ALIA Levy Reduced Again to an 11-Year Low
Alberta Lawyers Indemnity Association (“ALIA”) has reduced the annual levy for 2021-2022 to:
- $2,229 for Part A
- $388 for Part B
- $2,617 total (Part A + Part B) before GST
This is the lowest the Part A levy has been since the 2009-2010 policy year and the Part B levy has never been lower.
This marks the fourth year in a row that ALIA has reduced the amount of the annual base levy payable by Alberta lawyers (“Subscribers”) participating in the mandatory indemnity program (the “Program”).
ALIA was able to achieve this reduction in the base levy by applying capital from the returns on ALIA’s investments and the credit for the Civil Litigation Filing Levy (“CLFL”). Accordingly, this reduction in base levy was achieved despite there being no material improvement in Subscribers’ claims experience in the past year; without the application of capital and the CLFL credit, the 2021-2022 levy would have been higher than last year’s.
Payment of the levy is due by June 30, 2021. Lawyers will be notified when the invoices are available by an upcoming ALIAdvisory.
The CLFL also comes into effect on July 1, 2021.
Further information:
- Key Points Regarding the 2021-2022 Levy
- The Levy-Setting Process
- Calculation of the 2021-2022 Base Levy
- The Civil Litigation Filing Levy (“CLFL”)
- Levy FAQs
Key Points Regarding the 2021-2022 Levy
- ALIA has again reduced the base levy payable by Subscribers.
- As compared to last year:
- the professional liability / negligence (Part A) levy was reduced by 12.0%, or $304, from $2,533 to $2,229;
- the misappropriation (Part B) levy remains the same at $388; and
- the combined levy was reduced by 10.4%, or $304, from $2,921 to $2,617.
- The reduction in the Part A levy was supported by:
- the application of capital funds in the amount of over $8.8 million, or $1,212 per Subscriber, in accordance with ALIA’s Board-approved capital target calculations, largely because of investment returns in the past year that were unexpected, significant, and unlikely to be repeated next year; and
- the application of an additional $528 per Subscriber credit based on the expected revenue ALIA will receive from the new CLFL.
- Although ALIA was able to reduce the levy again this year, Subscribers must remain vigilant in attempting to avoid negligence claims by implementing proactive loss management strategies to reduce claims.
The Levy-Setting Process
ALIA’s board of directors (the “Board”) establishes the annual levy after considering relevant information, including claims history, trends, costs of insurance, investment income and actuarial projections. The Board also considers the recommendations of the Board’s Executive Committee, professional advisors (including its external actuary), and ALIA’s management.
The actuary’s recommendation is based largely on their annual calculation of the costs of operating the Program, including defense costs and payment of claims, which form the largest component of the levy, and which is why increased claims costs usually necessitate a higher levy.
In the levy-setting process, the Board first determines the “theoretical levy”, which is essentially the cost of covering claims, including defending Subscribers, repairing errors, compensating the public, and operating the Program. This is the amount that would have to be paid by each Subscriber in the absence of any upward or downward adjustments. Those potential adjustments are changes to the theoretical levy that the Board deems appropriate for reasons that include building or reducing the Program’s capital to ensure the financial health of the Program, maintaining stability of the levy over time, and guarding against the need for a special levy (like a cash call).
In deciding each year whether the Program’s capital is at the right level, the Board receives the recommendation of ALIA’s management and the Program’s appointed actuary and uses a capital target tool specifically developed for the Program by its actuary, Willis Towers Watson. If the Board determines the capital is higher than is required, it applies the excess amount to reduce the theoretical levy. However, if the capital is lower than it should be, the Board increases the levy and uses the difference to replenish the capital. The result is the actual levy that is required to be paid by each Subscriber in exchange for the indemnity coverage ALIA provides.
Calculation of the 2021-2022 Base Levy
For the 2021-2022 policy year (July 1, 2021 to June 30, 2022), after considering all relevant factors, the Board accepted the recommendation of ALIA’s management and the Program’s appointed actuary and set the theoretical levy for Part A (professional liability negligence) at $3,441 and then used capital to reduce that amount by $1,212 per Subscriber. This reduction resulted in a Part A base levy assessment of $2,229. This represents a reduction of $304 from the 2020-2021 Part A base levy or a reduction of $620 without, the one-time COVID-19 adjustment.
This 12.0% reduction was implemented despite the number of Part A claims not reducing substantially (there was a modest decrease of 6.85%). ALIA’s ability to provide this levy reduction was due to several factors, including:
- an increase in Program capital due to positive investment returns allowing for a larger capital contribution;
- ALIA’s ability to resolve some historic claims for less than the reserved amount of those claims;
- ALIA’s actuary applying a risk philosophy appropriate for a non-profit mandatory program;
- ALIA’s ability to resolve a number of potential claims with no payment;
- applying the CLFL credit based on expected revenue from those filings;
- ALIA’s continued focus on enhancing its operating efficiencies; and
- a projected increase in the number of Subscribers.
The Board also accepted the recommendation of ALIA’s management and the Program’s appointed actuary and set the levy for Part B (misappropriation) at $388.
The components of the indemnity program costs include the following:
Levy FAQs
The 2021–2022 levy amount is $2,229 for Part A and $388 for Part B for a total of $2,617 before GST.
You can expect to receive communications regarding the invoice for your base levy (and any applicable surcharge based on your individual claims history) by mid-May.
Payment of the levy is due by June 30, 2021. Payments can be made in a single payment or by two instalments. Invoices will be made available online through The Law Society of Alberta’s (“Law Society”) Lawyer Portal. Click here for information on how to make a payment to ALIA.
Payments can be made via online banking or electronic funds transfer. Please visit the Law Society’s website for further payment option details.
The Program is run on a non-profit basis. There is a direct link between the amount the Program pays out to defend Subscribers and satisfy claims against them and the total amount of the levy assessed on Subscribers. Where possible, ALIA uses excess capital to reduce the theoretical levy; however, as ALIA’s capital fluctuates over time and capital reductions may not always be possible, Subscribers must remain vigilant in claims prevention, as future levies can be reduced by lowering the frequency and severity of claims made against Subscribers.
No. Although the number of Part A claims reported to ALIA decreased slightly (6.85%), the number of claims was still higher than what was projected by the actuary. As a result, the claim projections for the upcoming levy year have been increased.
ALIA was able to lower the Part A theoretical levy by applying capital to further reduce the levy payable by Subscribers, as a result of:
- an increase in Program capital due to positive investment returns allowing for a larger capital contribution;
- ALIA’s ability to resolve some historic claims for less than the reserved amount of those claims;
- ALIA’s actuary applying a risk philosophy appropriate for a non-profit mandatory program;
- ALIA’s ability to resolve several potential claims with no payment;
- applying the CLFL credit based on expected revenue from those filings;
- ALIA’s continued focus on enhancing its operating efficiencies; and
- a projected increase in the number of Subscribers.
ALIA and the Law Society are working to avoid or reduce claims in various ways, including the following:
- providing ALIAlerts to warn Subscribers about current fraud schemes that are targeting lawyers and their firms;
- conducting educational outreach sessions to Subscribers on claims and loss prevention;
- auditing new and legacy law firms to ensure responsible practices are in place;
- enhancing our electronic trust transaction review capabilities and ongoing risk assessments to identify and address unacceptable practices;
- providing information and resources, such as ALIAdvisory education articles;
- supporting the Alberta Lawyers’ Assistance Society (Assist) program to make additional support resources available to Alberta lawyers and families;
- forming a 4.31 and 4.33 Working Group to consider how to lessen Rule 4.31 and 4.33 losses to the Program; and,
- enhancing the Surcharge Protocol in 2019 to shift more of the costs of multiple paid claims onto the relatively few Subscribers who incur them.
Looking forward, ALIA continues to investigate opportunities to reduce the levy by enhancing loss prevention activities and assessing options for future Program funding.
Most types of negligence are avoidable, such as some limitation and deadline claims. Surprisingly, this is the largest area of losses for the Program and, accordingly, the largest contributing factor to the levy. There is an opportunity for Subscribers to lower the levy by lowering costs for all types of claims over the coming years.
As the frequency and severity of claims directly affect the levy, ALIA continues to stress the importance of loss prevention and ask Subscribers to avoid or minimize claims. ALIA’s claims funding model ensures that money saved on claims will result in lower levies in future years.
Yes. Although participation in the Program is mandatory for Alberta lawyers in private practice, several categories of lawyers are exempt from the Program and the levy assessment.
Alberta lawyers who are employed by a government, by a corporate or similar organization (other than a professional corporation), or in another similar employment or independent contractor relationship as exempted by the Law Society Executive Director or the ALIA President and Chief Executive Officer are not assessed the levy. These lawyers are not covered by the Program and, accordingly, either they, their employers, or their private insurers (if they purchased insurance) would be responsible for any losses.
Additionally, some Alberta lawyers are indemnified at no charge for pro bono services through approved organizations as set out in Rule 148 of The Rules of the Law Society of Alberta. The Rules of the Law Society of Alberta also set out a number of other exemptions.
Finally, for a time, lawyers who had practiced for over 50 years were exempted from paying the levy as long as they remained claims free. Although this exemption has been removed, those lawyers who received it at the time have been grandfathered.
All Subscribers historically shared the burden of incurred losses equally by paying the same levy. However, some Subscribers may be subject to special assessments (called “surcharges”) in addition to the base levy due to their individual claims history. Surcharges are made pursuant to The Rules of the Law Society of Alberta and are set at rates approved by the Board. More information on the Enhanced Surcharge Protocol can be found here.
The CLFL also comes into effect for the upcoming policy year starting July 1, 2021. The terms of the CLFL, including the obligation to self-report and pay the CLFL commencing October 31, 2021, are contained in the Transaction and Filing Levy Schedule. More information on the CLFL can be found here.
Yes. Although ALIA does not sell excess coverage, it recommends that all Subscribers investigate purchasing optional excess coverage for additional protection and that they periodically review their excess coverage to ensure it is proportionate with the risk and value of transactions undertaken by the Subscriber and their law firm.
Although excess coverage may be purchased through various brokers, ALIA works with the Canadian Lawyers Insurance Association (“CLIA”) to assist Subscribers in the purchase of excess coverage. Applications are available on CLIA’s website.
The Group Policy is posted on ALIA’s website. To assist Subscribers, ALIA has updated its website to include responses to common, basic policy questions, such as basic coverage information. FAQs can be found here.
If you have questions or comments regarding the levy, please contact ALIA.
Any summary of the Group Policy contained above is provided for general information purposes only and not as legal advice and is qualified in its entirety to the terms and conditions of the Group Policy. Subscribers should always review the Group Policy to confirm their obligations in any circumstance.
ALIA does not provide legal advice. ALIAdvisory notices, ALIAlerts and the content on ALIA’s website, notices, blogs, correspondence, and any other communications are provided for general information purposes only and do not constitute legal or other professional advice or an opinion of any kind. This information is not a replacement for specific legal advice and does not create a solicitor-client relationship.
ALIA may provide links to third-party websites. Links are provided for convenience only; ALIA does not vet or endorse the information contained in linked websites or guarantee its accuracy, timeliness, or fitness for a particular purpose.