E&O and R&R: Insurance planning for retirement
When looking forward to your retirement it’s important to have an idea of what liabilities and activities from your practice will follow you. It’s false comfort to think that just because a claim wasn’t brought prior to retirement means one won’t appear in the future or that you can rely on the coverage that was in place while in practice to respond to future claims. The Law Society Program coverage you have in place when the claim is made against you (or when you became aware of circumstances that would reasonably be expected to give rise to a claim) is what will respond, not the policy you had in place when the error occurred. Research indicates that it takes an average of two to three years after legal services are rendered for a claim to surface and up to ten per cent of claims are not reported until five years after the services are provided. Claims can continue to be brought years after you retire, but there are steps you can take to reduce the likelihood of having coverage issues if a claim arises.
“SEMI-RETIREMENT” also known as “NOT RETIRED AT ALL”
Lawyers will sometimes refer to themselves as being “semi-retired” when they mean they have reduced their workload or are taking time away from practice. You are required to maintain your LAWPRO coverage while you continue to do some legal work or wrap up your practice. When lawyers apply for exemption under the Law Society insurance program they receive limited run-off coverage that, with only two exceptions, provides no coverage for legal services provided while on exemption.
The cost of paying the annual premium versus the prospect of no insurance for a claim arising out of legal services (beyond the permitted exceptions) provided while on exemption, is a small price to pay.
If you want to continue to do wills for friends and family, act for one or two old clients, or give legal advice to a condo board, your LAWPRO coverage is mandatory. Being a lawyer can be a hard habit to break, but there is relief generally available for lawyers whose practice of law (including the provision of free legal advice) in the previous fiscal year and continuing forward is limited to not more than 20 hours per week on average for each week actually worked and 750 hours per year, and gross billings of up to $75,000 per year. If you qualify for this part-time practice option you’ll enjoy the same claims limit that you had while in fulltime practice, but your premium will be based on just half of the base premium.
If you need time away but intend to return to practice in the future, a temporary leave of absence under Exemption (c) of the Law Society program may be the answer. This isn’t, however, a way for lawyers to test “semi-retirement”. When applying under Exemption (c), and for as long as you are on the temporary leave of absence, you must refrain from practice but have the intention to return to active practice within the time limits set out in the Rules for Exemption Eligibility.
Some work you do as part of your practice might be continued into “semi-retirement” and still allow you to apply for exemption. If as part of your practice you were named to act as an estate trustee, trustee or attorney for property for a non-family member, you may be eligible under Exemption (h) for relief from the LAWPRO premium if your work as a trustee (for example) will be the only ongoing aspect of your practice. While the standard run-off protection would not cover such services provided by you after retirement, you may apply for increased run-off coverage that could cover such work as an estate trustee, etc. during retirement.
TAKING THE PLUNGE
If you decide to cease practising law, you must notify both the Law Society and LAWPRO of your pending change in status.
Upon applying under Exemption (a) (not practicing in Ontario) or Exemption (h) (estate trustee, etc.), LAWPRO provides $250,000 standard run-off coverage to cover the defence costs, indemnity payments and costs of repairs for claims that arise after retirement out of services provided while in practice or out of certain pro bono legal services that you are permitted to perform while on exemption. This is provided to retiring lawyers at no charge.
For many retired lawyers the $250,000 limit may not be enough when considering the risks of future claims. The standard run-off coverage is not renewable, so if even one claim is made against you it could wipe out the $250,000 limit and, unless other insurance is in place, you would be left uninsured for the balance of your retirement.
To meet this need LAWPRO offers Increased Run-off Coverage with a selection of limits and terms. Particularly if you are going to continue to act as a trustee/attorney and apply under Exemption (h), you may want to consider purchasing the Increased Runoff as it can cover the work done as trustee after you retire. On expiry of the original term (being between two and five years) you may either apply for a further term or revert to just the $250,000 standard run-off coverage (as reduced by prior claims). If you are interested in this option you should plan to apply at least 60 days before the start of retirement to minimize the likelihood of a gap in coverage, as Increased Run-off Coverage is individually underwritten.
If a claim triggers run-off protection, a $5,000 deductible applies and you are boundby all of the same obligations to assist in the defence as a lawyer in active practice. This includes the obligation to promptly provide notice of a claim, provide access to the relevant files, assist in the defence and to otherwise abide by the terms and conditions of the policy.
Other insurance may respond to claims made after retirement, including the excess E&O policies maintained by your former firm and partners. However, if you are relying on your former firm to have adequate coverage in place to respond to a claim made against you during retirement, you may be in for an unpleasant surprise. Problems that arise include (but are in no way limited to):
- The firm doesn’t carry excess insurance. Maybe it once did, but let it lapse. Maybe it never had excess insurance. Unless you have an agreement in place that places an obligation on your former firm to continue to carry this coverage, you can’t compel your former firm to maintain excess coverage.
- The firm has excess insurance, but it doesn’t extend to you. Perhaps the firm changed excess insurers and the new policy doesn’t extend to former members of the firm. Maybe the structure of the firm has changed and the policy doesn’t include members of the old firm. Once you leave a firm you may not know what changes are taking place that could adversely affect you.
- The wording of the excess policy has changed and the claim is no longer covered. Changes in limits, terms, conditions or exclusions may all have an impact on what coverage is available to you in the event a claim is made.
- Other claims exhaust the firm’s limits. Claims made against the other members of the firm (current members and former ones like you) can erode the limits available leaving you personally exposed.
- The claim doesn’t relate to services performed on behalf of your former firm. The claim may relate to services provided to an earlier unrelated firm that you worked for, or to legal advice or services that you provided outside of your work for the firm, such as for friends, community groups, or family members. If the work wasn’t done on behalf of the former firm, that firm’s coverage may not apply.
- You don’t have access to your former firm’s insurance policies. Without having a copy of the policy and knowing who the insurer is, you will not know what (if any) coverage is provided to you, what conditions have to be met, how notice of claim is to be given, or what you need to do to avoid a possible denial of coverage.