Section 6.03(8) of the Rules of Professional Conduct deals with lawyers' undertakings. That Rule says that a lawyer shall not give an undertaking that cannot be fulfilled and shall fulfill every undertaking given. In real estate transactions using the system for electronic registration of title documents ("e-reg^TM), the lawyers acting for parties (with their consent) will sign and be bound by a Document Registration Agreement that will contain undertakings. The commentary under the Rule once again reminds lawyers that they must never give an undertaking that they cannot fulfill.

The LAWPRO^® Professional Liability policy contains several exclusions to coverage and one of these exclusions deals with the issues of undertakings. Part III (f) says that the policy does not apply:

to any CLAIM in any way relating to or arising out of any undertaking, agreement or promise by an INSURED, in which the INSURED assumes responsibility for his or her own or another's performance of an undertaking, agreement, promise or payment of a debt.

How does this exclusion apply to undertakings given in the context of e-reg^TM?

The exclusion is interpreted in the context of Rule 6.03(8). Whether a claim arising out of a failure to fulfill an undertaking is covered will depend on whether or not the lawyer was in a position to fulfil the undertaking when it was given. For example, a lawyer has $10,000 in his or her trust account to be used to pay tax arrears, and on closing of the transaction gives a personal undertaking to transfer those funds to the Municipality. After closing, there is a bookkeeping error and inadvertently the funds are released to the client, the taxes are not paid and the client then leaves the country. There will be a claim from the vendor against the lawyer based on his or her personal undertaking. That claim would be covered because at the time the lawyer granted the undertaking he or she was in a position to fulfill it. The reason that he or she did not fulfill it was that the lawyer or someone in the office was negligent and mistakenly released the funds to the wrong party.

If, however, a lawyer gave that same undertaking when he or she did not have the client funds in the trust account, the claim would not be covered. The lawyer has given a personal undertaking and agreed to pay someone else's debt. He or she has taken a personal risk, hoping that ultimately the client would come forward and pay the $10,000. If the client does not pay and a claim is made it would be excluded under the policy because the INSURED assumed responsibility for another's performance of an undertaking or payment of a debt.

Lawyers' undertakings are now, and always have been essential to the practice of law and as long as they are given in good faith, the policy will respond to claims arising out of the giving of those undertakings. Therefore, as long as lawyers continue to heed the Rules and do not give undertakings that cannot be fulfilled, any claim arising out of the undertaking will be covered under the policy.

^TM e-reg and the e-reg logo are trademarks of Teranet Inc.
^® LAWPRO is a registered trademark of Lawyers' Professional Indemnity Company.

However, any Innocent Party Coverage that you may have in place WILL NOT protect YOUR client if the other lawyer (or his/her staff member) acts dishonestly and your client suffers a loss as a result. (For example, you may have provided the purchase funds in escrow to another law firm, and the lawyer absconds with the funds without releasing the transfer for registration.)

Therefore, as an added measure of service, you may want to ensure that Innocent Party protection is carried by opposing counsel for the protection of your clients in an e-reg^TM transaction. Evidence that this coverage is in place can come from several avenues: The Declarations Page that details the professional liability coverage provided to counsel by LPIC is once source; you can also ask counsel to certify in writing the level of Innocent Party Coverage in place, or obtain from them a direction authorizing LPIC to disclose to you the level of Innocent Party Coverage in place.

Note that this coverage is provided on a claims-made basis only, and therefore is the coverage in place only at the date on which the Declarations page is issued or when LPIC makes the disclosure. So you may want to verify at least annually that counsel with whom you are transacting business continue to have in place Innocent Party Coverage, and the amount of the coverage.

Impact of Acknowledgment & Direction
Also remember that upon signing the Acknowledgment & Direction generated by the e-reg^TM software, the client instructs you to close in escrow pursuant to the Document Registration Agreement (DRA). A copy of that agreement is attached to the Acknowledgment & Direction. A client can choose to deliver funds personally or pay extra for you, or a staff member, to attend at the other law firm with the funds. The choice (and risk) should ultimately lie with the client.

Convocation also accepted a number of other recommendations from LPIC that set out the parameters for the liability insurance coverage provided to both lawyers and non-lawyers in the MDP.

Lawyer partners

• Lawyers who are partners in an MDP will have insurance coverage for the professional services they provide for or on behalf of the MDP (as well as for professional services which they may provide outside of the MDP).

Non-lawyer partners

• Non-lawyer partners will be covered for the professional services they provide for or on behalf of the MDP, but any services they continue to provide on their own outside the MDP would not be covered by the LPIC policy.
• They would not be eligible for the run-off coverage after leaving the MDP.
• Existing transaction levy surcharges will apply to non-lawyers partners in the MDP, meaning all partners in an MDP are subject to the requirement to pay real estate and civil litigation transaction levy surcharges; and claims history levy surcharges would also apply to non-lawyer partners in an MDP.

• The effective date for insurance coverage for lawyer and non-lawyer partners in the MDP is April 30, 1999, or the date on which the MDP was first authorized by the Law Society, which ever is later;
• The definition of professional services covered under the LPIC policy will, for the purposes of the non-lawyer partners' services, be expanded to include the practice of the non-lawyer's profession, trade or occupation, provided it supports or supplements the practice of law;
• As is the case with all partnerships, all lawyer and non-lawyer members of the MDP will have to select the same coverage options (eg. the same DEDUCTIBLES), and will be required to carry Mandatory Innocent Party Coverage for lawyer and non-lawyer partners alike.

Law Corporations to be subject to insurance policy terms and conditions
Law corporations (including their lawyer directors, officers and shareholders) will be considered "insureds" under the LSUC/LPIC insurance program, and will be subject to the same requirements and afforded the same insurance coverage as lawyers not working within professional corporations, Convocation has decided.

A law corporation with more than one practising lawyer will be considered a law firm, as defined in the LPIC policy, with its lawyer shareholders required to select the same coverage options and carry the same coverage on a firm-wide basis, consistent with the requirements of a law partnership. In other words, those in a law corporation will be obliged to carry Mandatory Innocent Party Coverage, and select the same DEDUCTIBLE options and Innocent Party Buy-Up options. A law corporation with only one practising lawyer will be considered a sole practitioner under the LSUC/LPIC insurance policy.

Lawyer mentoring program to be restructured
A more structured mentoring program, with new guidelines, procedures and documentation that better define the parameters of the mentoring relationship, will be developed by LPIC and the Law Society in the coming year.

In approving LPIC's recommendation to formalize the existing Law Society mentoring program, Convocation acknowledged the many benefits - including claims avoidance - that accrue from this type of initiative.

Any claims arising out of services provided by mentored lawyers participating in a mentoring program will be the responsibility of that mentored lawyer alone: The mentoring lawyers will not be subject to any DEDUCTIBLE or claims history levy surcharge for claims that arise out of the mentoring relationship, provided the new mentoring procedures, guidelines and documentation have been followed.

LPIC expects to publish a special issue of LPIC News on mentoring and the restructured mentoring program early in 2002.

Insurance premium credit for CLE courses approved
Prompted in part by the success of the premium credit offered by LPIC for lawyer participation in its Online Coaching Centre, Convocation has approved an expanded premium credit program for legal and other educational programs offered by a variety of bar-related organizations.

Starting in 2002, lawyers participating in courses approved by LPIC will receive a $50 premium credit per course, to a maximum of $100 per lawyer. The credit will be applied to each lawyer's 2003 LPIC insurance premium.

Select programs offered by LPIC, the Law Society, the Ontario Bar Association, The County and District Law Presidents' Association, the Advocates' Society and others may be eligible for this program, provided they meet requirements now under development. Principal among these is the need to ensure the course helps lawyers become more knowledgeable in the law, more effective in managing their practice in a changing practice climate, and reduces lawyers' exposure to claims.

LPIC will continue to provide free access to the Online Coaching Centre to all members of the Ontario bar; use of the OCC will, as part of the expanded program, continue to qualify lawyers for a $50 credit, to be applied to the insurance premium.