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No lawyer in private practice is immune to professional indemnity claims. However, over 20 years’ experience insuring the Ontario bar has made it clear to LAWPRO analysts that claims risk varies with area of practice. Lawyers who practise real estate or civil litigation face a significantly higher risk of claims than those who practise in other areas.

Like most insurers, LAWPRO strives to promote a reasonable degree of fairness in the setting of premiums. We do this, in part, by offering discounts to lower-risk practitioners (criminal law, immigration, part-time practitioners, new lawyers) and by charging transaction levies for higher-risk work (real estate, civil litigation). Transaction levies offer the additional benefit of tying premium collection to practice volume. These discounts and levies are some of the main tools by which we “risk-rate” coverage.

The analysis that underlies risk-rating is a continual process. Practice habits evolve, the economy changes, and new methods of dispute resolution emerge. These and other factors influence claims trends. Each year, LAWPRO staff track claims patterns and apply actuarial methods to re-evaluate the assumptions underlying risk-rating decisions.

In preparation for the design of the 2018 insurance program, risk-rating analysis confirmed two patterns we have been monitoring: the first is that the rate and cost of civil litigation claims is becoming too high compared to the premiums recovered from those practitioners; and the second is that family law litigation is not a part of that trend.

Risks relatively low for family law litigation
When claims are reported to LAWPRO, they are “coded” based on area of practice and the nature of the error alleged. This coding system has evolved over the years, allowing analysts to identify claims patterns with increasing precision. In recent years, LAWPRO’s actuarial analysis of risk-rating results has shown that total premiums attributable to the family law bar meet the expected loss costs.

Furthermore, within the broader category of family law-based claims, analysis shows that litigation-related errors are responsible for fewer claims than are other types of family law errors. In other words, while civil litigation broadly defined is a high-risk practice area from a claims point of view, family law litigation, as a subcategory of litigation, is not.

In addition to supporting risk-rating objectives, elimination of the civil litigation transaction levy for family law matters may help improve access to justice. By reducing coverage costs for lawyers, we hope that costs for family law litigants will also be reduced.

Premiums not keeping up with non-family litigation claims costs
Observation of the non-family litigation claims experience reveals a different story.

In recent years, the growth in civil litigation claims has outstripped the overall growth in claims. For example, from 2006 through 2010, LAWPRO received an average of 708 civil litigation claims each year. During 2011 through 2015, the average increased to 948 each year. This growth of 34 per cent vastly exceeds the 7 per cent total growth of claims for all other areas of law over the same time period.

In the years 2007 through 2014, the average cost of these claims was $5,935 per civil litigation practitioner. This amount is significantly more than the amount collected in premiums – including civil litigation transaction levies – from the lawyers practising in this area.

Risk-rating requires a transaction levy increase
The discrepancy between the cost of claims generated by civil litigation lawyers and the premium collected from those lawyers means that an adjustment to LAWPRO’s risk-rating methods is appropriate at this time. Accordingly, beginning with the 2018 program year, the civil litigation transaction levy is increased from $50 to $100.

As provided in paragraph A of Endorsement No. 3 of the policy, a “civil litigation transaction” is defined as the commencement of a proceeding or a defence to a proceeding (see the full definition in
the endorsement). The new levy amount will apply to proceedings commenced, as defined, on or after January 1, 2018.

At the same time, transaction levies will no longer be payable in respect of proceedings that entirely pertain to family law issues.

All exclusions from the application of transaction levies program in place before this change will continue to apply. Those exclusions are defined in paragraph C of Endorsement No. 3 and include: Small Claims court matters, residential landlord and tenant matters, and matters funded by Legal Aid Ontario and certain other agencies.

Looking ahead
Although some moderation in civil litigation claims costs can be expected over time with the recent changes to Rule 48, the continued relationship between civil litigation costs and premium revenue by lawyers’ primary area of practice will need to be monitored to determine whether any further action should be taken on this category in future years.