2004, total compensation of $757,900 has been paid relating to 61 claims involving 15 different lawyers. Given the 8,000 or so lawyers in private practice, our claims experience continues to demonstrate the very small number of lawyers involved in misappropriations.
In 2013, five claims were paid on behalf of two different lawyers, totalling approximately $16,200. Details of these claims follow:
- Three claims totalling $11,450 were paid on behalf of a lawyer who accepted and kept retainers to defend criminal matters. The lawyer provided either no services or not enough to justify the amounts kept. In the last two years, a total of $17,650 has now been paid on behalf of this lawyer.
- Two claims totalling $4,750 were paid on behalf of a lawyer. In the first, the lawyer acted for an administrator of an estate and misappropriated a portion of estate funds due to the beneficiaries. In the second, the lawyer kept some of the excess mortgage funds that were to go to a corporate owner of two properties on a mortgage refinancing transaction. A total of $189,789 has now been paid on behalf of this lawyer.
These lawyers are no longer members of the Law Society, and both are obliged to reimburse the Society for the amounts paid on their behalf.
In 2013, two claims were not pursued because the clients’ funds were repaid. Other claims were either withdrawn or abandoned by the claimants or did not involve misappropriations. In the remaining reports, the claimants are not actively pursuing a Part B claim, or we are not yet in a position to determine if the claim is properly payable. We also recovered $2,510 on behalf of two lawyers for whom we had paid Part B claims. In addition, we sued two former lawyers for amounts paid under Part B, although we have not yet made any recovery.
2014 marks the 10-year anniversary of the Law Society’s shift from a compensation fund to an insurance model for compensation. Stay tuned for our special report on the first 10 years of Part B’s “Trust Protection Coverage,” to be published later this year.
Part C (trust shortage liability)
LIF has not paid any claims relating to the “bad cheque” scam since Part C insurance was introduced in 2012. Clearly, lawyers are taking seriously the risk of paying good money out of trust on the strength of a phony certified cheque or similar instrument, and are taking appropriate steps to avoid getting caught.
Let’s make it a hat-trick and go a third year without any Part C insurance reports or claims. Review the comprehensive risk management material published on the “bad cheque scam” – including the list of names and documents used by fraudsters in BC – and read the Law Society’s email fraud alerts.
Preventing claims – 2014 initiatives
LIF has two new initiatives in 2014 to help you stay claims-free.
E-summaries: New web resource
The “preventing claims” section of our website provides a wealth of information about preventing mistakes and claims. It is organized according to different risks in areas of law and in practice, such as witnessing signatures and acting for friends and family. Now, to help you more easily find the advice you want, we have created short web summaries of our more detailed articles. For instance, to help lawyers avoid missing a limitation under the new Limitation Act, we published “Ten Tips to Beat the Reset Clock” (Summer 2013 Insurance Issues). It’s full of detailed suggestions, but now you can start with this website summary:
Tips on managing limitations under the new Act
Limitations create risks for lawyers and the new Limitation Act has the potential to increase that risk. Protect yourself by following these tips.
1. Act early. New limitations are generally two years, not six or 10.
2. You may need to educate your clients. They, too, need to act early.
3. Flag and diarize limitations for all remedies relating to a claim – judicial and non judicial (including contractual).
4. Incorporate the shorter limitations into your firm’s electronic diary system.
5. Don’t assume a limitation applies. The new Act expands the old Act’s list of exempted claims.
6. Think outside the new Act box. The applicable limitation may still be found in another statute (and it may be very short).
7. Consider the new Act’s effect on the contracts and agreements you draft.
8. Watch out – three more potential hot spots: claims for contribution or indemnity, demand loans (no fixed conditions of repayment) and medical malpractice claims.
9. If the act or omission occurred before June 1, 2013, remember the transition rules. Even if the discovery is after June 1, 2013, it may still be appropriate to sue before June 1, 2015.
10. Always use a non-retainer, disengagement or wrap-up letter with a limitation warning.
2014 Limitations and Deadlines Quick Reference List: To hit lawyers’ desks in June
This summer, we will deliver another defensive tool to help lawyers guard against missing a deadline. Every lawyer in private practice will receive the 2014 Quick Reference List of various limitations and deadlines in different areas of law. Updated from the 2007 list distributed with Beat the Clock, the 2014 version incorporates legislative and other changes from the past seven years.
“My Claim: Questions and answers”
Last year, we invited you to discover your insurance policy with “My Insurance Policy: Questions and answers.” This online resource uses straightforward language to answer questions such as What exactly is my basic coverage?, What if someone else makes a mistake, not me? and What other claims and activities does my policy cover or exclude? The answers give lawyers important information ranging from how much the policy pays to how retired lawyers are protected. It explains clearly what’s covered and what’s not, and details your responsibilities as an insured lawyer.
This year, we have added another helpful resource to our program information. “My Claim: Questions and answers” uses the same plain language approach as “My Insurance Policy.” The online resource answers questions about the claims-handling process, such as I’ve just reported. What should – or shouldn’t – I do next?, What if my mistake can be fixed? and Will there be a black mark on my professional record with the Law Society if I report a claim? The material answers many of the frequently asked questions that insured lawyers ask us.
We are always happy to answer questions in person, but hope these FAQs will assist lawyers who like the convenience of accessing information online.
2014 and beyond
Last year, we challenged you to take on one new risk management activity to benefit you or your firm. One suggestion was to designate someone at your firm to read every risk management article we publish and brief the firm. Our new web e-summaries make implementing that step even easier. For the 2,500 or so of you who practise alone, consider committing just 10 minutes each week to scrolling through our “preventing claims“ section. We guarantee that much of it will apply to your practice, and give you the tips and information you need to avoid a claim. And you’ll help to keep the cost of the program in check, as the best means of reducing the cost of claims is effective risk management. But most of all, you’ll be helping your clients by delivering the solid, error-free legal services that you both want.