Part A levy (professional liability / negligence)

Last year’s 14-year-low Part A levy was predominantly due to the application of capital funds of approximately $12.3 million, or $1,662 per Subscriber, which was the highest reduction using surplus capital since 2007-2008. This unusually high subsidy was largely a result of strong investment returns.

Without the subsidy of ALIA’s capital, the base levy for Part A in 2022-2023 would have been $3,962.

This year’s Part A levy is subsidized by approximately $5.7 million in capital funds, or $765 per Subscriber. While not as robust as the previous year, ALIA leadership deemed it essential to subsidize as much as possible while still maintaining adequate reserves for potential claims.

Without the subsidy of ALIA’s capital, this year the base levy for Part A would be $3,725. This total amount is actually lower when compared to the previous year.

Although ALIA was able to partially subsidize the levy again this year, Subscribers must remain vigilant in attempting to avoid negligence claims by implementing proactive loss-management strategies. If Subscribers substantially reduced the number of claims, the levy could be lowered without relying so heavily on investment returns that are not guaranteed.

Part B levy (misappropriation)

Last year, the levy for Part B (Misappropriation) was reduced from $388 to $210 per Subscriber. ALIA was able to achieve this due to lower expected claims costs and the reallocation of administrative expenses from Part B to Part A.

For the 2023-2024 policy year, Part B will remain at $210.

Cyber Coverage

Universal cyber coverage was added to ALIA’s indemnity program on December 31, 2022.

The annual premium for the first 12 months is $265 per Subscriber. Though coverage began at the end of December, Subscribers are being invoiced for the first 12 months with the 2023-2024 annual levy. Payment is due by June 30, 2023.

ALIA’s board of directors (the “Board”) establishes the annual levy after considering relevant information, including claims history, trends, costs of the stop-loss insurance ALIA purchases, investment income and actuarial projections. The Board also considers the recommendations of the Board’s Executive Committee, professional advisors (including its external appointed actuary, Willis Towers Watson), 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. The theoretical levy 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 the 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 actuary. The Board uses a capital target tool specifically developed for the Program by its actuary. 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 required to be paid by each Subscriber for the indemnity coverage ALIA provides.

Part A (professional liability / negligence)

• For the 2023-2024 policy year (July 1, 2023, to June 30, 2024), 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 $3,725. Absent any adjustment, that theoretical levy would have been the actual levy that each Subscriber would have paid. However, the Board authorized the use of ALIA’s capital to reduce that amount by $765 per Subscriber. This reduction resulted in a Part A base levy assessment of $2,960.
• ALIA’s investment returns play a significant role in its ability to use capital to reduce the base levy paid by each Subscriber. Despite significantly lower returns in 2022, ALIA leadership deemed it essential to subsidize as much as possible for Subscribers while still maintaining adequate reserves for potential claims.

Part B (misappropriation)

• The Part B levy was set at $210, which is the same as last year.

ALIA continues to focus on finding ways to reduce the levy, which include but are not limited to:

• applying the CLFL credit based on revenue from qualifying filings, which management has projected to be comparable to the previous year;
• ALIA’s ability to resolve some historical claims for less than the reserved amount of those claims;
• ALIA’s actuary applying a risk philosophy appropriate for a mandatory non-profit program;
• ALIA’s continued focus on enhancing its operating efficiencies; and
• a projected increase in the number of Subscribers.

The major components of the base levy include the following:

• 75% Claims
• 13% Salaries
• 9% LSA Management fee
• 3% Admin

The 2023–2024 base levy amount is $2,960 for Part A, $210 for Part B, and $265 for Universal Cyber Coverage (for a total of $3,435), plus GST, for a total base levy of $3,606.75 including 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, 2023. 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 Lawyer Portal.

For information on how to make a payment to ALIA, view Making A Payment to ALIA.

Payments can be made electronically. Please visit the Law Society’s website for payment option details

In short, it does not. In the previous five years, ALIA has reduced the combined base levy (Part A and Part B) and brought the combined levy to a 14-year low. Those reductions in the base levy were made possible by active cost reductions by ALIA – including restructuring the indemnity program and higher-than-expected returns on investments – and not by any substantial reductions in the number of claims or severity of claims by Subscribers.

The theoretical levy for Part A is actually lower than last year. What has changed is the amount of capital that ALIA has earned from investments, which resulted in a less substantial subsidy for the Part A levy.

2023-2024 Part A calculation:

$3,725 – theoretical levy is lower than last year due to minor decrease in the number of expected paid claims and the resolution of older claims for less than reserves.

$765 – amount per Subscriber subsidized by ALIA capital returns, impacted by investments that yielded less than previous year

= $2,960 base levy for Subscribers for Part A

Part B was reduced last year from $388 to $210. It remains steady at $210 for the upcoming 2023-2024 policy year.

The launch of the Universal Cyber Coverage program on December 31, 2022, adds $265 to the levy. This coverage was introduced after identifying trends in cyber crime targeting law firms with the potential impact being too large a risk to ignore, as well as feedback from Subscribers indicating a majority are in favour of adding Cyber Coverage. Every other province except Quebec has implemented some form of mandatory cyber coverage.

The Program runs on a non-profit basis. Therefore, 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 base levy. However, as ALIA’s capital fluctuates over time, 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.

The Program runs on a non-profit basis. Therefore, 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. ALIA’s investment returns play a significant role in its ability to use capital to reduce the levy paid by Subscribers. Significantly lower returns this year resulted in a less substantial reduction. Despite this challenge, ALIA leadership deemed it essential to subsidize as much as possible for Subscribers while still maintaining adequate reserves for potential claims.

While the number of paid Part A (Professional Liability / Negligence) claims is expected to see a minor decrease from the previous year, the cost to settle the paid claims is predicted to slightly increase. As a result, there is not a substantial claim-costs reduction that could offset the reduction in investment return.

ALIA continues to focus on finding ways to reduce the levy, which include but are not limited to:

• applying the CLFL credit based on revenue from qualifying filings, which management has projected to be comparable to the previous year;
• ALIA’s ability to resolve some historical claims for less than the reserved amount of those claims;
• ALIA’s actuary applying a risk philosophy appropriate for a mandatory non-profit program;
• 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; and
• supporting the Alberta Lawyers’ Assistance Society (Assist) program to make additional support resources available to Alberta lawyers and families.

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 missed limitation claims and dismissal for delay 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 reducing 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 asks 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 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’s 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, 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 several 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.

ALIA does not offer pro-rated refunds. Instead, ALIA allows lawyers to pay in two installments. For example, if a lawyer leaves private practice before the second installment is due, then the second installment is not payable, and the lawyer only paid 50 per cent of the levy.

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 on the Enhanced Surcharge Protocol FAQs.

The CLFL also came into effect starting July 1, 2021, for what is currently a two-year pilot project. 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. For more information on the CLFL, view the Civil Litigation Filing Levy Pilot.

Yes. Although ALIA does not sell excess coverage, it recommends that all Subscribers investigate purchasing optional excess coverage for additional protection and 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 or by contacting ALIA.

The Group Policy is posted on ALIA’s website. To assist Subscribers, ALIA has updated its website to include responses to frequently asked general policy questions, such as basic coverage information, under Group Policy FAQs.

If you have questions or comments regarding the levy, please contact ALIA.