This Insurance Issues:
- reports on the 2004 compulsory program and policy;
- reviews statistics on claims and potential claims within the program;
- notes changes to the excess insurance program and the availability of optional business innocent insured coverage;
- lists available services and resources from the Lawyers Insurance Fund;
- summarizes the insurance aspects of the new national mobility agreement of the Federation of Law Societies.
Assessment remains at $1,500
The Benchers have set the 2004 insurance assessment at $1,500 for a fifth consecutive year, the lowest premium since 1986. Maintaining the premium at this level will provide some relief to lawyers who are burdened by significant increases in their excess insurance premiums as a result of the hard insurance market. Stable loss experience and effective management of the program by the Lawyers Insurance Fund has allowed for stability in the assessment, although its long-term sustainability will also depend on the level of the Fund surplus (funds above the stipulated reserve for contingencies) and continued care by lawyers in practice.
Compulsory policy wording
The 2003 compulsory lawyers professional liability insurance policy (the "policy") is renewed for 2004. The 2004 policy wording consists of the consolidated policy issued in 2000 and endorsements issued in 2001, 2002, 2003 and 2004.
The only changes to the wording for 2004 relate to conveyancing practice. These changes simply clarify that, if a BC lawyer gives certain advice pursuant to an opinion issued in compliance with the Western Law Societies Conveyancing Protocol (British Columbia) and that advice turns out to be wrong, the incorrect advice is considered an "error" under the policy. As reported in the 2001 Insurance Issues, the protocol allows a lawyer to provide an opinion to a lender, in certain circumstances, advising the lender that a current building location survey need not be obtained. If a building location defect exists that would have been disclosed by a standard building location survey done prior to the release of the mortgage funds, then that advice is wrong, and the lawyer's insurance is available to respond. These are the wording changes:
- the definition of "error" is amended to include "a protocol error;" and
- a definition of "protocol error" is added.
A copy of the 2004 renewal endorsement is enclosed in this mailing as part of the Member's Manual amendment package. The 2000 consolidated policy and all subsequent endorsements, along with explanatory text, are also available in the Lawyers Insurance Fund section of the Law Society website.
A consolidated policy is planned for May this year. The consolidated policy will incorporate wording changes from the previous endorsements, as well as the new extended Innocent Insured Coverage and some minor wording changes.
Trust protection coverage
As reported in the January-February Benchers' Bulletin, the Benchers have approved implementation of new innocent insured, or "trust protection," coverage.
Effective May 1, 2004, the policy will include coverage not just for negligence (Part A), but for claims arising from the misappropriation of money or property by any BC lawyer related to his or her practice of law (trust protection, or Part B, coverage). If that lawyer practises in partnership, the new Part B coverage will protect any of the lawyer's innocent partners from liability arising from the misappropriation. The Lawyers Insurance Fund will be entitled to seek reimbursement from the responsible lawyer and to subrogate against third parties who also may be liable. An Insurance Issues detailing the specific provisions of the Part B coverage will be published in conjunction with the new policy wording.
Coverage under the 2004 compulsory policy
The program's limits of coverage remain unchanged and continue to provide each insured lawyer with $1 million of coverage for each error, to an annual maximum of $2 million for all errors reported during the year. The deductible remains at $5,000 for a paid claim, increasing to $10,000 for each subsequent paid claim reported within three years. Lawyers can increase the limits of their coverage by purchasing excess insurance privately.
Lawyers Insurance Fund "highly effective" — results of the 2003 claims audit
The results of an independent claims audit of the Lawyers Insurance Fund were delivered to the Benchers last September. A claims audit, required to assist the Benchers in monitoring the insurance operations, is conducted every three years by an auditor experienced in professional liability claims. The audit helps determine whether the Lawyers Insurance Fund is meeting its objective of managing claims in a cost-effective manner, balancing the interests of the public, members of the profession and the Law Society.
In response to a request for proposals, the Audit Committee selected Crawford Adjusters Canada to conduct the 2003 claims audit.
The claims audit included a detailed evaluation of internal documentation, interviews with staff and a formal file audit of a random selection of a proportionate representation of open and closed files. The results of the audit were extremely positive and, on a scale with a maximum score of 3.0 points, the Lawyers Insurance Fund's overall score was 2.9. The auditors reported that:
- the Lawyers Insurance Fund is highly effective at managing and resolving claims in accordance with its mandate;
- staff are highly qualified and experienced, exhibit judgement indicating a superior knowledge of insurance and the law and work within a proactive leadership and management structure that supports the skilful and creative resolution of claims;
- management has developed and implemented sophisticated procedural and communication systems to ensure quality and consistency, while allowing claims counsel considerable latitude in the exercise of individual judgement; and
- staff appropriately and consistently apply both the Fund's reserving strategy and the checks and balances employed by management.
The auditors identified areas of particular strength demonstrated by claims counsel in handling files. At the top of the list were high level skills in negotiating and achieving appropriate settlements and in managing the work of outside defence and repair counsel. The practice of negotiating a preferred rate structure with outside counsel who are experienced in lawyers' malpractice defence work was endorsed as an excellent means of achieving quality and cost control.
The overall results of the audit are perhaps summarized by this statement from the report:
... The Lawyers Insurance Fund has attained a level of quality and consistency that should be the envy of the insurance industry.
A review of claim and potential claim reports
Stability continues to be the hallmark of the program, as illustrated by the charts on page 3. A slight upward movement in the average number of insured lawyers and in the number of reports began in 2002 and continued in 2003. The general upward trend in the average cost of claims over the past 10 years has been gradual, suggesting that significant developments are unlikely. The average cost of claims is based on actuarial estimates that generally tend to fall with the passage of time.
The chart Percentage growth in reports and insured lawyers shows the percentage growth over the past five years. Insured lawyers include both full and part-time lawyers and reports include both claims and potential claims.
Percentage growth in reports and insured lawyers
The chart Number and frequency of reports shows the number of reports and the frequency of reports (reports divided by insured lawyers) over the past five years.
Number and frequency of reports
The chart Average cost of claims shows the average cost per report over the last 10 years, based on the actuary's estimate of expected losses.
Average cost of claims
Optional insurance updates
Change to the Canadian Bar Excess Liability Association (CBELA) excess policy
We have been advised by our insurance consultant that, as of January 1, 2004, the excess professional liability insurance provided by CBELA to law firms is not intended to respond to claims arising from services performed by a firm's lawyer while at a previous firm. A firm can, however, purchase additional coverage that will respond to such claims. The coverage is provided by way of a specific endorsement and may be purchased for an additional premium of 10% of the annual policy premium. Please contact your insurance broker or representative for more information.
Business Innocent Insured Coverage (BIIC) remains available
Firms may purchase optional Business Innocent Insured Coverage from the Lawyers Insurance Fund. This optional insurance coverage is designed to protect innocent lawyers in firms who may face claims that are otherwise uninsured because the business interest of another lawyer at the firm triggers Exclusion 6.2 of the compulsory policy, the "business exclusion" clause. The coverage will apply when partners are unaware, despite reasonable and regular enquiries, that another lawyer in the firm was providing legal services when the business exclusion would apply.
Services and resources from the Lawyers Insurance Fund
Website information
The Lawyers Insurance Fund section of the Law Society's website is an excellent resource for information about the policy and the insurance program.
The site provides information about the compulsory policy, including copies of the insurance policies and endorsements issued since 1999, reporting guidelines for lawyers wishing to report claims or potential claims, a list of staff claims counsel and the practice areas they handle and the names of claims counsel who are "advance ruling" advisors (see next section).
The site also provides information about the BIIC policy, gives online access to recent editions of the Insurance Issues and Alert! bulletins and highlights some of the more recent initiatives undertaken by the Lawyers Insurance Fund, including insurance for approved pro bono services and for public legal services lawyers (those employed by not-for-profit community law offices or public advocacy associations that provide legal services to the public at no cost).
Coverage enquiries and "advance rulings"
Although the compulsory policy provides broad coverage for lawyers' errors and omissions, lawyers may wonder whether a particular activity or practice is covered by the insurance policy.
The Lawyers Insurance Fund responds to a variety of questions and often provide "advance rulings" on coverage under the policy. Lawyers are encouraged to contact any one of the following "advance ruling" advisors with their enquiries: Margrett George, Program Administrator, at tel. 604 443-5761 or e-mail mgeorge@lsbc.org, Lenore Rowntree at tel. 604 605-5314 or e-mail lrowntree@lsbc.org or Chris Bolan at tel. 604 605-5349 or e-mail cbolan@lsbc.org.
Federation of Law Societies National Mobility Agreement — how the insurance operates
The insurance aspects of the new mobility regime have been dealt with extensively in earlier publications.
Under the new national mobility regime, a BC lawyer who is eligible to practise temporarily (up to 100 days in a calendar year) in another reciprocating jurisdiction must carry professional liability insurance that 1) is reasonably comparable in coverage and limits to that required by the reciprocating jurisdiction and 2) extends to the lawyer's practice in the reciprocating jurisdiction. BC's compulsory policy satisfies both of these requirements for any lawyer who is entitled to practise on a temporary basis in another reciprocating jurisdiction.
To ensure the public in any reciprocating jurisdiction is protected, if the closest and most real connection to a claim arising out of a lawyer's temporary practice is with the reciprocating jurisdiction, the BC policy will provide at least the same scope of coverage as that of the reciprocating law society.
In addition, although lawyers who are members of more than one Canadian law society have always been entitled to claim an exemption from the requirement to buy insurance in BC in certain circumstances, there is now an exemption tailored specifically for lawyers who are members of more than one reciprocating law society. A BC lawyer is entitled to the exemption if he or she is a member of a law society in a reciprocating province, is entitled to practise law in that province, has purchased the compulsory policy in that province and is resident there. "Resident" has the meaning, with respect to a province, that it has under the Income Tax Act (Canada). In that case, the policy of the reciprocating law society will extend to the lawyer's practice in BC.
2004 and beyond
The Lawyers Insurance Fund continues to work to meet the changing insurance needs of lawyers, both individually and as a profession. However, the Fund continues to pay out between $8 and $10 million in claims and defence costs each year. Each lawyer's commitment to careful practice and risk management remains the most effective means of controlling the cost of claims and maintaining a reasonable insurance assessment.