Factors to consider
Do I need additional insurance protection?
Before you answer this question, consider some of the following facts concerning your existing professional liability insurance coverage and your potentially significant exposure to claims.
A single claim can seriously erode coverage limits
The $1 million per claim/$2 million in the aggregate (total of all claims reported in a policy period) standard coverage limit provided under the LAWPRO® program applies to both claims expenses and indemnity payments together. In today's environment, it's not unusual for a single claim to require substantial defence costs - as much as $500,000 or more. Similarly, pre-judgment interest on a claim that arises out of services provided years earlier can take a major bite out of funds available for an indemnity payment to satisfy a judgment or settlement. Consider too the higher stakes in some areas of law, such as securities, tax, pensions, real estate and estate work. Depending on the circumstances, your $1 million coverage limit could be seriously eroded, leaving you potentially liable personally for any claims costs that exceed your coverage limits.
A claims-made policy focuses on today
A claims-made-and-reported policy provides coverage under the present policy for claims that arise out of past and present services. With this type of policy, two developments together trigger coverage:
- a claim is made against you; and
- you report the matter to the insurer (LAWPRO) as a claim.
The focus is on when the claim is made and reported by you, not the year in which services are provided and the alleged error or omission
is said to have occurred. If a claim is made against you this year for services which you provided in 1998, the policy that responds is
this year's policy, under which you have only Run-Off Insurance that provides coverage to a maximum of $250,000 per claim and in the aggregate.
This is particularly important when you consider the next point - the time lag factor.
Claims take time to develop
Research indicates that it takes on average two to three years after you have provided
PROFESSIONAL SERVICES
for a claim to surface. Moreover, up to 10 per cent of claims are not reported until five years after the services were provided. In some areas of practice such as wills, estates, and real estate, it can take even longer before claims surface.
In other words, LAWYERS
must carefully assess the exposure of their past, present and future practice, and that of their partners, associates, employed LAWYERS and any other parties for whom they can be held accountable when determining their insurance coverage needs.
Your past can come back to haunt you
In assessing your insurance needs, you need to consider not just your current law practice, but also
the risk of claims associated with your past law practice, and that of any partner or associate with whom you have practised.
In this context, consider the changes made to limitations periods with the introduction of the Limitations
Act, 2002 (and transition rules).This legislation establishes a basic limitation period of two years and
an ultimate limitation period of 15 years. This ultimate limitation period runs from the day on which
the act or omission on which the claim is based takes place, and applies irrespective of when the claim is discovered.
Of course, these limitation periods may not always apply. Consider, for example:
- proceedings that may be commenced outside of Ontario;
- PROFESSIONAL SERVICES that do not pertain to the laws of Ontario;
- a person with a claim while a minor or during a period of incapacity;
- a person with a claim who was or may have been misled or had essential facts concealed;
- the excluded types of proceedings and scheduled statutes whose limitation periods continue to apply; or
- the discovery date of the claim, whereby former limitation periods or no limitation period may apply.
Your ongoing activities may expose you to claims
If you are an exempt LAWYER, your ongoing activities may expose you to claims.
An example: You elect to exempt yourself from the payment of premiums on the basis that you will continue to act in your capacity as estate trustee, trustee for inter vivos trust or attorney for property, once the rest of your practice is wound down or turned over to other LAWYERS remaining in practice. Under the standard $250,000 Run-Off Coverage, you do not have any protection for these on-going activities. However, you could apply for and purchase expanded protection for activities of this type.
For more information, see Increased Run-Off Coverage.
As well, if you retire from practice with lawyer "emeritus" status and provide approved PRO BONO SERVICES provided through a LAWPRO-approved PRO BONO SERVICES program associated with Pro Bono Law Ontario, you may have an exposure for these on-going services. However, you would have limited insurance protection for these services under the standard $250,000 Run-Off Coverage.
Beyond this, the LAWPRO insurance program does not provide or make available any protection for professional services that you provide while exempt from paying insurance premium levies.
Law Society coverage maintained today by former partners may not protect you
If you are claiming exemption as: retired LAWYER, government LAWYER, educator or in-house corporate counsel,
don't count on the fact that past partners are still in practice and still have the full $1 million per claims/$2 million aggregate insurance coverage as a security blanket. If a claim is made against you, it could happen that your former firm or partners are not named in the proceedings; the claim may concern activities unrelated to the firm; or there may be a coverage issue (such as late reporting or failure to report) involving the practising former partner's coverage. In all of these cases, you could discover that your $250,000 basic Run-Off Insurance coverage is inadequate, leaving you personally exposed.
As well, the growing number of Limited Liability Partnerships (LLPs) in Ontario further limits your ability to depend on the full practice coverage provided to former partners in the event of a claim. The LLP provisions of the Partnership Act provide LAWYERS who are practising in partnership with an opportunity to substantially reduce their vicarious exposure for the acts of their partners by becoming an LLP. Thus, former LLP partners who remain in practice, along with their insurer, may well find protection under the LLP provisions of the Act which would not be available to you, leaving you exposed to the claim alone. This would be particularly so for claims arising out of services provided by you, or under your direct supervision or control, on behalf of the LLP.
It pays to be cautious
The benefits of protecting yourself against a potentially ruinous claim far outweigh the added premium costs for
increasing your insurance coverage limits. For example, many can buy an additional $1 million in Excess Insurance
Coverage for less than the cost, under the primary insurance program, of having a $Nil DEDUCTIBLE instead of
the standard $10,000 DEDUCTIBLE applicable to defence costs and indemnity payments together.
Assess your exposure: Some questions to review
The following are some of the questions you may want to ask yourself to help assess whether or not you should secure additional insurance coverage limits.
When reviewing these questions and assessing your exposure, remember to factor in both potential defence costs and interest payments, as well as actual DAMAGES. Depending on how long it takes to discover an error and resolve the claim, and the impact of costs, the value of the claim could be inflated by 50 to 100 per cent, or more.
Does the work of my present and former partners, associates and EMPLOYEEs in my current firm, and any past firms, expose me to claims now and in the future?
- How well informed am or was I about their practices, procedures and communications - including file in-take procedures, documenting retainers, reviewing opinions, docket control and diary systems, completeness of documentation and file retention and storage?
- Do or did they practise in areas such as litigation, corporate, commercial, real estate, taxation, securities, or patents and trademarks that can easily create exposures well above my insurance limits?
- If they are or have been involved in more claims-prone areas of practice, has the work been focused in the hands of a few with the right expertise, or with others under the appropriate supervision or guidance?
- Are there any non-traditional or other exposures to consider? Consider non-traditional law practices or client arrangements, and the activities of NON-LAWYER EMPLOYEEs, or Multi-Discipline Practice exposures.
- Where are my former partners and associates now and what insurance coverage, if any, do they have? You may find that you are exposed to claims for their past services, particularly where they do not maintain adequate insurance coverage today. Are their existing limits likely to have been eroded by claims already reported?
Do I share exposure for the work of others outside the firm?
- Consider the law practices of others, including those of your associates, co-tenants, and others with whom you may share space or resources. Also consider, subcontracted or supervisory counsel, any previous or co-counsel on files, 'of counsel' and backup counsel for your practice, as well as who are or have been otherwise affiliated with your practice or services.
- Am I satisfied that the letterhead, office signage, reception and telephone, fax, website, blog, advertisement and promotional materials, of both my practice and any practice affiliated with it, consistently and clearly communicates the nature of the relationship of my practice to that of others?
- Do my retainer agreements, invoicing and billing arrangements with clients consistently and clearly communicate the nature of the relationship of my practice to that of others?
Do or did I handle matters which potentially exposed me to a claim for DAMAGES that could exceed my existing insurance coverage limits?
- Have I or those in my present or former firms handled major financial transactions? Consider for example, securities dealings, commercial business, international transactions, pension dealings, corporate litigation, tax advice, intellectual property services and class action suits.
- Have I or those in my present or former firms represented clients where the stakes were significant? Consider pension work, patents and trademarks, environmental-related services, or class action suits.
- Did or do I or those in my former firms represent clients who are more apt to bring claims? Consider changes in client ownership or
management, as well as the jurisdiction in which the client or its parent is likely to bring a claim.
- Have my individual and corporate clients grown in wealth? Do I know the extent of my clients' reliance on my past advice? Have the stakes continued to grow? Consider the drafting of prenuptial agreements and wills, as well as advice and services for start-up companies, 'dot-com' clients, and growing businesses.
- What limitation periods are likely to apply to such claims? How long will I continue to be exposed?
What checks and balances are in place for trust accounts?
- Do my present or former firms maintain large trust accounts or trust accounts with lots of activity?
- Have they had careful controls in place throughout governing the activities in these accounts? Are the trust accounts overseen by more than one LAWYER? Are two signatures required for each cheque or withdrawal?
Do I have multiple file or client exposures?
- Did or do I or those in my former firms act on matters for more than one client who, if they sued collectively, could expose me to claims for DAMAGES that exceed my insurance coverage limits?
- Did or do I have multiple files relying on the same research or opinion that could compound my exposure?
It is not unusual for a LAWYER to be providing opinions to different clients by relying on the same research or general or past opinion.
If there is an error in the underlying research or opinion (whether your own, or that of other firm members, or that subcontracted
to outside counsel), the cumulative costs of claims could easily exceed your insurance coverage limits.
What would be the commercial impact of an error in the matters I handled?
Remember the impact of DAMAGES could stretch over many years, and exceed the apparent dollar value of the file that you handled. Consider the LAWYER who neglected to renew a lease in a rising market. DAMAGES? Over $8 million.
Am I concerned about my personal exposure if a claim or claims exceed my present coverage limits?
Remember that once your coverage limits have been exhausted, you could be personally liable for any claim awards made against you.
Am I covered under my former firm's excess policy?
Your former firm(s) may have arranged coverage which is applicable to you and your activities while a member of the firm. You should review the terms and conditions of these policies carefully as the coverage may not be sufficient; there may be gaps in protection, there may be no coverage for your practice while with other firms, or there may be no coverage for services provided by you outside of your firm practice. You should determine whether or not these policies are being maintained, and what coverage and limit protection is being provided, and how you would go about reporting a claim.
Increasing your insurance coverage
You have three options for increasing your insurance coverage:
Excess Stress Test
For the Visually Impaired
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