The new millennium brings with it yet another reduction in the basic liability insurance assessment, as well as the issuance of a consolidated policy. The limits of coverage remain unchanged, and the program will once again operate without reinsurance.
Assessment
The Benchers set the annual insurance assessment at $1,500 in 2000, a reduction of $200 from the assessment in 1999. For the fourth consecutive year, the Lawyers Insurance Fund's positive claims experience and available investment income allowed a reduction in the premium.
Policy wording
A consolidated policy for 2000 was issued, incorporating changes to the wording made by endorsement in 1998 and 1999, and adding some minor revisions. A copy of the consolidated policy is enclosed in this mailing. While there are no material changes to the coverage provided by the 1999 policy, the following highlights the more significant of these "housekeeping" changes.
The definition of "common-law spouse" has been revised to extend the definition to same-sex relationships. "Common-law spouse" is now defined as "a person not married to the Individual Insured, who has lived with the Individual Insured in a marriage-like relationship, including a similar relationship between persons of the same gender, for a period of not less than one year."
The definition of "error" has been amended by replacing the words "negligent act, error or omission" with "negligent act, negligent error or negligent omission." This amendment simply underscores the fact that the policy does not provide coverage for intentional acts.
Exclusion 6.2, the "business exclusion," has been amended by revising the wording of 6.2.3. The former wording provided that coverage would be excluded for a lawyer where "the law firm partners, or associates of the Individual Insured" exceeded certain levels of ownership or control of an organization. The wording has been revised to exclude coverage for a lawyer where those levels are exceeded by "the Individual Insured's law firm, law firm's partners or law firm's associates." The new wording clarifies that coverage will be excluded whether a lawyer is a partner or an associate in a law firm in which another lawyer, be that lawyer a partner or an associate, exceeds the permissible level of ownership or control of an organization as set out in Exclusion 6.2.
Exclusion 6.2 has also been amended by replacing the words "effective management" with "effective management or control." The replacement wording makes it clear that the Exclusion is intended to apply to those with either effective management or effective control of an organization.
Condition 3.2, requiring reimbursement of damages and claims expenses in certain circumstances, has been amended by adding the words "you or" in the second line. The addition clarifies that, if indemnity or expense payments are made on a claim where the responsible lawyer is disentitled to coverage, those payments can be recovered from that lawyer, whether incurred on behalf of that lawyer or any other insured.
Condition 5, requiring the insured's assistance and cooperation, has had two amendments. First, 5.1.3 was amended to substitute "if we request" for "if required." The intent is to clarify that, if requested, an insured is obligated to submit to an examination and interview by a representative of the insurer under oath. The insured is precluded from arguing that such an examination is not "required." Second, 5.4 was added to formally sanction our practice of disclosing information to certain third parties, as necessary for the proper administration of the Lawyers Insurance Fund. The new Condition states that: "We shall be entitled to disclose such information as we deem appropriate to third party auditors, reinsurers and excess insurers."
Condition 6, dealing with innocent insureds, has had two revisions. First, the words "and were members at the time of the act or error" were added to the final line of Condition 6.1, and second, the words "who were members at the time of the error" were added after "partners" to the fourth line of Condition 6.2. Where these Conditions apply, they extend coverage to others who face vicarious liability for the responsible lawyer's actions. The revisions ensure that the only "others" to whom coverage is extended are B.C. lawyers.
Condition 8.1, dealing with other insurance, has been replaced with the following wording: "This insurance is excess over any other valid and collectible insurance, whether primary, contributing, excess, contingent or on any other basis." This wording replaces the former pro rata wording, protecting the policy from being exhausted in advance of other policies responding to the same loss.
Condition 10, dealing with an insured's insolvency, bankruptcy, incapacity or death, has been amended by adding the words "or you or your estate" to the first line, and "respective" to the second line. These revisions clarify that, just as lawyers and their estates are entitled to the policy's benefits, so each must bear the consequences of any payment (e.g. liability for the deductible).
Finally, Condition 16 (previously numbered Condition 17 under the 1997 consolidation), providing that B.C. is the applicable law governing the policy, was replaced in its entirety, and now reads: "This policy will be exclusively governed by and interpreted in accordance with the laws of British Columbia and any applicable federal laws of Canada, and all disputes arising out of or in connection with this policy shall be submitted to and be subject to the exclusive jurisdiction of the Courts of British Columbia." The new wording clearly provides that B.C. has exclusive jurisdiction over the policy.
Coverage
The program's limits of coverage remain unchanged. Each insured lawyer is provided with $1 million of coverage for each error, with an annual maximum of $2 million for all errors reported during the year. The deductible remains at $5,000 for each paid claim, increasing to $10,000 for each subsequent paid claim reported within three years. Excess insurance, providing increased limits of coverage, may be purchased privately.
Reinsurance
Since 1997, the program has funded the limits of coverage itself, rather than purchase reinsurance. Although 2000 will see another year of operating without reinsurance, the decision as to whether or not to purchase reinsurance is one that is reviewed annually to ensure it remains most cost-effective.
2000 and beyond
Thankfully, it seems that 2000 did not bring with it any of the catastrophic losses anticipated from failures in computer systems. However, although that particular source of potential claims seems unlikely to cause significant losses, the Lawyers Insurance Fund still expects to pay out approximately $10 million in damages and defence costs this year. Further, 1999 unfortunately saw an increase in the severity (average cost) of reports. The program's ability to maintain the existing scope of coverage for an annual assessment of $1,500 remains dependent on lawyers' efforts to effectively manage the inherent risks of day-to-day practice.