Do you need Excess Insurance?
Lawyers often ask if they have enough insurance. All insured lawyers in the province of Newfoundland and Labrador have mandatory insurance coverage of $1 million per claim with an annual aggregate limit of $2 million. The $1 million per claim limit means if a disgruntled former client presents a claim against you between July 1, 2022 and July 1, 2023, you would have coverage for up to $1 million for defence and damages combined on that claim. The annual aggregate means if three unhappy clients each make claims against you between July 1, 2022 and July 1, 2023, you have a total of $2 million to cover the damage and defence costs on those three claims and that once you hit that $2 million cap, you are on your own. You should consider these limits of insurance when you decide how much is enough coverage for your practice. In addition, lawyers have mandatory Cyber insurance ranging from $100K to $250K for various common cyber claims.
You can purchase excess insurance that covers you for claims that might arise after your $1 million per claim and $2 million aggregate limits have been exhausted. Excess coverage is available through the Law Society from the Canadian Lawyers Insurance Association (CLIA). Contact CLIA directly at email@example.com.
New in 2022!
In response to requests received from CLIA customers, CLIA is offering additional limits of liability coverage in 2022 above the traditional offering of $1M to $10M excess limit. New this year are $15M and $20M excess limits that will be available effective July 1, 2022.
To ensure lawyers are adequately protected from various cyber threats the VEP Cybercrime Endorsement is being phased out in favour of a broader Stand-Alone cyber excess policy through the VEP program. The optional Stand-Alone program provides much higher limits, broader coverages, and is competitively priced.
Like most excess liability policies, CLIA’s excess liability program is “Claims Made” meaning that you will need to have insurance in place when a claim is made and not when the work was done. It is not transaction based coverage. Firms that do not renew their excess insurance will not have coverage for losses reported after the expiry date of the policy. So, if you purchased coverage with a specific transaction in mind, that coverage will need to be renewed as long as the possibility of a claim still exists.
Excess insurance is different from Mandatory coverage in this respect. On your mandatory coverage, as long as you had insurance at the date of the alleged error, you are covered for that claim even if, when the claim is presented, you are no longer insured, practising or alive. Mandatory coverage stays with you forever. Excess insurance does not.
Purchasing your excess liability coverage through CLIA provides you with seamless coverage. Your initial report to the Lawyers’ Insurance Programme is deemed a report to CLIA. So, if a claim that looks like it isn’t going anywhere suddenly and unexpectedly goes south some years later, you will still be covered, because it was considered reported to CLIA at day one.
Coverage in retirement
Lawyers contemplating retirement often call us about continuing coverage. If you were insured under the mandatory coverage when you did the work, you continue to have $ 1 million mandatory coverage even if you are no longer practising when a claim is made. But, depending on your practice before you retired, you may need more than that $1 million mandatory limit of coverage to give you comfort in your retirement. CLIA is able to provide all retired inactive lawyers with a 25% discount for excess coverage. Check with your accountant, but for most retired lawyers, that premium would also be tax deductible.
If a law firm refers a new client to CLIA for excess liability coverage, they will receive a 10% discount on their following year renewal.
It is important for you to renew your coverage before the end of the policy year to avoid gaps in coverage that may leave you unnecessarily exposed to risk of uninsured liability. This year the online application process will open on Monday, June 6th, 2022, to ensure that you have time to complete the application and submit premium payments prior to the July 1st policy renewal.
Things to consider when making your decision to Buy Excess insurance
1. Does your Client require it?
Some clients require proof of excess insurance. Lenders may require insurance at a level that matches a loan advance. Some government agencies or large corporations may require proof of a minimum level of insurance that is higher than the mandatory $1 million as a condition of the retainer. You can buy excess from CLIA now or at any time throughout the year, but remember, coverage purchased with a single transaction in mind should be renewed as long as the possibility of a claim relating to that transaction still exists.
2. Do you or your partners practice in an area of law with a higher risk of many claims or of larger claims?
Some areas of law consistently result in more frequent claims. For instance, real estate files account for the highest number of claims by volume, but these are usually less costly per claim. Missed limitations on personal injury files, or securities or tax law related claims arise less frequently, but damages tend to be more severe. When you are deciding whether to purchase excess insurance and in what amount, consider whether your practice and that of your partners and associates falls into areas of law that are high risk for frequent claims or high risk for severity.
3. Do you handle large Dollar value files?
You should also assess the potential quantum of damages arising out of potential claims. Valuable estates, and family law files where the value of assets at issue is high all have the potential to develop into large claims. Personal injury, including medical malpractice, has potentially high value if limitations are missed or claims are dismissed for delay.
4. Could large Defence expenses erode your $1 million coverage?
You should also remember that it is not only the indemnity or damage payment which might ultimately erode the limits of your insurance. Defence costs eat into your coverage limits. There have been claims in Canada where costs incurred in defending lawyers in complex legal malpractice suits have exceeded $1 million, with the mandatory limit totally gone before damages are paid.
Take some time and consider your exposure today. If you have questions, contact CLIA directly at firstname.lastname@example.org.
Lawyers Insurance Programme
Law Society of Newfoundland and Labrador