Information, Statistics and Tips from the Lawyers Insurance Fund

FAMILY LAW BASICS 2014 UPDATE PAPER 10.1 Information, Statistics and Tips from the Lawyers Insurance Fund These materials were prepared by Edna M. Ritchie of the Lawyers Insurance Fund, Law Society of BC, Vancouver, BC, for the Continuing Legal Education Society of British Columbia, February 2014. Edna M. Ritchie

10.1.1 INFORMATION, STATISTICS, AND TIPS FROM THE LAWYERS INSURANCE FUND I. Introduction... 2 II. The Lawyers Insurance Fund... 2 A. Coverage... 2 1. Who is Covered?... 2 2. What is Covered?... 2 3. What is Not Covered?... 3 a. Exclusions... 3 b. Breaches of Policy Terms... 3 4. What are the Limits of Coverage?... 3 B. Reporting a Claim... 3 1. When to Report... 3 2. How to Report... 4 3. Obligations to Client... 5 4. Confidentiality... 5 C. Consequences of a Paid Claim... 5 III. Family Law Negligence Claims... 6 A. Oversights... 6 B. Failure to Paper the File... 6 C. Communication... 6 D. Legal Issues... 6 E. Unmanageable Risk... 6 F. Engagement Management... 7 IV. Loss Prevention Tips... 7 A. Mathematical and Clerical Errors... 7 B. Joint Debts... 7 C. Limit Your Retainer When Appropriate... 7 D. Do Not Make Your Client s Problem Your Problem... 7 E. Flag and Comply with Undertakings and Trust Conditions... 7 F. Independent Legal Advice... 7 G. Document Your File... 8 H. Get Advice from Your Colleagues... 8 V. Summary... 8

10.1.2 I. Introduction The practice of family law is demanding and hopefully rewarding work. During your career you will probably have to make at least one report to the Lawyers Insurance Fund. This paper will briefly describe the Lawyers Insurance Fund ( LIF ), advise when and how you make a report to LIF, discuss the causes of claims with an emphasis on claims reported by younger lawyers, and provide some loss prevention tips. II. The Lawyers Insurance Fund The Law Society of British Columbia requires that each of its members in private practice maintain errors and omissions insurance. This compulsory insurance is provided by The LSBC Captive Insurance Company Ltd. (the Captive ), a wholly owned subsidiary of The Law Society. The Lawyers Insurance Fund, a department of The Law Society, provides claims management services in respect of all claims and potential claims reported by insured members. LIF has a Director of Insurance, a Program Administrator, a Claims Supervisor, and 10 Claims Counsel who handle the files and frequently act as defence counsel. Although claims and potential claims must be reported in writing in order to comply with the reporting requirements of your policy, the Lawyers Insurance Fund encourages lawyers to contact them to discuss any liability insurance concerns they may have. A copy of the current insurance policy, LPL 14-01-01 (the Policy ), is contained in your Members Manual, as well as on The Law Society s website (www.lawsociety.bc.ca), and should be referred to for a complete description of coverage. The terms of the Policy govern and are not changed by the general descriptions set out in this paper. A. Coverage 1. Who is Covered? In general, the Policy covers only members or former members of The Law Society who were insured at the time of the error. The Policy also covers the Insured lawyer s law firm, law corporation, law firm management corporation, partners and support staff employees. Lawyers who have left the practice of law, or are now exempt from coverage, are all included as Individual Insureds under the policy in place at the time the claim is made, provided they were insured at the time of the error. 2. What is Covered? Under the Policy, the Captive has two primary duties. The first is to provide a defence in connection with a claim or suit. The second is to provide indemnity to pay settlements or damages awarded against an Insured. The Policy is meant to deal with allegations of negligence that arise from the practice of law.

10.1.3 3. What is Not Covered? a. Exclusions The Policy has a number of exclusions. For example, the Policy does not apply to acts made with actual or alleged dishonest, fraudulent, criminal or malicious purpose or intent. Claims by family members (spouses, common law spouses, children, parents or siblings), or relating to any organization in which the lawyer, family, or law firm partners or associates own more than 10% or have effective management or control, are not covered. Claims arising out of the lawyer s activities as an officer or director of a corporation or other entity other than a law corporation are also excluded from coverage. Although lawyers are covered, prima facie, for the practice of any type of law, anywhere in the world, coverage will be excluded if the lawyer is a member of another law society outside of Canada, and the claim arises out of their permanent practice in that other law society s jurisdiction. Insurance coverage for some risks not covered by our Policy, including some cybercrimes involving your computers, cellular phones and other electronic devices, may be obtained through the private insurance market. b. Breaches of Policy Terms A lawyer s entitlement to coverage may be jeopardized if certain conditions are not met. The two most critical relate to the obligation to report claims and potential claims, and the obligation to cooperate with the Captive in the investigation and defence of a claim, in the investigation of coverage, or in the repair of an error. The reporting obligation is dealt with in more detail below. The usual breach of the obligation to cooperate is a failure to provide documents or information for the Captive to assess the claim, or a failure to refer the client out for independent legal advice in an effort to repair or mitigate the loss. The Lawyers Insurance Fund deals regularly with counsel who are very experienced, and successful, with repair missions and as a result are able to repair approximately 12% of all matters reported. Repair efforts can be prejudiced through the noncooperation of the Insured lawyer, resulting in a loss that could have been avoided. 4. What are the Limits of Coverage? The limits of liability are $1 million per claim, and $2 million in the aggregate. The per claim limit is the Captive s maximum liability for all damages and costs arising out of the same or a series of related negligent acts, negligent errors or negligent omissions, or personal injuries, regardless of the number of claims or claimants. The annual aggregate limit is the maximum liability of the Captive for all covered claims which occur during the policy period (each calendar year). B. Reporting a Claim 1. When to Report Condition 4.1 of the Policy requires that if a lawyer becomes aware of an error or any circumstance which could reasonably be expected to be the basis of a claim, however unmeritorious, written notice must be given to the Lawyers Insurance Fund, along with the fullest information obtainable, immediately. It is no answer to a late report for a lawyer to say that they did not believe that a claim would arise or that they think they were right and the claimant is wrong.

10.1.4 The reporting obligation is necessary as early reporting of claims or potential claims assist LIF in its claims management. It is sometimes possible to repair the error such that no loss ever materializes. Early reporting also assists in setting accurate reserves for each year, which in turn assists the Lawyers Insurance Fund in accurately setting the insurance premium. Further, Rules 7.8-2 and 7.8-3 of the Code of Professional Conduct for British Columbia (the BC Code), stipulate that a lawyer must give prompt notice to an insurer and must cooperate with an insurer when facing a claim or potential claim for professional negligence. This imposes an ethical obligation on the lawyer, and thereby reduces the risk to the public of coverage being denied. Circumstances that appear unlikely to materialize into a claim can develop into a serious loss sometimes quickly or even years later. Therefore, the rule is: when in doubt, report. For example, a lawyer should report to LIF in the following circumstances: (a) the lawyer becomes aware of a new case or law or clarification of the law which suggests that advice the lawyer has given in the past is erroneous; (b) the lawyer s client has suggested that the lawyer caused him or her loss, gave inappropriate advice, or was negligent; (c) another party to the transaction in which the lawyer was involved on behalf of a client alleges the lawyer caused him or her loss or damage. The lawyer believes that he or she did not represent this party or offer advice; (d) the lawyer may have made an error, however, the lawyer s client has assured the lawyer that he or she will not sue; (e) the lawyer s client has given his or her file to another lawyer for review and that lawyer has suggested that the lawyer acted improperly or gave inappropriate advice. Although a report must be in writing, initial telephone calls to the Lawyers Insurance Fund are encouraged if the matter is urgent, the lawyer needs immediate assistance, or is uncertain whether or not a report is necessary. 2. How to Report A written report supplying the fullest information obtainable, is sent to: Lawyers Insurance Fund 8th Floor - 845 Cambie Street Vancouver, B.C. V6B 4Z9 Attention: Claims Manager FAX: (604) 682-5842 The written report should include: (a) the name of the claims counsel, if you have spoken to one about this matter; (b) the name of the lawyer(s) responsible for the potential or alleged error; (c) the name of the claimant(s); (d) the first date the potential or alleged error was discovered by anyone in your firm; (e) the date the potential or alleged error occurred; (f) the name of the firm, or association of lawyers, with which the responsible lawyer was practising when the potential or alleged error occurred;

10.1.5 (g) whether the potential or alleged error relates to a paralegal giving legal advice or representing clients before a court or tribunal; (h) whether this matter is or has been the subject of a complaint to the Law Society s Professional Conduct Department; (i) a chronological description of the circumstances giving rise to the claim or potential claim; (j) your objective response to the claim or problem, including any defences which may apply or any suggestions you may have for repair or mitigation of a potential error or loss; (k) an estimate of the amount of the potential damages, assuming liability (l) any other concern or matter you wish to bring to our attention; and (m) all relevant documents. 3. Obligations to Client The BC Code, Rule 7.8-1, imposes an ethical obligation on lawyers to promptly inform the client of the facts of any potentially damaging error or omission, and to recommend that the client obtain independent legal advice. A lawyer, on becoming aware of a potential claim, is placed in an awkward position. For example, where the lawyer fails to issue a Notice of Civil Claim within the limitation period to seek spousal support arising from a marriage like relationship, the lawyer must inform the client of the failure to issue the Notice of Civil Claim and must advise the client to seek independent legal advice. To do less could prejudice the client s position. The client now may have a cause of action against the lawyer. This may place the lawyer in a conflict of interest situation that precludes the lawyer from acting further for the client on the matter. As the lawyer will first report the matter to the Lawyers Insurance Fund, the Claims Counsel handling the report will review the wording that lawyer intends to use to ensure that this obligation is met without the lawyer prejudicing their insurance coverage. 4. Confidentiality The Lawyers Insurance Fund, although part of The Law Society, has a policy of maintaining confidentiality over claims information, except on a no name or statistical basis, from other departments or Committees of The Law Society. The only exception to this rule is if the Lawyers Insurance Fund has evidence of a defalcation or other criminal activity. C. Consequences of a Paid Claim If a report results in a paid indemnity claim, the lawyer: (a) must pay a deductible of $5,000 for the first paid indemnity claim and $10,000 for any subsequent claims reported within three years of the first paid claim. A deductible is that portion of the damages awarded or settlement negotiated that must be contributed by the Insured;

10.1.6 (b) must pay a surcharge of up to $1,000 per annum on the insurance fee for the next five years; and loses eligibility for the part-time discount for the next five years. Defence costs and other expenses paid on a claim do not attract any of these consequences. III. Family Law Negligence Claims The incidence of family law reports to LIF over the last ten years has risen significantly. In 2003, the percentage of family law reports compared to all reports to LIF was 6%. In 2013, that figure was 11%. The cause of the rise in family law reports cannot be ascertained with certainty. However, knowing the law, managing your client s expectations, and handling every file with care should help reduce the risk of practicing family law. On each claim opened at LIF, the responsible claims counsel investigates what went wrong and enters a Loss Cause code. We will now examine some of the statistical similarities and differences between the Loss Cause of all family law reports and those reported by lawyers under 31 years old. A. Oversights Lawyers, like any humans, make mistakes. Almost a quarter of all family law reports to LIF arise out of oversights. The lawyer knows what has to be done and simply does not do it. These types of claim include failing to utilize diary systems properly, delegating work without proper supervision, and (most significantly) being sloppy. The statistics for young family lawyers are exactly the same as all lawyers for oversights (22.2%). B. Failure to Paper the File The fact that a lawyer has given proper advice may be negated where that lawyer fails to confirm that advice in writing or make notes to the file. Failure to create a trail causes 4.3% of all family law claims and 5.6% of claims by younger lawyers. C. Communication Many family law clients do not hear, or do not understand, what they are told about their file. Younger family law lawyers report more claims arising out of problems (19.4%) with communications than family law lawyers generally (14.4%). D. Legal Issues Younger family lawyers report a slightly higher percentage (30.6 %) of claims than all family law lawyers (24.8%) arising out of the failure to recognize legal issues, or failing to act on the legal issues they are aware of. E. Unmanageable Risk Family law lawyers as a whole report more claims (6.3%) than younger lawyers (2.8%) that in LIF s view could not be prevented. For example, we see cases where an unhappy family litigant sues the opposing lawyer.

10.1.7 F. Engagement Management Surprisingly, family lawyers generally report a significantly higher percentage of claims (27.9%) than younger lawyers (19.4%) arising from engagement management, especially managing client expectations about the legal process. IV. Loss Prevention Tips The other papers at this conference provide detailed examples of how to handle the basic components of a family law file. Here, we highlight a few problems that we have reported to us year after year. A. Mathematical and Clerical Errors Don t assume that you have drafted an offer or a separation agreement properly. Step back and review it or better yet, have someone else review it. B. Joint Debts Make sure that your client understands and that you have confirmed in writing, that just because the other party agrees or is ordered to pay a joint debt, the creditor is still able to enforce the debt against your client. C. Limit Your Retainer When Appropriate Confirm in writing what you will do, and what you will not do. When your client mentions that she was involved in a motor vehicle accident, make it clear that you are not acting on the personal injury claim. D. Do Not Make Your Client s Problem Your Problem Stay professional, your purpose is to counsel your client and advocate for their cause. Becoming personally embroiled in the dispute with the opposing party may lead to professional conduct problems, client management problems and your health problems. E. Flag and Comply with Undertakings and Trust Conditions Do not accept an undertaking if complying with the undertaking is not in your complete control. Educate your staff about the importance of undertakings and trust conditions and ensure that they are not forgotten about months or years later when compliance is required. F. Independent Legal Advice Full independent legal advice on a family law settlement requires an investigation into numerous factors, especially relating to family assets and income. If your client refuses to retain you to conduct that investigation, consider whether you should act or not. If you act in a limited manner, confirm those limitations in writing and do not sign an inaccurate certificate of independent legal advice.

10.1.8 G. Document Your File Confirm your advice and instructions in writing as much as practicable, especially with difficult clients. Take time to create a memo, notes or a confirming letter when a red flag situation occurs. H. Get Advice from Your Colleagues The family bar is full of knowledgeable, helpful lawyers who will not hesitate to assist other lawyers, especially young lawyers. V. Summary The practice of family law can be a rewarding and fulfilling experience. Conduct yourself professionally and carefully. Be familiar with the terms of your Policy and make sure your practice is actively avoiding or minimizing risk of claims being made against you.