"AvoidAClaim" Blog

On March 4, 2013, an article titled “The profession’s dirty little secret” appeared in The Law Times. We feel that portions of the article confuse the distinction between errors and omissions insurance and client compensation funds. We also feel the article gives readers the incorrect impression that a large portion of LAWPRO’s claims expenses are related to lawyer defalcations. While we posted a comment to the online version of the article to clarify the above points, length restrictions prevented us from posting a more detailed clarification. This post contains our full clarifying comments.

LAWPRO insures Ontario lawyers with respect to their provision of professional legal services as defined in the LAWPRO policy. A lawyer’s intentional misappropriation of client or firm funds does not fall within that definition, and intentional fraudulent acts are not covered under the LAWPRO policy.

While it is quite true that the cost to LAWPRO to resolve 2012 claims is estimated to be approximately $100 million, those costs do NOT represent compensation for lawyer defalcation, but rather relate to indemnity and defence costs for lawyer errors and omissions: Non-fraudulent mistakes and instances of negligence, and/or to the cost of successfully defending claims alleging such errors.

Where a client has suffered a loss due to lawyer defalcation, his or her proper recourse is not to LAWPRO, but rather to a fund designed to compensate client victims of illegal activity on the part of lawyers. In Ontario, this fund is administered by the Law Society of Upper Canada, and is funded entirely by Ontario lawyers.

For more information on LAWPRO’s coverage, please click here. For information about the Law Society’s Compensation Fund, please click here.

The above comments relate to Ontario. If you are in another province, check your Law Society website, as the E&O programs and compensation funds operate differently in different jurisdictions.

This article originally appeared in the December 2010 issue of LAWPRO Magazine. It refers to LAWPRO coverage for Ontario lawyers, but the dangers listed would likely apply to any lawyer’s errors and omissions coverage.

On occasion, lawyers have engaged in activities that have made them front-page news, subject to embarrassment and possibly lawsuits or discipline complaints. Not only can this kind of attention be bad for a lawyer’s reputation, it can also damage or even destroy client relationships.

That’s reason enough to be aware of and avoid activities that could lead to these types of outcomes. But there is another – equally if not more compelling – reason to avoid them: In some instances, it may be the law firm, not LAWPRO, that foots the bill when these activities lead to problems.

Remember that the LAWPRO policy provides coverage that is tailored to your role as a lawyer. The policy affords protection against claims for damages arising out of a claim, provided liability is the result of an error, omission or negligent act in the performance or failure to perform “professional services” for others.

What will or will not be covered can be very fact-specific; but generally you will be insured for the work you do with your lawyer hat on, and not insured for activities where no solicitor/client relationship exists and no legal advice or service is provided.

This article highlights some of the dangerous activities that can lead to problems that will likely not be covered under the LAWPRO policy.

1. Don’t infringe copyrights or trademarks: The very foundation of the web is the ability to easily and broadly share information with others. When lawyers or law firms are posting information online they will sometimes include trademarks or information upon which others hold the copyright. With “cut and paste” it is easy and tempting to use large amounts of information from another source in a newsletter or in content for the web. Remember there are few, if any, scenarios where it can be argued that the use of trademarks or copyrighted information without permission was in some way professional services for a client. So, be especially careful to avoid the use of trademarked or copyrighted information unless you have consent, as this may result in expensive claims that are not covered by professional liability insurance.
2. Be careful what you say about others: The web’s informality makes it easy for the unwary to fall into saying something inappropriate about someone. Aggressive or nasty comments made in an unguarded moment or in the heat of a contentious matter can well result in a defamation claim. Making a nasty comment to the media, online or elsewhere, in the course of providing professional services for a client isn’t worth it. The circumstances in which the comments were made can determine whether the LAWPRO policy coverage is triggered as well as whether the policy exclusion addressing defamation of character applies Often, no coverage is available for defamatory comments made about a non-client. If you want it, some protection for defamation type claims may be available through other forms of insurance offered by commercial markets. Consider speaking with your insurance broker about this.
3. Be wary of what others say in replies to your social media conversations and in comments on your blog: The defamatory comments of third-parties can also expose a lawyer to defamation law suits. Comments on blogs and social media tools allow total strangers to take part in very public conversations. Although a real benefit for sharing information, these conversations can have very negative consequences when someone posts something inaccurate or unpleasant – both of which can be judged in the biased eye of the beholder. Carefully monitor (and consider moderating) the comments posted to your personal or firm blog and the replies to any conversations you have using social media tools. You want to avoid being sued due to (allegedly) defamatory comments that appear in conjunction with you or your firm.
4. Avoid the unauthorized practice of law (UPL): Lawyers need to appreciate that any content they post on the Internet can easily be accessed from anywhere in the world. Ontario lawyers practising law in other jurisdictions by providing legal services on the Internet should respect and uphold the law of the other jurisdiction, and not engage in the unauthorized practice of law. Clearly indicating the jurisdiction(s) in which you are licensed to practise in your online content and posts will help potential clients understand where you can and cannot practise. You want to avoid a negligence suit in a jurisdiction outside of Canada involving non-Canadian law.
5. Avoid online dangers: Social media sites and other online tools offer lawyers all sorts of interesting new ways to interact with people in both personal and work spheres. There are, however, some risks associated with using them. Some of these risks are obvious, some are not, and many won’t be covered by the LAWPRO policy. The “Social Media Pitfalls to Avoid” article in the December 2009 issue of LAWPRO Magazine highlights the risks – and how to avoid them. You might want to review that article if you have not already done so.

The following is a sidebar to the article ‘Here Today, Gone Tomorrow: Insurance Implications of Lawyer Transfers and Practice Structures’, which appeared in the January 2012 edition of LAWPRO Magazine.

Not all insurance policies work the same way. One factor that differs is how a policy that is renewed annually “matches” claims to policy years.

A policy that matches claims to the policy in force when the facts giving rise to the claim occurred is sometimes called an “occurrence” based policy.

LAWPRO’s standard policy, by contrast, is a “claims-made- and-reported” policy.

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:

1. a claim is made against an insured; AND
2. the insured reports the matter to the insurer (LAWPRO) as a claim.

The focus is on when the claim is made and reported, 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 an insured this year for services provided in 2008, the policy that responds is this year’s policy. If the insured had similar coverage in 2008 as he or she has in 2012, it may not make much difference from a coverage perspective.

However, it is possible to have quite different coverage in different years:

• The insured may have retired since 2008 and now have only basic run-off insurance that provides coverage of $250,000 per claim and in the aggregate;
• The insured may have been practising real estate law in 2008, and would have had specialized coverage under the Real Estate Practice Coverage Option at the time, but discontinued the practice of real estate between 2008 and 2012;
• The insured may have been practising in a firm in 2008 and have had the benefit of innocent party coverage and excess insurance coverage, but is now a sole practitioner without either (or vice versa – the insured may have moved from sole practice in 2008 to a firm in 2012); or
• There may be general changes to the policy provisions, terms and conditions, and the scope of coverage expanded or reduced between the time the services were provided and the time a claim is made and received.

Clearly, changes in coverage between the year in which the error was made (and when factors leading to the possible liability of other parties are relevant) and the year in which the claim is made and reported can have significant coverage implications. The LAWPRO policy is available at www.lawpro.ca/standardpolicies.

The deadline to submit a 2012 LAWPRO renewal application has passed. If you’re a LAWPRO insured and you haven’t filed for 2012, call LAWPRO at 1-800-410-1013 or 416-598-5899.

We have received various questions and comments on the enhanced coverage for counterfeit certified cheques and bank drafts that we are providing under the 2010 LAWPRO insurance program and policy. To respond to those questions and comments, we’ve prepared an extensive list of FAQs (Frequently Asked Questions) that help explain this new enhanced coverage>, and also to provide some tips and guidance on how to make the coverage requirements work in your law practice.

These FAQs should help answer your questions as some recent media coverage about this new enhanced fraud coverage was not accurate as to what is and is not covered.

Any assertion that lawyers “effectively have no insurance coverage for such fraud” is incorrect. Lawyers DO and always have had coverage in situations where funds of legitimate clients were inadvertently paid out to fraudsters before the lawyer discovered that the instrument was counterfeit. Moreover, you do not need to make any changes in the way you practise for this protection to continue be in effect.

LAWPRO is now enhancing the existing protection: If your trust account is in an overdraft position because of a counterfeit certified cheque or bank draft, and the shortfall is strictly between the bank and you (no legitimate client funds are taken, or the amount of funds disbursed exceeded that belonging to legitimate clients), you will now have protection – at no additional cost - under the insurance program, provided that you comply with certain coverage requirements. (See FAQ #4 for information about these requirements.)

Moreover, this coverage is intended to help protect ALL segments of the bar; it was not, as has been suggested in the media, introduced to only address the particular challenges faced by the real estate bar. Fraud is very much a reality for all members of the bar. Litigators are being targeted on sham collection matters. Business lawyers are being targeted on bogus commercial loan matters. This enhanced coverage attempts to better protect all lawyers against the reality of fraud.

But at the same time, LAWPRO has a mandate to operate in a commercially reasonable manner and risk rate the insurance program. Hence the coverage requirements (e.g. waiting 8 business days before disbursing funds as instructed): These practice requirements help ensure that we moderate the risk to which the insurance program is exposed through this enhanced coverage. They also help equalize the likely impact on the insurance program arising from the different practice areas.

Making this enhanced coverage work is itself a work in progress, and we look forward to working with the profession to help lawyers avoid being victimized by fraudulent clients.

Call LAWPRO immediately at 1-800-410-1013 (416-598-5899) if you suspect you have completed or are acting on a matter that appears like it might be a fraud. We will talk you through the common fraud scenarios we are seeing and help you spot red flags that may indicate you are being duped. This will help you ask appropriate questions of your client to determine if the matter is legitimate or not. In the event the matter you are acting is a fraud and there is a potential claim, we will work with you to prevent the fraud and minimize potential claims costs.

As always, we welcome your questions, comments and suggestions.

Cross posted at Slaw.ca