Managing risk: Who pays for crime?
One of the questions we often get asked at LAWPRO is why certain areas of claims don’t get the full $1 million per claim amount of coverage.
For example, think of how the LawPRO policy treats counterfeit certified cheques causing an overdraft, cybercrime, and intentional misbehaviour within the real estate registration system – these coverages all have a $250,000 or $500,000 sub-limit.
On occasion, lawyers will ask us to give higher coverage limits for these crime-related risks, presumably because they think that will take the risk off their shoulders. That, of course, puts the risk on us. And, while we think of ourselves as having broad shoulders when it comes to coping with the risks facing the legal profession in Ontario, no insurance company has sufficient resources to be a complete answer to crime.
It is the same for other insurers. Think about areas where insurance companies sell coverage in the market that helps to protect businesses from crime. Two examples that come to mind are cyber liability policies and fidelity bonds. You can probably guess what a cyber liability policy insures you for; fidelity bonds insure a company for risks like employee dishonesty, forgery, counterfeit money, and/or extortion.
For a business that is buying such insurance, a large part of the value comes from what it learns when filling out the application form to request coverage. The questions on the application highlight areas of risk and assist the insurer in underwriting (assessing) the dangers that could lead to the business making a claim. I can speak to this from personal experience in having to deal with arranging insurance for LawPRO, having had a few “oh, my” moments over the years when I realized what the insurance underwriter expected the common operational practices to be for a company like LawPRO. Almost every year we have to change some internal process to continue our eligibility for an existing type of coverage, or to be able to buy a new coverage.
If the above description is typical of the insurance industry approach to such coverages, why is that the case? Because otherwise the criminals will bleed us all dry. Unless insureds work hard to stop the crooks in their tracks, insurance claims will go up to the point where no one can sell the relevant coverage at a reasonable price and the insurance type will disappear. Then everyone suffers, both the good risk operations and the bad risk ones.
Now think about this in the context of the LawPRO mandatory professional liability program. While we undertake certain types of risk rating, there is minimal customized underwriting that goes into our primary program. It would not be feasible for us to replicate the sort of specialized underwriting that commercial insurance companies use for crime-related risks, given our aim of providing a universal professional liability program with broad-based appeal at as reasonable a cost as possible.
And why should we do that when there are coverages available in the market for those who see themselves as being at risk? A key part of the Law Society’s mandate is to protect the public interest, and the mandatory program contributes to Law Society fulfilment of that mandate. Therefore, the main focus of the mandatory program must be on (indirectly) protecting the lawyer’s client for negligence by the lawyer, not protecting the lawyer for every type of risk that a business could encounter.
LawPRO has taken a middle ground. We provide some coverage (that is, a sub-limit smaller than the normal $1 million per claim limit) for certain crime-related risks. While providing some comfort for the lawyer, the smaller amount also helps draw the lawyer’s attention to how significant the risk is and (hopefully) to the resources we provide to help lawyers stop the criminals in their tracks. It is a balancing act, in fact one that has a good societal purpose.
This article is by Kathleen Waters, President and CEO of LAWPRO.