Policy in effect May 1, 2004 to January 1, 2005
New 2004 compulsory professional liability insurance policy
On May 1, 2004, the BC Lawyers' Compulsory Professional Liability Insurance Policy No. LPL 04-05-01 was issued, the first consolidated policy since 2000.
The policy now provides coverage, not only for negligence (Part A), but for claims arising from the theft of money or property by any BC lawyer relating to his or her practice of law (Part B or "trust protection" coverage). With the addition of Part B coverage, the Law Society has consolidated the processes for responding to claims in which a member of the public suffers a loss when dealing with a lawyer. Whether the claim is for negligence or theft, the policy responds and the Lawyers Insurance Fund provides the claims handling expertise.
The consolidated policy No. LPL 04-05-01 (enclosed in this mailing) governs claims and potential claims reported from May 1, 2004 to January 1, 2005. The January 1, 2004 policy No. LPL 04-01-01 governs claims and potential claims reported from January 1 to May 1, 2004. The policy period of policy No. LPL 04-01-01 was amended by endorsement to end May 1, 2004.
This Insurance Issues details the specific provisions of the new Part B trust protection coverage and summarizes additional minor wording changes that primarily affect Part A coverage.
Part B — trust protection coverage
Part B, or trust protection coverage (TPC), responds to claims previously dealt with by the Law Society's Special Compensation Fund. Although the Special Compensation Fund will continue to resolve existing claims, all new claims made on or after May 1 will be dealt with and considered under Part B and handled by the Lawyers Insurance Fund (LIF). Payments of meritorious claims are a contractual obligation between LIF and the insured lawyer under Part B, not a discretion exercised by a committee. Claimants ultimately have access to the courts in the event of a dispute over a claim for recovery of a loss. A $17.5 million annual aggregate (profession-wide) clarifies for the public the extent of the coverage available and will help ensure the stability and longevity of the program by limiting catastrophic losses.
All practising members of the Law Society of BC will pay an annual assessment as the primary funding for TPC, just as they now pay an assessment for the Special Compensation Fund. There will, however, be no TPC assessment in 2004. Lawyers are reminded that, while TPC brings greater certainty respecting the coverage of claims, there are clear limits on this coverage. As a result, when relying on the services of BC lawyers, clients such as financial institutions that are involved in large real estate or commercial transactions will wish to take note of the coverage and consider the degree of financial risk involved in the transaction. While theft is very rare in the profession, such clients should consider whether they wish to seek insurance in addition to the general insurance coverage carried by BC lawyers.
Claims handling: disclosure and complaints
In order to obtain prompt, full and candid disclosure from lawyers, it is Law Society policy that claims information provided to the Lawyers Insurance Fund, except evidence of dishonest appropriation, fraud or criminal activity, cannot be disclosed to other departments of the Law Society. As claims reported under Part B fall within the exception, Part B reports and claims information will be available to other departments of the Law Society.
The Lawyers Insurance Fund may need to wait until after the Law Society's complaint investigation and ensuing discipline proceedings, if any, are completed, before payment can be considered. These investigations and proceedings may assist in determining whether or not a lawyer has, in fact, stolen money or other property, and avoid separate but essentially parallel investigations. However, in appropriate circumstances, the claim may be paid before the conclusion of the complaint or discipline process.
Although the overall structure and divisions (definitions, insuring agreements, exclusions and conditions) of the policy are unchanged, the policy now has separate insuring agreements for Part A and Part B and defines some words and phrases separately for each part. The exclusions and conditions apply to both parts, except where stated otherwise.
The following summarizes the various policy provisions relating to the Part B coverage. The relevant wording is noted at the end of each section, for ease of reference. Both the summary and wording references are intended for guidance only, as the policy wording ultimately governs any Part B claim.
Who and what is covered
If the lawyer responsible for the theft is a member of the Law Society of British Columbia, Part B insures both that lawyer and his or her innocent partners. If the lawyer is also a member of another law society, the claim must arise out of that lawyer's practice as a BC member. Part B definition of "Insured," definition of "Innocent Insured," Part B Insuring Agreements and Exclusion 8.
The insurer is at liberty to seek reimbursement from the responsible lawyer for any payments made under Part B and to subrogate against any third parties liable for the theft. Conditions 3.3 and 12.
The "dishonest appropriation" of money or other property may be for the lawyer's own use or for the use of a third party and must cause a monetary loss. It must also involve money or other property entrusted to and received by the lawyer in that lawyer's capacity as a barrister and solicitor and in relation to the provision of professional services. Part B definition of "error" and Insuring Agreement B 1.
Notice of a claim under Part B may be given by a lawyer's innocent partner or by a third party such as a custodian, a claimant or the Law Society. Condition 4.3.
Anyone who suffers a monetary loss as a result of a lawyer's theft is eligible to bring a claim, but must provide a statutory declaration relating to the loss in a form provided by the Lawyers Insurance Fund and agree to submit the claim to the exclusive jurisdiction of the courts of British Columbia. Part B definition of "claimant", Insuring Agreement B 1 and Condition 18.
The claimant is entitled to recover the direct loss of the value of the money or the cash value of other property, plus interest and costs. The amount paid will be reduced by any monies otherwise available to the claimant, the lawyer or the lawyer's law firm, to repay the stolen funds. For example, if the claimant has purchased a title insurance policy that could apply to the loss, only any shortfall remaining will be paid, taking into account the insurance available through the title policy. Part B definition of "damages," definition of "deemed value," Insuring Agreement B 1 and Conditions 9.1 and 9.4.
If the claim falls within Exclusion 6.2 of the Policy, the business exclusion, payment will be reduced by the "ineligible portion" of the claim. The ineligible portion is that amount of the claim that reflects the offending ownership interest - for example, if the responsible lawyer owns 20% of the claimant, 20% of the claim will be excluded from payment. Definition of "ineligible portion" and Exclusion 6.2.
Defence and settlement
There is no duty on the insurer to provide a defence, although it may choose to defend the claim. The insurer has the right to settle any claim without the lawyer's consent, on such terms and conditions as it considers appropriate. Insuring Agreement B 2.
The limit of liability is a profession- wide annual aggregate of $17.5 million, inclusive of both defence costs and settlements. As a result, all claims reported in any calendar year can be paid, regardless of amount or the number of lawyers, errors, transactions, claims or claimants, until the profession-wide aggregate limit is exhausted. For the remainder of 2004, the profession-wide aggregate is $12,000,000 (pro-rating of the annual aggregate limit of $17.5 million). As noted, the insurer has a right of reimbursement against the responsible lawyer and a right of subrogation against any third parties liable for the theft. There is no deductible payable. Declaration 3 Part B, Part B Insuring Agreements, Conditions 1.4 and 2.6.
As there is no payment unless the claimant is an innocent victim of the lawyer's theft, the claim is excluded if:
a) the claim is related to the wrongful conduct or neglect of the claimant or the claimant's spouse (includes a common-law spouse); Exclusion 11
b) an organization makes a claim that is related to the wrongful conduct or neglect of a representative of the organization or an individual who had effective management or control or beneficial ownership of greater than 10% in the organization; Exclusion 12
c) the stolen money or property was unlawfully obtained by the claimant; Exclusion 13
d) the claimant had prior knowledge of a dishonest act by the lawyer; Exclusion 14.1 or
e) the claimant committed or consented to the theft, or was reckless or wilfully blind to the theft. Exclusion 14.2.
Special Compensation Fund claims
Part B will not cover existing Special Compensation Fund claims, nor matters that a claimant could have advanced as such a claim before May 1, 2004. Definition of "compensation program" and Exclusion 10.
A claim must be brought within two years of the claimant becoming aware of the theft and, in any event, within 10 years of the theft. Part B Insuring Agreements.
Certain exclusions that apply to Part A also apply to Part B. As a result, claims arising out of injury to person or property, acting as a director or officer, or acting as a fiduciary for certain plans, are excluded, as are claims brought by a lawyer's family, law firm or employer. Exclusions 3, 4, 5, 6.1 and 7.
Policy wording revisions
In addition to the new Part B coverage, the consolidated 2004 policy incorporates changes to the wording made by endorsement since 2000 and adds some minor revisions. While there are no material changes to the Part A coverage, the following highlights the more significant of these "housekeeping" changes, most of which relate primarily to Part A coverage.
For the remainder of 2004, the aggregate limit for Part A is reduced by any damages, claims expenses and deductibles paid between January 1 and May 1, 2004.
The definition of "Additional Insured" is revised in two places. First, the word "vicariously" is removed from subparagraph (a), the subparagraph that deals with law firms. The revision clarifies that a law firm is an additional insured whether the firm's liability is attracted vicariously or otherwise (for example, by statute under partnership legislation). Second, subparagraph (c), the subparagraph that deals with partners, now defines an additional insured as "each present or former member who, at the time of the error, was insured by us and was the Individual Insured's partner or liable for the Individual Insured." The wording replaces "each present or former partner of the Individual Insured" and clarifies that a lawyer insured at the time of the error is an additional insured, whether that lawyer attracts liability for a responsible lawyer's actions as a partner or otherwise.
A new definition of "claimant" as "a person or organization who has made or may make a claim" is added for Part A. This definition simplifies the wording required in other provisions of the policy.
The order of the first sentence of the definition of "damages" is changed and "repair costs," now defined in the policy as "any costs, other than claims expenses, approved or paid by us, incurred attempting to avoid or mitigate a loss arising out of an error," are specifically included. The addition simply underscores the fact that payment of repair costs triggers the usual consequences of a paid indemnity claim. The first sentence of the definition of "damages" now reads: "any monetary award, including any pre-judgment interest, post-judgment interest or costs awarded thereon, or settlement or repair costs, relating to covered allegations."
The second sentence of the definition of "damages" is revised to specifically exclude orders for aggravated damages and special costs under Part A. Such damages and costs are awarded in circumstances of reprehensible and intentional conduct, conduct outside the scope of coverage of an errors and omissions policy. Costs ordered pursuant to Rule 71 of the Court of Appeal Rules (the Court of Appeal equivalent to Rule 57(37) of the Supreme Court Rules) are also specifically excluded under Part A and Part B.
The definition of "error" is amended by removing the words "and where there is a series of related actual or alleged negligent acts, negligent errors or negligent omissions, or personal injuries, such series will be deemed to be one error." Two new sentences are added, as follows: "Where there are actual or alleged negligent acts, negligent errors or negligent omissions or personal injuries that are related, they will be deemed to be one error regardless of the period of time over which they occur. In this definition, related means logically or causally connected or causing a single injury or loss to a claimant." This amendment clarifies the circumstances under which negligent acts, errors or omissions are related and considered a single error.
A new definition of "unauthorized practice" as "the practice of law by an Individual Insured in contravention of the rules of any other law society or bar" is added. The term is part of a new Exclusion, explained below.
The titles to the insuring agreements are removed to avoid confusion between the insuring agreements for Part A and for Part B. "Insuring Agreement 1. Indemnity" is now "Insuring Agreement A 1," "Insuring Agreement 2. Defence and Settlement" is now "Insuring Agreement A 2," and "Insuring Agreement 3. Scope of Coverage" is now "Insuring Agreement A 3."
Insuring Agreement 2.3, relating to conflicts of interest, is now Condition 7 of the policy, titled "Conflicts."
Insuring Agreement 3.1, providing that the policy applies to errors occurring anywhere in the world, is now Condition 19 of the policy, titled "Territory."
Insuring Agreement 3.4, bringing subsequent reports of claims and potential claims relating to the error first reported within that error's policy period, is now included in a revised Condition 1.1.2. Condition 1.1.2 relates to the limits of liability for each error for Part A, explained below.
Two clauses dealing with expense allocation in situations where a claim involves both covered and uncovered allegations are added to Insuring Agreement A 2. The new Insuring Agreement 2.3 states in part that ". we shall each apply our best efforts to agree upon an equitable and appropriate allocation" of such expenses, and provides further that ". you will be solely responsible for those claims expenses" relating to uncovered allegations.
Insuring Agreement 2.4 states in part that "Any negotiated or judicially determined allocation of claims expenses shall be applied retroactively to all claims expenses notwithstanding any prior payments by you or by us." Insuring Agreement 2.4 further provides that any allocation or advancement of such expenses will not apply to or create any presumption with respect to the allocation between covered and uncovered loss. Both clauses simply codify the existing approach to cost sharing.
Exclusion 3 is amended by replacing the words "out of any physical contact" with "out of any injury to, physical contact with." The amendment clarifies that physical injury to a person is excluded from coverage.
The first line of Exclusion 6.2, the business exclusion, is amended by removing the words "(except a proprietorship or partnership for the practice of law, law corporation, personal law corporation or law office management corporation)" after "organization." The exclusion is intended to exclude coverage for lawyers giving advice to a partner's business, including a partner's law business, and the revision simply clarifies this intent. The former wording was intended to comfort lawyers that coverage would not be lost merely because the commercial entity through which the lawyer practised was sued. The exclusion will continue to be interpreted as not applying in such circumstances.
Exclusion 9 of the policy is new and excludes coverage for "a claim, except a claim that falls within Part B of this policy, against you where the Individual Insured is engaged in unauthorized practice, arising out of that unauthorized practice." The policy's only restriction on coverage for the practice of the law of or in another jurisdiction is Exclusion 8 (excludes coverage if the claim arises out of a lawyer's permanent practice in another jurisdiction, outside of Canada). If a lawyer's practice is such that the lawyer is obliged to become a member of that other law society, and the lawyer chooses not to do so in order to avoid Exclusion 8, Exclusion 9 operates to exclude coverage.
Condition 1.1.2, relating to the limits of liability for each error under Part A, is revised and the provisions of the former Insuring Agreement 3.4 are included. The revised condition provides that if a claim or potential claim is reported, "all additional claims or potential claims reported subsequently that arise out of the same error shall be:
(a) part of the claim or potential claim first made and reported to us; and
(b) deemed to be reported within this policy period;"
The condition also provides that all such claims "shall be subject to the terms of this policy and to the one limit of liability applicable to the claim or potential claim first reported." The revisions clarify that, once a claim is reported, subsequent reports arising out of the same error relate back to the claim first reported and are subject to that claim's limits of liability.
Condition 1.2.1, relating to the aggregate limits of liability under Part A, has an additional sentence reducing the aggregate by any amount already paid between January and April, 2004, as referenced in the Declarations. Condition 1.2.2 is added to clarify that any payments reduce the limits of liability. The condition states: "All payments of damages, claims expenses and deductibles reduce the applicable limit of our liability."
Condition 1.3, dealing with multiple lawyers, claims or claimants, is revised to clarify that only one limit applies if an error is made, regardless of the number of lawyers who make the error, claims or claimants. That condition now states: "One or more claims, resulting from an error made by one or more Insureds, made against one or more Insureds or made by one or more claimants shall be subject to one limit of liability and shall not increase our limits of liability."
Condition 5, requiring the lawyer's assistance and cooperation, is amended by adding the words "any counsel we retain" to Conditions 5.1.1 and 5.1.3. These additions clarify that a lawyer's obligation to cooperate with the insurer extends to any counsel retained. Condition 5.3 is amended by adding the words "take any other action that might prejudice our ability to avoid or minimize damages." This amendment clarifies that the insurer's agreement is required before a lawyer attempts a repair.
Condition 6.2 is now Condition 6.3, and reads:
"6.3 Where Exclusion 6.2 applies to a claim because, individually or collectively, directly or indirectly, the acquisition by you or your family of effective management or control or beneficial ownership greater than 10% of an organization:
6.3.1 occurred after the time of the error; and
6.3.2 was not related in any way to the legal services giving rise to the error;
then, pursuant to the terms of this policy, we shall cover your partners who were members at the time of the error, or the law firm employing you (excluding any law corporation wholly owned by you or your family) at the time of the error."
If a lawyer loses coverage under Exclusion 6.2, the business exclusion, because of an offending interest acquired after the time of the "error," this condition extends coverage to that lawyer's former partners. The revisions clarify that the condition only applies if the lawyer's acquisition of the offending interest was completely unrelated to the legal services giving rise to the "error."
Condition 7 is the former Insuring Agreement 2.3, as explained earlier.
Condition 15, Release of Coverage, is new and states: "We may, in our sole discretion, agree to allow you to assume all of our responsibilities and obligations under this policy and in so doing you shall release us from all such responsibilities and obligations." This Condition simply codifies the effect of a release of coverage.
The Lawyers Insurance Fund responds to a variety of questions and often provides "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 email firstname.lastname@example.org, Lenore Rowntree at tel. 604 605-5314 or email email@example.com, or Chris Bolan at tel. 604 605-5349 or email firstname.lastname@example.org.