The professional indemnity claims trends

November 1st, 2021
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At the end of the 2020/2021 scheme year on 30 June 2021, the Legal Practitioners Indemnity Insurance Fund NPC (the LPIIF) had 2 355 outstanding claims recorded. The reserve amount for the outstanding claims at that date was R 645 131 000 (including VAT). This amount gives an indication of the LPIIF’s potential liability for the outstanding claims.

It has been noted that professional indemnity (PI) claims against legal practitioners, historically, increase following on a period of economic recession. The most recent example of this was the increase in PI claims brought against legal practitioners in various jurisdictions worldwide following on the 2008 general financial crisis. In South Africa (SA), there was an increase in claims notified to the LPIIF between 2008 and 2015. New risks (such as cybercrime and bridging finance) also emerged in the aftermath of the global financial crisis.

The effects of the COVID-19 pandemic on PI claims will only become known in time when there is sufficient data on which to analyse the trends. It will be appreciated that the nature of PI claims is long-term (long-tail in insurance parlance), as there will be a long lapse of time between the plaintiff becoming aware of the breach of the mandate or duty of care on the part of the legal practitioner and then embarking on the process to pursue a claim against the practitioner concerned. Many legal practices were not able to operate optimally for long periods since the onset of the pandemic. The change in the operating environment also affected the risks that firms face.

This article gives an overview of the current professional indemnity claim trends.

The current claim trends

The breakdown of claims reported in the 2020/2021 scheme (that is, the period from 1 July 2020 to 30 June 2021) as can be seen below.

In the last decade, the main claim types have remained consistent. The category collectively labelled ‘other’ includes claims arising from practice areas outside of the six main claim types.

The breakdown of the outstanding claims by type can be found on p 7.

Legal practitioners pursuing legal practice in the high-risk areas must reinforce their internal risk management measures. Many of the claims arise from mistakes that could have been avoided had a common-sense, prudent risk management approach been applied. The LPIIF’s Practitioner Support Executive is available to provide risk management training to legal practitioners and their staff. This service is provided at no cost to the profession. The Practitioner Support Executive, Henri van Rooyen, can be contacted on risk@lpiif.co.za. The LPIIF website (www.lpiif.co.za) also has extensive risk management resources covering a wide range of practice areas.

The trends for the main claim types over the past five years appear in the graph on p 8.

There has been a general uptick in the frequency of claim notifications since the end of 2020 commensurate to the easing of the lockdown regulations and as legal practices revert to their full operating capacity. The underlying reasons for this are being investigated.

The breakdown of claims reported in the 2020/2021 scheme (that is, the period from 1 July 2020 to 30 June 2021).

Some areas of concern

  • Prescription

The high number and value of claims arising out of the prescription of Road Accident Fund (RAF) related claims remains a serious cause for concern. A large amount of the risk management resources have targeted this risk. RAF work is also, generally, pursued by smaller legal practices. The Prescription Alert service offered by the LPIIF is an effective tool to track the looming prescription date. The effectiveness of that service is evident in the low number (less than 10%) of claims registered on that system, which prescribe and ultimately result in PI claims against the practitioners concerned. All time-barred matters (not only RAF matters) can be registered on that system. For information on the Prescription Alert system, please e-mail alert@lpiif.co.za. A higher excess is payable where the LPIIF indemnifies prescribed RAF claims that have either not been registered with the Prescription Alert system or, having been registered, the reminders sent by that system have not been complied with.

The breakdown of the outstanding claims by type

There are numerous reasons for the prescription of claims in the hands of legal practitioners. These have been covered in previous articles. For current purposes, I wish to highlight the egregious behaviours of some legal practitioners who – having accepted a mandate to pursue a claim on behalf of a client – simply do nothing to execute the mandate timeously. If the practice does not have the capacity, appetite, or resources to attend to a matter, the client must be informed thereof timeously, and this must be recorded in correspondence sent to the client (in a letter of non-engagement/non-acceptance of the mandate. A precent is available at www.lpiif.co.za). If necessary and appropriate, refer the client to another legal practitioner. Proper supervision of professional and support staff and regular file audits will also go a long way to mitigating this risk. A lack of adequate knowledge of the law relating to prescription (commencement and interruption) is also a risk.

  • Under-settlement

The under-settlement of claims occurs where an offer is accepted without properly interrogating whether it is adequate to meet the damages suffered by the client or complying with the client’s mandate. Such claims usually arise in circumstances where the legal practitioners concerned have not taken instructions from their clients regarding the settlements or explained how the settlement figure is arrived at. Settlements at the proverbial doors of court, those ‘for commercial reasons’ where the difference between the amount claimed and the amount offered is simply split, block settlements or risk discounting are some of the circumstances that lead to under-settlement claims. The claim must be properly quantified with the required medico-legal and actuarial reports being obtained. If the client insists that an offer be accepted where the practitioner recommends otherwise, that must be recorded in writing and signed by the client. A copy retained on file will go a long way in assisting with the defence to an under-settlement claim.

The trends for the main claim types over the last five years

  • Cybercrime

Members of the legal profession continue falling victim to cybercrime. The LPIIF has been notified of cybercrime related losses that now exceed R 136 million. Cybercrime related claims are excluded from the LPIIF policy (see clause 16(o) of the LPIIF policy accessible at www.lpiif.co.za). Insurance companies in various jurisdictions around the world have reported an increase in cyber-attacks against legal practitioners in the wake of the adjusted working circumstances under the lockdown measures. Measures that can be implemented by legal practices to mitigate the risk of cybercrime have been covered extensively by the LPIIF in its publications and are available on the website. Details of the common modus operandi, the basis of liability of the parties concerned and measures that can be implemented to mitigate the risk can be gleaned from the following judgments:

Conclusion

The environment under which legal practice is conducted has undergone several significant changes in recent years. Legal practitioners must adapt the way they operate, design, and implement appropriate measures to manage the risks in their individual practices. The high number of professional indemnity claims will continue to pose a significant threat to the long-term sustainability of the LPIIF, as the primary professional indemnity insurer of all legal practitioners with Fidelity Fund certificates, and to those practices that find themselves in the unfortunate position where they are faced with claims.

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

This article was first published in De Rebus in 2021 (Nov) DR 6.

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