Assurance Fund Rule Amendments Approved
Since 2014, the Alberta Lawyers Indemnity Association (ALIA) has provided its subscribers with mandatory coverage for lawyer misappropriation as part of its Group Policy. The Law Society of Alberta (the Law Society) is also required under the Legal Profession Act to maintain an Assurance Fund to respond to lawyer misappropriation claims.
The Law Society recently completed a review of the Assurance Fund and the Board approved amendments to the Assurance Fund rules on June 18, 2021. The amendments confirm and reinforce that ALIA’s Group Policy is the primary source of recovery in the event of lawyer misappropriation. The new rules confirm that the Assurance Fund will not respond to claims arising from theft of funds by non-lawyers who are employed by law firms and clarify the Assurance Fund is to be a fund of last resort for lawyer misappropriation claims.
“We believe it is important to amend the Assurance Fund rules to provide clarity to the public and to lawyers who may not realize exactly what is protected by lawyers’ assurance funds, or by standard professional liability policies,” says Darlene Scott, QC, President of the Law Society of Alberta.
Part B of the ALIA Group Policy and the Assurance Fund has never covered misappropriation by employees or contractors. It only covers misappropriation by lawyers. Lawyers should familiarize themselves with ALIA’s coverage and the Assurance Fund rules.
We strongly recommend that firms obtain separate insurance coverage for employee/contractor theft or dishonesty. The coverage is voluntary and is available through commercial brokers or Lawyers Financial Advisory Service Inc. (LFAS), a subsidiary of the Canadian Bar Insurance Association (CBIA). For more information or to assess if you or your firm is at risk of employee theft, read this article Employee Theft on the Rise: Are You at Risk? – Law Society of Alberta.
New Rule Amendments
In 2014, the Law Society introduced the mandatory indemnity program we have today. Lawyer misappropriation claims arising on or after July 1, 2014, are submitted to ALIA and are considered under Part B of the Group Policy. This has not changed. In the event of a Part B claim, ALIA will consider other potential sources of recovery, including assurance or compensation programs operated by other law societies. In addition, Part B acts as excess coverage where there are other available insurance or indemnity programs that may cover the loss.
The new rules clarify that the Assurance Fund is only available as a fund of last resort for lawyer misappropriation claims, and claimants may only access it after they have exhausted all other remedies and sources of recovery. These sources of recovery include Part B and other applicable insurance and assurance programs, as well as any parties who are responsible for the loss.
In addition to clarifying that the Assurance Fund is a fund of last resort, new rules were added to address the sustainability of the Assurance Fund and to confirm some existing restrictions on recovery. Some of the new rule amendments include:
- Adding financial limits on recovery from the Assurance Fund, including limits per occurrence and aggregate limits for claims caused by an individual lawyer and across the profession;
- Confirming that no compensation is payable for interest, costs or disbursements or other heads of damage that are claimed or may have been incurred in connection with a theft;
- Introducing a two-year limitation period for Assurance Fund claims;
- Confirming that the Assurance Fund will not respond to theft by lawyers who are non-practicing, or who work in-house or with government, and who do not typically hold trust funds for members of the public; and
- Confirming that the Assurance Fund only responds to misappropriation by lawyers, and that misappropriation by non-lawyers who are employed by, or who contract with, law firms will not be covered.
The rules were also amended to clarify hearing and appeal processes and the role of the Law Society’s Tribunal Office. In addition, the new rules state that Assurance Fund hearings will be private, bringing the rules in alignment with current practice.
FAQ
The Law Society of Alberta is required under the Legal Profession Act to maintain an Assurance Fund that can be used to respond to lawyer misappropriation claims. Claimants must first submit any lawyer misappropriation claims to ALIA. The Assurance Fund is only available as a fund of last resort for lawyer misappropriation claims, and claimants may only access it after they have exhausted all other remedies and sources of recovery.
The Assurance Fund does not respond to claims arising from theft of funds by non-lawyers who are employed or contracted by law firms.
In 2014, the Law Society moved to ALIA’s mandatory indemnity program that we have today. Lawyer misappropriation claims arising on or after July 1, 2014, are submitted to ALIA and are considered under Part B of the Group Policy. This has not changed.
In the event of a Part B claim, ALIA will consider other potential sources of recovery, including assurance or compensation programs operated by other law societies. In addition, Part B acts as excess coverage where there are other available insurance or indemnity programs that may cover the loss.
The new rules clarify that the Assurance Fund is only available as a fund of last resort for lawyer misappropriation claims, and claimants may only access it after they have exhausted all other remedies and sources of recovery. These sources of recovery include Part B and other applicable insurance and assurance programs, as well as any parties who are responsible for the loss.
The Law Society completed a review of the Assurance Fund rules and decided to amend the Rules of the Law Society of Alberta (the Rules) to clarify how the Law Society and ALIA protect the public from lawyer misappropriation, and to maintain the sustainability of the Assurance Fund.
It is important to provide clarity to the public and to lawyers who may not realize exactly what is protected by lawyers’ assurance funds, or by standard professional liability policies.
In addition to clarifying that the Assurance Fund is a fund of last resort, new rules were added to address the sustainability of the Assurance Fund and to confirm some existing restrictions on recovery. Some of the new rule amendments include:
- Adding financial limits on recovery from the Assurance Fund, including limits per occurrence and aggregate limits for claims caused by an individual lawyer or across the profession;
- Confirming that no compensation is payable for interest, costs or disbursements or other heads of damage that are claimed or may have been incurred in connection with a theft;
- Introducing a two-year limitation period for Assurance Fund claims;
- Confirming that the Assurance Fund will not respond to theft by lawyers who are non-practicing, or who work in-house or with government, and who do not typically hold trust funds for members of the public; and
- Confirming that the Assurance Fund only responds to misappropriation by lawyers, and that misappropriation by non-lawyers who are employed by, or who contract with, law firms will not be covered.
The rules were also amended to clarify hearing and appeal processes and the role of the Law Society’s Tribunal Office. In addition, the new rules state that Assurance Fund hearings will be private, bringing the rules in alignment with current practice.
In general, law societies believe that employee theft is a practice management issue. Lawyers are entrusted with client funds, and it is up to the lawyer to have safeguards in place to protect those funds. If lawyers fail to protect trust funds, they are expected to have strategies in place to replace the misappropriated funds, either through their own resources or through employee dishonesty coverage.
According to the Law Society and ALIA records, employee and/or contractor theft from law firms occurs infrequently. In most cases, lawyers assume the responsibility for covering trust shortages that occur due to employee and/or contractor theft.
We strongly recommend that firms obtain separate insurance coverage for employee and/or contractor theft or dishonesty. The coverage is voluntary and is available through commercial brokers or Lawyers Financial Advisory Services, a subsidiary of the Canadian Bar Insurance Association.
For more information or to assess if you or your firm is at risk of employee theft, read this article Employee Theft on the Rise: Are You at Risk? – Law Society of Alberta.
It is the responsibility of lawyers to educate themselves and protect their firms against fraud and theft. Lawyers may be disciplined by the Law Society for failing to safeguard client funds.
The Law Society is committed to providing continuing education and risk management tools to support lawyers in keeping trust property safe.
New risks to the safety of trust property are constantly emerging. To maintain adequate accounting systems and procedures, lawyers must be wary of these risks and committed to continually assessing the safety and effectiveness of their accounting procedures. For more information, visit Trust Accounting & Safety – Law Society of Alberta.