Assess your insurance needs

No lawyer – no matter what area of law you practise, no matter how diligent and conscientious a lawyer you are – is immune to a claim. And, as the following questions illustrate, your exposure can come from the least likely sources. This discussion helps you assess your firm's insurance needs, and provides an overview of some of the ways in which you can increase your insurance coverage.

The work of former and present partners, associates, employees and others exposes me to claims now and in the future. What do I know about their exposures?

• How well informed am I about their practices, their files, their record-keeping and the communication inside the firm?

• Did/do they practise in areas such as litigation, corporate, commercial, real estate, taxation, securities, patent and trademarks, that can easily create exposures well above my present insurance limits?
• Are there any non-traditional or other exposures arising out of the activities of non-lawyer partners in a Multi-Discipline Practice (MDP)?
• Where are my former partners and associates now, and what insurance coverage if any do they have?

Do or did I handle matters which potentially expose me to a claim for damages that could exceed my existing insurance coverage limits?

• Does/did my firm handle major financial transactions?
• Do I/we maintain large trust accounts or trust accounts with much activity?
• Do I/we represent clients where the stakes were/are significant (such as pensions, patents and trademarks, or class action suits?)
• Do I know the extent of clients' reliance on my previous advice? Will the stakes continue to grow?

Did or do I act on matters for more than one client who, if they sued me collectively, could expose me to claims for damages that exceed my insurance coverage limits? Do I have multiple files relying on the same legal advice or services that could compound my exposure?

Like most lawyers, you may rely on the same research or general opinion in providing opinions to different clients. If the underlying research contains an error (either your own or that of sub-contracted counsel), the cumulative cost of claims could easily exceed your insurance coverage limits.

What would be the commercial impact of an error in the matters I handled?

Remember that the impact of damages could stretch over many years, and exceed the apparent dollar value of the file that you handle. Consider the lawyer who neglected to renew a lease in a rising real estate market. Damages? Over $8 million.

Do I share exposure for the work of others outside of my firm?

Consider for example limited retainers and the work of subcontracted, supervisory, concurrent and co-counsel. Consider also the exposure of "of counsel" acting for more than one firm.

Am I concerned about my personal exposure if a claim or claims exceed my present coverage limits?

Remember that once your insurance 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 applied 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 or you may not be covered at all for your practice while with other firms or outside of the firm.

If you currently have only standard Run-off Insurance coverage, you should also determine whether or not these excess policies are being maintained, and if there is coverage for your exposure between $250,000 and $1 million.

Innocent Party Coverage & Innocent Party Sublimit Buy-Up

Lawyers practising in association or partnership (including MDPs and LLPs), and sole practitioners practising with employed lawyers are required to purchase the minimum Mandatory Innocent Party Coverage of $250,000 per claim/in the aggregate for a premium of $250 per lawyer.

Coverage limits

These lawyers can increase their Innocent Party Sublimit Coverage as follows:

• to $500,000 per claim/aggregate for an additional $150 per lawyer ($400 total premium); or
• to $1 million per claim/aggregate for an additional $249 per lawyer ($499 total premium).

Optional Innocent Party Coverage

Optional Innocent Party Coverage protects members of the public – and thus lawyers – against the fraudulent, dishonest, criminal or malicious acts or omissions of others, such as present and former partners, associates, employed lawyers, and firm employees. This kind of coverage also is increasingly important as we move into the era of electronic registration and escrow closings.

Coverage limits

LPIC offers Optional Innocent Party sublimits of:

• $250,000 per claim/aggregate;
• $500,000 per claim/aggregate;
• $1 million per claim/aggregate.

Premiums are underwritten on a individual basis, based on a risk assessment of information provided in the Innocent Party Sublimit application.

Run-Off Coverage and Run-Off Coverage Buy-Up

All members of the Law Society who are not in active private practice and qualify for exemption are provided with limited protection Run-Off Insurance Coverage at no charge.

Main features of Run-Off Coverage are:

• The coverage limit is $250,000 per claim/in the aggregate and is not re-instated annually.
• Run-Off Coverage applies only to claims arising out of services provided while the lawyer was in private practice.
• Run-Off Coverage does not provide coverage for claims arising out of services a lawyer provides while exempt from paying the insurance premium.
• Run-Off Coverage includes a sublimit coverage of up to $250,000 per claim/in the aggregate for Innocent Partner claims.

Lawyers with Run-Off Coverage can apply to increase these coverage limits to:

• $500,000 per claim/aggregate; or
• $1 million per claim/$2 million in the aggregate; for terms ranging from two to five years.

Premiums will vary from applicant to applicant, depending on the years practised, areas of law practised, the amount of time since the applicant was in private practice, and other risk-based factors.

Excess Insurance: LPIC's 2000 program offers more for less

Excess insurance provides lawyers with an additional layer of protection should your defence and indemnity payments exceed the $1 million per claim/$2 million in the aggregate limits provided by the primary LPIC insurance.

LPIC's "new and improved" Excess Insurance program launched this fall gives you even more 'bang' for your insurance premium 'bucks.'

Lower Excess premiums:

LPIC's Excess insurance premiums for most Ontario firms will decrease by 10 to 35 per cent for the year 2000 program – an additional savings of up to $190 per lawyer for those in the lowest risk category.

More coverage options:

In 2000, Ontario lawyers have access to more and higher excess insurance limits.

Excess limits for 2000 are:

• $1 million per claim/$2 million in the aggregate;
• $2 million per claim/$4 million in the aggregate;
• $3 million per claim/$6 million in the aggregate;
• $4 million per claim/$8 million in the aggregate;
• $9 million per claim/$18 million in the aggregate.

More protection for insurance dollars:

The $500 reduction in base insurance premiums for 2000 combined with the reduced premiums for excess insurance make it easy for firms to triple or quadruple their insurance coverage limits.

Take the example of a sole practitioner who last year purchased LPIC Excess Insurance of $1 million per claim/$2 million in the aggregate for a premium of $540. To buy the same level of Excess from LPIC in 2000 will cost this lawyer $350 — $190 less than in 1999. But if she takes this $190 savings plus the $500 reduction in the basic insurance premium, she could secure Excess coverage of $3 million per claim/$6 million in the aggregate – without spending one cent more on insurance in 2000 than she did in 1999.

Preliminary estimate for Excess Coverage in the mail

To illustrate how cost-effective LPIC's 2000 Excess package really is, LPIC has provided firms with preliminary estimates for Excess Coverage. Excess information packages, mailed to the managing partner in each firm in early October, included:

• a preliminary estimate for LPIC Excess Insurance Coverage for the firm;
• a booklet with detailed information on the need for excess and tips to help firms better assess their exposure to claims; and
• an application form for LPIC's Excess Insurance program.

(Note: Excess limits are provided on a firm basis, above the $1 million per claim/$2 million in the aggregate limits provided to each lawyer insured under the primary LPIC insurance program.)

For information

For information on any of these insurance options, or for application forms, please contact the LPIC Customer Service Department at 1-800-410-1013 or (416) 598-5899, or via e-mail: service@lpic.ca.

You can also find detailed information on the insurance program and your insurance options on the LPIC website.

LLPs: Consider carefully your exposure & need for additional insurance protection

The proliferation of Limited Liability Partnerships (LLPs) has prompted numerous questions about the need for LLPs to maintain or consider additional insurance coverage. This article examines the two most common misconceptions about the protection that LLPs offer, and the insurance implications of each.

Misconception: Lawyers in an LLP do not benefit from the Mandatory Innocent Party Coverage required under the primary LPIC program of all lawyers in a partnership or association.

Although an LLP does limit your personal liability if a claim is made against other partners or employees of the LLP, the LLP designation in no way provides blanket protection against potentially ruinous claims.

For example, the LLP does not protect you if a former partner, associate or employee in a previous firm is sued; nor does it limit your liability for claims launched against partners and employees of your present firm for services provided prior to becoming an LLP. And even within an LLP, the firm's assets remain unprotected should the cost of claims exceed the insurance coverage in place for you and members of the firm.

In other words, your ongoing exposure – even in an LLP – is significant. You, members of your firm and the firm's assets continue to be exposed to claims for:

• the services provided by people you now supervise (including lawyers and non-lawyer staff);
• the services provided by former partners, associates, employed lawyers and non-lawyer staff in former firms;
• the services provided by members of your present firm prior to its becoming an LLP.

Some protection against these exposures is provided through the Mandatory Innocent Party Coverage.

This coverage is required of all lawyers who practise in association or partnership, and sole practitioners who practise with employed lawyers.

Depending on your exposure, you may decide that the $250,000 per claim/in the aggregate coverage sublimits of Mandatory IP Coverage are not sufficient. You can also increase your IP sublimits for an additional premium.

Misconception: Lawyers in a Limited Liability Partnership (LLP) do not need to consider Excess Insurance Coverage.

Excess Insurance is as much an issue for LLPs as it is for partnerships that are not LLPs. Consider, for example, the following facts:

• You remain personally exposed for your own activities and the activities of those you supervise within the LLP. Depending on your practice, this exposure could well exceed the insurance limits provided under the primary LPIC program.
• One of the requirements of an LLP is that partners advise their clients about the limited extent of the partners' liability within the LLP. Partners need to be able to reassure their clients that the LLP has in place sufficient resources to backstop the legal services it provides, given that clients can no longer access the personal assets of the firm partners in a lawsuit.
• In other words, it is even more important for an LLP than for other partnerships to be able to provide clients with the comfort of knowing that your firm has in place ample insurance protection such as that provided by excess insurance.

As indicated above, an LLP protects the personal assets of the partners not directly involved in a claim made against the partnership; it does not, however, protect the firm assets. A claim that results in damages that exceed the assets of the partnership could bankrupt the practice – even if it is an LLP. Excess insurance protects against this eventuality – by providing an additional layer of insurance protection for the firm and its members.

For details see LPIC's Excess Insurance program.

Lawyers in Association: Your vicarious exposure may be real and costly

Lawyers who practise "in association" can face joint and several liability for the activities of other lawyers in the association, and so need to consider additional insurance coverage for their practice.

Lawyers in associations, by virtue of the "association" designation, often see themselves as sole practitioners without the joint and several liability that comes with a law partnership.

Consequently, such lawyers may not see the value of buying up their Innocent Party Coverage, or in securing excess insurance coverage for the "firm." Or they may question underwriters' insistence that associations be treated as a single firm when it comes to excess insurance – with the same coverage limits for all lawyers in the association.

Statutes and case law however point to a very different reality. It is important to be able to show that your clients and the public see your practice as a sole proprietorship or as an association rather than a partnership. And if they do not, your need for additional insurance protection may be very real.

The legal facts

The Partnership Act, R.S.O. 1990, Chap. P. 5.Section 15(1) of the Act suggests that lawyers practising in association will be exposed to vicarious liability for the acts of their associates, where there has been a "holding out" of partnership and the client relies on this "holding out."

15. (1) Every person who by words spoken or written or by conduct represents himself or herself or who knowingly suffers himself or herself to be represented as a partner in a particular firm, is liable as a partner to any person who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the persons so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made.

The courts have interpreted "giving credit" to include virtually any professional dealing.

Case law

Ontario courts also have taken a liberal view of "partnership." The courts tend to look at the whole circumstance, and have looked to the following in determining whether or not the association is a true association or an apparent partnership:

• the name on firm letterhead or stationary;
• signage on the firm's door and elsewhere;
• wording on business cards;
• public announcements, advertising (such as in Ontario Reports);
• premises and resources: what is shared;
• use of the firm name in pleadings;
• shared or separate bank accounts.

Other issues that you should consider include:

• your firm's promotional materials, including web pages;
• how client referrals are handled internally;
• how files and billings are treated when associates are called on to assist on a file;

• how reception answers the telephone and greets clients;

• how you conduct yourself with your clients: what you say and write;

• your course of dealings with the client.

Case law also suggests that the onus for clarifying your actual status may fall on you, the individual lawyer(s) in an association. In Bet-Mur Investments Limited v. Spring et al (1994), 20 O.R. 417.(Ont.Ct.Gen.Div.), affirmed [1999] O.J. 342 (Ont.C.A.), the Court held that in the circumstances where the letterhead and the sign on the door suggest that the solicitors may be partners, the solicitors bear the onus of conveying to the public that they are not partners.

Insurance issues

Innocent Party Coverage

Because of the vicarious liability that comes with being a lawyer practising in association, LPIC requires all association lawyers to purchase the minimum Mandatory Innocent Party Coverage of $250,000 per claim/in the aggregate, for an annual premium of $250 per lawyer.

Association lawyers can increase their Innocent Party Sublimit Coverage.

Excess Insurance

Given that lawyers practising in association may be held responsible for the acts of associates, you and your associates may want to secure additional insurance protection such as that provided through LPIC's Excess Insurance program.

Because – as the courts have established – lawyers who practise in association may be exposed to joint and several liability for the activities of their associate lawyers, LPIC generally underwrites associations as a single firm. That is, the excess premium will be based on all lawyers in the association, as is the case for partnerships applying for excess insurance coverage. As well, all lawyers in the association will be provided with the same level of excess coverage; individual lawyers cannot obtain coverage different from that of others in the association.

However, in situations where it is clear that you have taken adequate precautions to ensure that you will not be seen as an apparent partnership, LPIC will underwrite excess insurance for association lawyers on an individual basis.

For details see LPIC's Excess Insurance program.

Risk management tips

1. Take some time to reassess your current practice arrangements. Many associations are now considering the LLP option as it enables them to hold themselves out as a partnership without the same full and joint several exposure that comes with traditional partnerships.

2.. Re-examine each of the indicia listed earlier that the courts may look to if you or your associates are involved in a dispute.

• Review all printed and electronic materials and messages.
• Review how clients are greeted on the phone and in person.
• Review your office practices and conduct, and how filings and billings with associates are treated.
• Review your correspondence: Retainer letters are a good place to ensure that the nature of your association relationship is clear.

1. Clarify the nature of your relationship with others. For example, you may opt to have letterhead, announcements and so on refer to you alone. If reference is to you in association, you will want to add clear wording such as "in association, not in partnership." A reference simply to "in association" may not be sufficient to absolve you of joint and several liability.

4. Revisit your primary and excess insurance needs.

Visit www.lpic.ca for information on all your insurance needs

LPIC's revamped website – www.lpic.ca – provides you with finger-tip access to all the information you need about liability insurance and the options available to ensure you have sufficient insurance coverage in place.

Listed below are the major insurance pages on the LPIC site, and some tips on how to navigate to them. You'll find that any information is easy to reach from the Insurance home page. And keep an eye on the left navigation bar: It expands as you move through the site, ensuring that you're never more than two or three clicks away from where you started.

Subject

The basic insurance program (for lawyers in private practice)

Assess your insurance needs

Options to increase insurance

LPIC Excess Insurance Coverage

LPIC insurance policy

File online (File your LPIC application, applications for any additional insurance coverage, and transaction levy filings)

Claims notice (File notice of a claim online, or find out how to file a claim)

Insurance for retired lawyers, judges

Insurance for in-house corporate counsel

Insurance for government lawyers,educators

Frequently Asked Questions

insurance: Risk rating the LPIC insurance program

Since it assumed responsibility for managing the Law Society's Errors and Omissions program in 1995, LPIC has implemented many measures to meet a key mandate set by Convocation: To provide lawyers with a program in which the costs of insurance generally reflect the risk associated with insuring their practice.

This feature article examines risk rating and how LPIC has implemented risk rating in the professional liability insurance program.

What is risk-rated insurance and how does it affect premiums?

Risk-rated programs, like other insurance, determine premiums largely on the basis of anticipated loss costs of the program as a whole for that year; that is, the insurer considers the amount of funds the company expects to have to pay for claims, together with a number of other factors, itemized below, to determine the premium.

Theoretically, a risk-rated insurance program would comparatively rate each individual according to how much of a risk that individual represents (i.e. the possibility of loss that this individual represents). Factors that determine this risk rating would include the applicant's past claims history as well as variables unique to the line of insurance being provided.

Because rating each individual is impractical, insurance companies tend to group applicants in categories or classifications, with similar or common losses. Using statistical studies of the exposures that each of these classifications represents, insurers then can start to project losses for each category of applicants that they insure.

To set premiums, insurers take into account the losses associated with each classification of applicants, premium taxes, administrative expenses, reserves, and, in the case of commercial insurers, agent commissions and profit margins.

Why does LPIC risk rate the liability insurance program?

In its 1994 report, the Task Force on Insurance mandated LPIC to move to a program in which the costs of insurance generally reflected risk. It also identified three criteria that should be considered in setting premiums:

• differences in risk history;

• differences in the risk associated with different areas of practice; and

• different volumes of practice.

However, the Task Force went on to say that . . . "no insurance program can be solely risk-reflective, and there must be some sharing and spreading of risk."

Since that report, LPIC has implemented numerous measures that each year moved the insurance program towards one in which the premium better reflected risk, as detailed below.

These measures have been introduced only after consultation with the profession (through various volunteer law associations), and with approval from Convocation. The result is a program that now generally reflects the risk, and has done so without significant dislocation in any particular area of practice.

How does LPIC now risk rate the liability insurance program?

LPIC has introduced many measures to achieve risk rating and at the same time provide lawyers with a flexible program that enables lawyers to "customize" coverage to their needs.

Coverage restrictions, clarifications

Coverage options

Premium discounts & surcharges

Transaction levies

Retirement of the deficit in 1999 enabled LPIC to implement a major risk-rating measure: applying revenues from the transaction and claims history levies as premiums under the insurance program.

Impact of risk rating on premiums in 2000