Law Times

PAGE 12 FOCUS November 30, 2009 • Law Times LawPRO claims jump as insurance premiums set to rise BY I. JOHN HARVEY For Law Times I f lawyers were nicer, would their errors-and-omissions insurance premiums drop? What if they used their BlackBerry devices less? Those are two trick ques- tions that are worth consider- ing because the base premium is set to jump by $500 next year to $2,950 with other increases such as a one-time harmonized sales tax levy of $450 also a possibility. Depending on the area of practice, however, some lawyers could pay just $1,595. Some of the factors driving the rate increase include a rise in claims, the looming HST set for July 1, 2010, and the economic downturn that has slashed returns on investments used to stabilize premiums. About $150 of the $500 in- crease is attributable to the pre- mium stabilization fund. However, as Dan Pinning- ton, director of LawPRO's practicePRO risk management program, points out, one of the biggest triggers for lawsuits against members of the profession is a simple lack of communica- tion and what could be loosely termed "customer service." It seems politeness and cour- tesy do matter, regardless of whether you're selling shoes at the mall or advising and serv- ing a client in your office. "The highest number of claims — about one third — are because of communication problems," says Pinnington, repeating an oft-said message to the profession and one he am- plifies in his blog at avoidaclaim. com. "That lack of communica- tion could be as simple as not returning e-mails or phone calls, which in turn leads to client frustration and dissatisfaction, a prime breeding ground for a lawsuit. Don't unnecessarily an- noy your clients." The second most common triggers are deadline and time- management issues in which a lawyer didn't file something on time or let other things get in the way of serving a client, something Pinnington refers to as a "symptom of 'BlackBerry legal advice' — quick ques- tions and answers about law exchanged in a rush." The third, he says, deal with conflicts of interest, not doing enough or errors in law. "These numbers don't change by firm size. It's as common with single prac- titioners, small firms, and large firms," he adds. A substantial number of claims involve real es- tate transactions and, as a result, the dollar values of claims have soared, says Kathleen Waters, president and CEO of LawPRO. With the stakes higher in real estate due to rising property values, it's no sur- prise that claims are a con- stant, she says. Many of the claims deal with issues such as a failure to close a deal, the advice the lawyer gave, and whether the lawyer investigated the title thor- oughly enough given the client's stated intent for the property. "If the client planned to Dan Pinnington says communication issues account for the highest number of insurance claims. an anomaly that results from LawPRO's status have their mother live in one unit and rent out another and then finds they cannot do that under the bylaw, it could be a claim," says Waters. Stranger still are claims that the service didn't include title insurance, which also results in issues. Fraud, of course, remains one of the more serious claim areas with more lawyers being targeted for transfers of bogus money or unwittingly find- ing themselves helping set up a fake corporation used in an illegal commercial-lending or mortgage scheme. But besides rising claims, other factors are also behind the premium increase. The HST, for example, is as a finan- cial institution, which means it can't pass on or otherwise deduct the added tax on solici- tors' fees. The upshot is an immedi- ate five-per-cent jump in fees associated with claims start- ing July 1. With claims burn- ing through a big chunk of LawPRO's budget, the extra five per cent accounts for $150 of the premium increase. Further complicating the is picture the reality that Structured Settlements BC LT 4/6/05 2:54 PM Page 1 LawPRO has about $365 mil- lion in unsettled claims that probably won't resolve before the July 1 imposition of the HST. As a result, all costs af- ter that date will be subject to the HST, which LawPRO esti- mates will trigger a $10-million unfunded liability since the cost of the additional tax wasn't a factor when calculating the should applicable premiums. Accordingly, lawyers brace themselves for a special one-time levy of $450 to cover the HST liability on outstanding claims as of July 1 in addi- tion to the $500 basic pre- mium increase. Other changes in LawPRO premiums in- clude dropping the real estate practice coverage by $100 to $400 while real es- tate transaction levies will rise by $15 to $65. Coverage also increases to include overdraft protection for frauds against Ontario lawyers who are stung by counterfeit certified cheques and bank drafts in their trust accounts, protection against misappropriation by counsel temporarily practising else- where in Canada, and cover- age for practitioners working as special advisers in Quebec. Since its inception in 1995, LawPRO has averaged about 1,846 new claims a year, suc- cessfully defending about 86 per cent of them. Some 39 per cent close with only defence costs and 47 per cent with no defence costs or indemnity payments. Only 14 per cent end with a payout. However, the total cost of handling those claims, whether or not a payout takes place, has been rising. Every $1 million in new claims adds $100 a year in extra premium costs and, as a result, $200 of the $500 2010 premium increase stems from new claims. Ironically, costs related to claims for an error in law or failure to know it account for only a minority of cases, about 13 per cent of all claims with a dollar value of about 14.8 per cent of all claim costs. The answer, then, as to whether politeness and more attention to detail would result in lower premiums is a quali- fied yes, says Pinnington. Law- yers, being human, are always at risk of making an error or omission but they can protect themselves and help hold the line on premium costs by be- ing vigilant. LT enderson_LT_Nov30_09.indd 1 11/24/09 11:28:18 AM Baxter_LT.indd 1 www.lawtimesnews.com 12/11/08 9:02:24 AM

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