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Lawyers’ Risk Appetite May Unwittingly Influence Their Clients’ Desired Exposure

Lawyers’ Risk Appetite May Unwittingly Influence Their Clients’ Desired Exposure

It is a well-established fact that litigation has risk.  The risk forms the basis of the “no win, no fee’ contingency fee agreements that are used by the majority of lawyers in retaining their personal injury clients.

LAWYERS INFLUENCE THEIR CLIENTS’ RISK ASSESSMENTS

A client’s appetite for risk is influenced not only by their lawyer’s professional assessment of their claim, but also by their lawyer’s personal risk appetite.   Clients will almost certainly ask their lawyer, “How good is my case?”, “What do you think it is worth?” and “How long will it take to get the case settled?”  In answering these questions, regardless of how vague the answers may be, the lawyer shapes the client’s expectation and assessment of risk.

Ian Hu, an attorney with Toronto-based LawPro, says:

“the biggest risk of malpractice claims surrounding settlements is when lawyers fail to fully discuss with their clients all the potential outcomes of a case, the risks involved with each scenario and the potential costs.”

A lawyer should ask themselves, from their client’s perspective:

  • Is this client exposed to risk that the client should be made aware of?
  • Have I advised the client of all the consequences of litigation?
  • Am I shaping the client’s view of litigation risk by not fully explaining the possible outcome of a case or by downplaying litigation cost consequences?
  • Have I conveyed my personal risk profile onto the client?
  • Have I avoided discussing costs and risks because I don’t like to discuss these items or because I am afraid that, if I do, I may scare the client away?

LITIGATION IS RISKY

If your client’s claim for compensation is unsuccessful, an After the Event Insurance policy will protect them from paying their own costs and disbursements and those of their opponent as well as adverse cost awards.

The client’s risk profile may be considerably different than their lawyer’s.  Understanding their risk appetite and placing their best interests ahead of all else will  always serve you well.

Only when your clients have an ATE policy in place when pursuing a compensation claim, can they feel assured that their claim is risk free.

ATE successfully used to defeat a security for costs motion

ATE successfully used to defeat a security for costs motion

A recent Ontario Superior Court case, Grotz v. Hilton Garden Inn Toronto, has considered the effectiveness of an “after the event” insurance policy (“ATE”) in the context of a security for costs application.  An application was brought by the defendant for security for costs where the plaintiff resides in the State of California and, as a non-resident, he bears the burden of proving the effect on him should an order for security for costs be granted.

The Judge ruled that the Master appropriately scrutinized the quality and sufficiency of the Plaintiff’s assets to determine whether they were genuine and if they provided a reasonable degree of protection in the lawsuit, after also having regard to the potential financial impact on the Plaintiff.  The Master clearly considered the specific ATE policy terms of the adverse costs insurance in question and, while it was conditional, it was certain enough to be considered security for costs.

Read the case:

http://www.redressrisk.com/bulletin5.pdf

 

 

 

Impact of “set-off” provision on Rule 49 Formal Offers

Impact of “set-off” provision on Rule 49 Formal Offers

Impact of Set Off Provision

If a client is in the position of assessing a Formal Offer under Rule 49 and the likelihood of successfully beating the offer at trial, it is imperative that your client has appropriate coverage to mitigate the risk.  The implementation of a set-off provision could materially impact their coverage.

Non-insurance products may contain a clause that states “Adverse Costs Awards are subject to any set off for any Costs, Interim Costs, Damages or any other compensation paid or payable to You (indemnity holder) or Your Legal Council during the pursuit of Your Claim.”. The application of this clause can materially reduce and / or completely eliminate any settlement award your client receives.

Redress After the Event (ATE) Insurance does not contain any set off provisions in a situation where adverse costs are awarded.  If your client fails to beat a Rule 49 offer, they will have access to the full ATE Policy to assist with Adverse Costs Awards and Own Costs (up to policy coverage of $100,000), meaning they will retain considerably more of their settlement.

Consider the impact of a set-off clause in this example.

              Recap:

                             Client in serious MVA and there are some issues

                             Client retains lawyer on CFA, 33% Success fee

                             Rule 49 Formal Offer of            $200,000    

           Client declines Formal Offer

                             Court Award                                 $175,000

                             Adverse Cost Awarded             $  55,000

                             Own Costs                                     $  59,000

 

Redress ATE Non-insurance with Set off
Settlement Award $175,000 $175,000
Costs
Own Legal Fees $57,750 $57,750
Own Costs $59,000 $59,000
ATE Premium* $0 $0 (Indemnity Fee)
Awarded Adverse Costs $55,000 $55,000
Total Costs $171,750 $171,750
Add Insurance Protection $100,000 $0 (Set off provision)
Net to Client $103,250 $3,250

*No ATE Premium owing as the premium is self insured.

In this example, because the client’s settlement is sufficient to cover the Adverse Cost Award and Own Cost, the set off

clause included in non-insurance indemnity agreement effectively eliminates the client’s settlement award. Under Redress’ ATE insurance program these costs are covered and the client is left with substantially more of the settlement proceeds.

The lack of a set off clause under Redress ATE Insurance is a significant “value difference.”

The bottom line: protect yourself.

Best Practice Solutions:

  1. Investigate and understand the similarities and differences between non-insured programs and licensed Canadian insurance
  2. Consider the Provincial Registered Insurance Brokers Act as a The RIBA provides oversight to licensed insurance brokers:

Document that you have made the client aware of the following:

  • That an indemnity provider is not subject to regulation or oversight under the Insurance Act,
  • Orderly payment of claims may be more difficult than with an insurer licensed under the Insurance Act,
  • The Superintendent of Insurance has no authority under the Insurance Act with respect to an Indemnity agreement,
  • That sufficient insurance can be obtained at reasonable rates from a registered insurance.

We are here to help. Call us to find out more about the licensed ATE insurance products we offer, how they work and how they can protect you and your client.

Failure to Offer

Failure to Offer

FAILING TO ADVISE CLIENTS OF AFTER THE EVENT INSURANCE COULD OPEN UP RISKS

Does this sound ominous? Well in markets where After the Event (ATE) insurance is more mature, such as Great Britain, the risks are reality.

Great Britain’s Code of Conduct for lawyers (SRA) has a requirement for ATE. It requires lawyers to protect their clients’ interests and sets out the compliance rules regarding ATE Insurance. They include: discussing the risk of the client having to pay someone else’s legal fees and warning about payments which the client may be responsible for, as well as explaining the implications of a CFA and discussing the possibility of insurance.

Clearly the SRA Rules and indeed the SRA’s views on ATE mean that the client must be informed about ATE Insurance cover and be offered the opportunity to purchase an appropriate ATE Insurance policy. Jonathan Sachs, Partner with Irwin Mitchell Solicitors in the U.K., states “there are already cases which are presently being settled without proceeding to court on this basis”, and one case, Adris v Royal Bank of Scotland plc (High Court – HHJ Waksman QC – 29/4/2010), which commented:

“the Code of Conduct requires solicitors to advise their clients of their potential liability for another party’s costs and to discuss whether their liability for adverse costs is covered by an existing insurance policy or whether specially purchased insurance should be obtained. It therefore seems that there is a risk of a NPCO against a solicitor whenever they fail to properly advise and protect their client against the risk of adverse costs, and where they fail to do so, they may be deemed to have pursued an action without instructions.”

Clients should be informed about ATE Insurance

No Canadian Provincial Law Society has issued guidance on ATE, but LAWPRO (Lawyers Professional Insurance Company for Ontario Lawyers) has made comment on failure to bind their Title Insurance product for clients and the comparison is easily made between the two products.

 CEO, Kathleen Waters wrote in The Lawyers Weekly, October 5, 2012:

“At the heart of most claims is the lawyer’s failure to deliver something the client has requested or expected”, and “When a lawyer is asked to secure title insurance and doesn’t, he or she effectively becomes responsible for everything the policy would have covered, even if the range of insurance protection exceeds the normal standard of practice…”

Sobering? Precaution would dictate that the time is now to protect yourself against this type of claim.

The solution is relatively straightforward: to fulfill your obligations to your clients, it is a good idea to put in place the proper procedures to provide evidence that you have advised them of litigation risks and how ATE mitigates against some of the risk.

Recommended Procedures:

  1. The time is now to learn all about After the Event Insurance and the costs and benefits. Compare providers and know the vast difference between a licensed insurance product and an unlicensed indemnity product,
  2. Have an arrangement in place with a broker to be able to offer ATE Insurance to clients,
  3. At the same time as executing your CFA, have ATE materials available for your clients to educate themselves,
  4. Send information about ATE to your existing clients,
  5. Strongly recommend that your clients consider purchasing a policy,
  6. If any of your clients do not wish to purchase an ATE policy, have them execute an Opt Out of Coverage Form, and
  7. Meet with clients who fail to take out an After the Event Insurance policy to ensure they understand the risks of proceeding without ATE Insurance protection.

Meet with Every Client Who Refuses After the Event Insurance Cover

Please note – the last point may be the most important. Lawyers need to go further when it comes to evidencing their compliance with advising their clients about ATE Insurance.  A client who is simply advised of ATE insurance policies (perhaps in a client care letter) and who declines to act on it, but then faces an adverse costs order will probably argue: “I know that you offered me an ATE Insurance policy and I opted not to purchase it, but rather than simply leaving the choice to me, your professional obligation was to have strongly advised me that I needed an ATE policy to protect me in the situation which has occurred.” If the client complains to your Provincial Society, they may take the view that when faced with a client who risked losing a large sum, the lawyer’s obligation concerning ATE protection was to meet with the client, ensure that he fully understood the risk he was taking and to strongly recommend an ATE policy purchase.

Bottom line, putting in a proper program now will protect you from unnecessary risk in the future.

Indemnities May Not Insure

Indemnities May Not Insure

Insurance Indemnifies but Indemnities are Not Necessarily Insurance!

As licensed insurance brokers specializing in legal expense insurance, it is our professional obligation to advise lawyers of the difference between two types of legal expense indemnity: those indemnities that constitute insurance and those that do not. 

Legal Expense Insurance, such as After the Event Insurance, offers protection to Plaintiffs and their lawyers against adverse costs awards and own cost disbursements. ATE insurance is offered by licensed brokers.  This is contrasted with similar protection that is currently marketed by “indemnity” companies who are not licensed insurance brokers.  There are numerous distinctions between insurance and these other non-insurance indemnity products – some significant and others not -but there is one major distinction: Insurance indemnifies but Indemnities are Not Necessarily Insurance.

Clients need to have security that compensation will be paid if they take the risk of trial

It’s quite simple.  An indemnity is a contracted promise, an obligation by a person or company to provide compensation for a particular loss suffered by another person or company.  An indemnity is also the underpinning of all insurance contracts.  In order for a promise to indemnify to be deemed to be insurance, it must be given by a licensed insurer who has satisfied the requirements of Canadian law.

Canadians dealing with licensed insurance companies derive comfort from the fact that insurance companies are highly regulated by Provincial and Federal governmental bodies.  Insurers are required to strictly comply with the Insurance Act and other insurance legislation.  They are required to meet minimum capital and reserve structure and solvency requirements. They have the support of the Property Casualty Insurance Compensation Corporation (PCICC) should the unlikely event happen that a company becomes insolvent.  They are subject to the jurisdiction of an Ombudsman who may intercede if there are concerns or if the insurer is not in compliance with the standardized complaints process.  Canadian Insurance Regulations are there to protect the public by better ensuring that licensed insurance companies will be capable of fulfilling their contractual promise to indemnify.

Companies that provide non-insurance indemnities are not licensed insurers and, consequently, are not required to comply with the Insurance Act and other insurance legislation. They do not have to demonstrate to regulators that they have sufficient capital or reserves to meet future claims.  They are not supported by PCICC in the event that they should become insolvent.  Customers are not able to have their concerns investigated by the insurance Ombudsman or complaint process.  In short, they cannot rely upon the legal protections offered by Canadian Insurance Regulation.  As a consequence, customers may need to conduct additional due diligence on the financial viability of the indemnity provider and consider requiring that such provider provide alternative security to backstop their promise to indemnify.

Is there exposure for you?

The answer is potentially.  If your client has entered into an unlicensed indemnity contract on your recommendation and the client / lawyer make the decision to go to trial and lose, there could be exposure if the indemnity does not pay in accordance with the indemnity agreement.  The exposure is that the client, had they been made aware, could have secured sufficient  insurance at reasonable rates, with the same or similar terms and conditions from a licensed Canadian insurer and thus the risks surrounding indemnity agreements would have been avoided.  How do you protect yourself?

Best Practice Solutions:

  1. Investigate and understand the similarities and differences between indemnity agreements and insurance protection.
  2. Consider the Provincial Registered Insurance Brokers Act as a guideline. The RIBA provides oversight to licensed insurance brokers:Document that you have made the client aware of the following:
    1. That an indemnity provider is not subject to regulation or oversight under the Insurance Act,
    2. Orderly payment of claims may be more difficult than with an insurer licensed under the Insurance Act.
    3. The Superintendent of Insurance has no authority under the Insurance Act with respect to an Indemnity agreement,
    4. That sufficient insurance can be obtained at reasonable rates from a registered insurance broker

The bottom line: learning about licensed ATE Insurance products and putting in a proper program now will protect you from unnecessary risk in the future.

We are here to help.  Call us to find out more about they licensed ATE insurance products we offer, how they work and how they can protect you and your client.

Call us today at 1-844-400-4388 or visit us at redressrisk.com for more information!