Professional indemnity claims and breaches of the professional duties of an attorney: Is there a link?

February 1st, 2017
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By Thomas Harban

At the Attorneys Insurance Indemnity Fund NPC (the AIIF), notifications are often received from practitioners against whom complaints have been lodged with the respective statutory provincial law society having jurisdiction. These practitioners seek the assistance of the AIIF in a variety of forms, ranging from drafting a response to the complaint to inquiring whether or not the AIIF will cover the costs associated with the conduct of the defence of a disciplinary inquiry.

The AIIF also regularly receive queries regarding whether or not the AIIF policy will respond to claims against practitioners who have been suspended or struck from the roll of practitioners.

Practitioners against whom professional indemnity (PI) claims are brought may be reluctant to report claims to the AIIF for fear that their provincial law society will be notified of the claim – this fear is very often misplaced.

At the outset, it is important to note that not every PI claim will constitute the basis for a disciplinary inquiry against the practitioner concerned and, likewise, not every disciplinary action taken by the provincial law society will constitute a basis for a PI claim.

Having considered the statistics for the various types of complaints lodged against attorneys, the AIIF have made a few points on how the Master Policy would generally respond to some of the categories of claims. Space limitations in this column will not allow an examination of each and every complaint category. The comments will be restricted to the three categories where the highest number of complaints are noted. These categories are –

  • failing to pay proper attention to matters;
  • failing to pay for professional services and/or subscriptions; and
  • failing to reply to correspondence.

Naturally, each claim notified to the AIIF will be assessed on its own facts.

It is important that practitioners familiarise themselves and their professional and support staff with the professional duties of an attorney. Professional ethics should be part of the training regime in each firm.

Failing to pay proper attention to matters

A high number of complaints reported to the provincial law societies fall into this category. Many of the claims notified to the AIIF similarly arise out of a failure by practitioners to pay attention to matters that they are dealing with. We have previously noted that a large number of the claims arise out of a failure by practitioners to adequately supervise junior and administrative staff. The prescription of claims in the hands of practitioners continues to make up one of the largest categories of claims reported to the AIIF. The reality is that many of these prescription claims could have been avoided had the practitioners concerned paid adequate attention to the matters in their respective offices. The same can be said of the claims based on the failure by practitioners to properly carry out the mandate from the client.

In assessing the claims received from practitioners, we often note from the explanations given by the attorneys that the matter had been dealt with by a staff member who has since left the firm and the matter only came to the attention of the partner or director concerned after the staff member concerned left the firm.

Effective supervision of staff and the implementation of a system of file audits will go a long way towards eliminating (at best) or mitigating (at least) the risk associated with the failure to pay proper attention to matters. Under the Risk Management tab on our website (www.aiif.co.za), practitioners can access a comprehensive practical guide to conducting file audits. The AIIF has also produced a comprehensive risk management kit that can be downloaded from our website.

Before accepting an instruction, practitioners should also consider whether or not they have the requisite desire, capacity and expertise to properly carry out the required mandate.

Remember that the proverbial buck will always stop with you.

Failing to pay for professional services and/or subscriptions

Many of the complaints falling into this category would be trading debts and would thus not fall within the AIIF policy. Should a practitioner face a claim falling within this category, it is important to note that the following claim types are excluded from the AIIF policy:

  • Claims arising out of or in connection with the practitioner’s trading debts or any legal practice or business managed by the practitioner (clause 16 (a)).
  • Arising out of or in connection with a breach of contract unless such breach is a breach of a professional duty by the practitioner (clause 16 (k)).
  • Arising from the practitioner having given an unqualified undertaking legally binding on his or her practice, in matters where the fulfilment of that undertaking is dependent on the act or omission of a third party (clause 16 (j)).
  • Arising out of or in connection with the receipt or payment of funds, whether into trust or otherwise, where the receipt or payment is unrelated to or unconnected with a particular matter or transaction, which is already in existence or about to come into existence, at the time of the receipt or the payment and in respect of which the practitioner has received a mandate (clause 16 (m)).

A ‘trading debt’ is defined in the AIIF policy as:

‘A debt incurred as a result of the undertaking of the Insured’s business or trade. (Trading debts are not compensatory in nature and this policy deals only with claims for compensation.) This exclusion includes (but is not limited to) the following:

  1. a) a refund of any fee or disbursement charged by the Insured to a client;
  2. b) damages or compensation or payment calculated by reference to any fee or disbursement charged by the Insured to a client;
  3. c) payment of costs relating to a dispute about fees or disbursements charged by the Insured to a client;
  4. d) any labour dispute or act of an administrative nature in the Insured’s practice;

For the purposes of this policy, “disbursement” does not include any amount paid to counsel or an expert.’

Claims for refunds of fees or overreaching will thus not be covered by the policy.

The AIIF policy sets out a full list of the claim types that are excluded. The policy can be accessed via our website.

Failing to respond to correspondence

The AIIF have also seen the failure of practitioners to respond to correspondence in matters that we are dealing with. This applies to some insured attorneys who have notified the AIIF of claims and also to certain attorneys who act for plaintiffs. This also talks to common professional courtesy to colleagues, clients and others with an interest in a matter.

Failing to keep the client updated on the progress in a matter may be the trigger for, not only a complaint to the provincial law society, but also for a PI claim against the practitioner. By instituting a system of proper supervision and file audit measures as suggested above, practitioners can ensure that, where applicable, their staff have also responded to all correspondence adequately and timeously.

A failure to respond to correspondence may be a symptom of an underlying potential problem in a matter. It should be a ‘red flag’ for any practitioner that there might be underlying risks in the manner in which a matter is being attended to. In order to avoid matters ‘falling through the cracks’, correspondence received must be brought to the attention of the appropriate person within the practice as soon as possible. Encourage staff and your colleagues to proactively escalate matters to the most senior person within the firm, where necessary, and not to adopt a supine attitude, where it is hoped that contentious issues will simply go away.

Where necessary, appropriate instructions must be taken from clients before correspondence is responded to. Should you need time to either take instructions or get advice from counsel or a colleague, advise the writer of the correspondence accordingly. In recent years, we have seen an increase in claims brought by clients who contend that their matters were settled or finalised by practitioners without their (the client’s) instructions and thus under settled.

In addition to granting the primary level of PI insurance, the AIIF provides bonds of security to practitioners appointed as executors of deceased estates. In our engagement with the Master of the High Court, it has been noted that a large number of estates in respect of which we have granted bonds have remained open for many years because the practitioners have not responded to queries raised by the Master. Some of these estates were registered as far back as 16 years ago. This failure to respond to queries from the Master’s office causes undue delays, which prejudice all the parties having an interest in the finalisation of the estate – including the beneficiaries, creditors, the Master and the AIIF. Section 36(1) of the Administration of Estates Act 66 of 1965, provides that in the event of a failure by an executor to perform certain functions, the Master or any person having an interest in the liquidation and distribution of the estate may, after giving the executor at least one month’s notice, apply to court for an order directing the executor to comply with the requested action. The costs awarded to the Master or to such person shall, unless otherwise ordered by the court, be payable by the executor, de bonis propriis (s 36 (2). An order against a practitioner to pay costs de bonis propriis is excluded from cover in the AIIF policy (clause 16 (g)).

The right of the AIIF to report the conduct of a practitioner to the provincial law society

In terms of the policy, the AIIF reserves the right to report the conduct of an insured attorney (that is the attorney notifying the claim and applying for indemnity) where:

  • There is material non-disclosure or misrepresentation in respect of the application for indemnity. The AIIF also reserves the right to recover any amounts that may have been incurred as a result of the insured’s conduct (clause 35).
  • The insured fails or refuses to provide assistance or cooperation to the AIIF or its appointed agents and remains in breach for a period of ten working days after receipt of written notice (from the AIIF or its appointed agents) to remedy such breach (clause 27).

Naturally, in all other instances, the AIIF has similar rights to any other interested or affected party to report the conduct of a practitioner to the provincial law society having jurisdiction.

Suspended and/or struck off attorneys

Where a cause of action arose against an attorney while in practice, but the attorney has since been suspended or struck off the roll, the AIIF policy will respond to applications for indemnity from such attorney (subject to the policy provisions). The AIIF policy will respond to claims – falling within the policy – even where the claim is only made after the attorney concerned has been struck off or suspended.

In respect of all PI claims it is important to note that the underlying claim lies against the attorney concerned and not against the AIIF – it is the attorney that should thus be cited as the defendant and not the AIIF. The AIIF policy does not give any rights to third parties, such as claimants (caluse 39). Should the attorney wish to apply for indemnity, the responsibility lies with that attorney to notify us of the claim.

Conclusion

It is important that practitioners conduct themselves in accordance with the rules of the profession at all times. A failure to do so may expose the practitioner to disciplinary action by the provincial law society and also to PI claims. Practitioners are encouraged to contact the AIIF should they have any queries regarding the cover afforded under the policy.

Thomas Harban BA LLB (Wits) is the General Manager of the Attorneys Insurance Indemnity Fund NPC in Centurion.

This article was first published in De Rebus in 2017 (Jan/Feb) DR 20.

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