June 6, 2019
Enhanced Surcharge Protocol starts July 1, 2019
As directed by the governing board of the mandatory indemnity program for Alberta lawyers (the “Program”), an Enhanced Surcharge Protocol for the Program is being rolled out effective July 1, 2019.
 
The Enhanced Surcharge Protocol will benefit a large majority of Alberta’s private practice lawyers by shifting more of the costs of multiple paid claims onto the relatively few lawyers who incur them. These changes will also help offset the increasing costs of defending and resolving claims.

Under the current Surcharge Protocol, which has been in place since 1985, lawyers who have multiple paid claims for damages against them incur surcharges to a maximum of three times the current annual base levy assessment for the Program. The Enhanced Surcharge Protocol uses a fixed amount that escalates with the number of paid claims for damages, without a cap.

Complete information on the Enhanced Surcharge Protocol can be found on the ALIA website, including the Enhanced Surcharge Protocol, examples of how the Enhanced Surcharge Protocol applies, and FAQs.

The Enhanced Surcharge Protocol applies to claims that are reported on or after July 1, 2019 and will have no impact on lawyers with existing claims or paid claims before July 1, 2019, unless they have a subsequent claim on or after July 1, 2019 that results in a payment of damages or repairs.  

Throughout the comprehensive process ALIA undertook to update and enhance the Surcharge Protocol, a top-of-mind consideration was that a very small percentage of Alberta’s private practice lawyers – 1.6 percent with multiple paid claims – were responsible for more than 16 percent of the Program’s indemnity payouts, which is a highly disproportionate weighting.

The changes to the Enhanced Surcharge Protocol reflect commonly accepted insurance practices that reward members who have exemplary no-claim records of legal practice, while shifting more costs to those who have incurred multiple paid claims.

Enhancements to the Surcharge Protocol were the result of examining best practices in other jurisdictions and firmly committing to control costs by incentivizing competency in legal practice while promoting proportional fairness.

In recognition of the fact that Alberta’s private practice lawyers may, from time to time, be faced with a claim for which they are not liable, the Enhanced Surcharge Protocol will not apply to claims where only defence costs are paid. Notwithstanding competent practice, errors can happen; as such, the Enhanced Surcharge Protocol contains a “free paid claim” provision.  

As the Enhanced Surcharge Protocol applies effective July 1, 2019, the first surcharges assessed under the Enhanced Surcharge Protocol will be made in May 2020 for the policy year commencing July 1, 2020.
Lawyers are encouraged to read the Enhanced Surcharge Protocol in its entirety, as well as the FAQs for more information on how the Protocol applies to them.

Of course, if lawyers require further information, they should not hesitate to contact ALIA directly:

p. (403) 229-4716 or toll free 1.800.661.1694

The summary of the Enhanced Surcharge Protocol contained above is provided for information purposes only and not as legal advice, and is qualified in its entirety to the terms and conditions of the Enhanced Surcharge Protocol. 
ALIA - Your Claims Prevention Resource
At ALIA, we understand the importance of helping lawyers protect themselves against the risk of negligence claims. From our unique position overseeing the single indemnity program for all private practice lawyers in the province, we have amassed detailed information relating to claims going back 30 years. 

This data, as well as our ongoing monitoring and analysis of specific risks, provides us with unique insights into the most common errors that can occur in practice, along with tips on how to prevent them.

As part of our ongoing efforts to educate our membership and help prevent claims from arising, we want you to know that the ALIA team is available to come out and speak to you, your firm, or organization on claims prevention tips and understanding the claims process. Over the past year, we have presented on a variety of claims prevention topics including: wills and estates, real estate, and how the claims process works.

If you would like to take advantage of this free service, please send us an email at ALIA@lawsociety.ab.ca, and we would be pleased to make arrangements to come out and speak to you at a time that is mutually convenient.
ALIA Receives a 92% Satisfaction Rating from Members
As part of the ongoing effort to continually improve its practices and services, ALIA regularly surveys Alberta lawyers who have had claims made against them. We recognize that having a claim can be a stressful time for a lawyer, and want to ensure that our claims management practices help make the process as “stress free” as possible.

Feedback provided via our surveys is used to help ALIA continually improve our claims management procedures. Recent survey results saw a claims satisfaction rating of 92% .

Some of the comments we received from satisfied members were:

  • I thought that the services provided were exemplary.
  • Prompt follow-up which demonstrated a solid understanding of the issues and potential risks facing all parties.
  • [My Claims Counsel] and my [Defence counsel) cc'd me on everything and prompted me for my views when required. I appreciated having telephone conferences with my examiner and lawyer from time to time - good team approach.
  • My examiner was helpful and helped made a stressful situation easier.
  • I received very helpful suggestions that led to the early resolution of this potential claim.
  • You are a vital aid to lawyers.

ALIA encourages all lawyers who receive a Closed Claim Letter to complete the online survey and provide us with valuable feedback that will ensure we are meeting the needs of lawyers participating in the indemnity program. Your participation and support is both important and appreciated as we constantly strive to improve our services for Alberta lawyers in private practice.
When to Report a Claim or Potential Claim?
Do you think you might have a claim to report, but you’re wondering if: a) you should report it or, b) when would be the best time to report it?  To be clear, you should always provide notice of actual or possible mistakes as soon as you become aware of them.

Coverage under the group policy of the mandatory indemnity program (the “Group Policy”) is provided on a “claims made and reported” basis, meaning that coverage is dependent upon when the claim is made and reported to the insurer, not when the “Occurrence” (as defined in the Group Policy) has taken place.

It is a requirement of the Group Policy that all claims, and any circumstances which could reasonably be expected to give rise to a claim, however unmeritorious (“potential claims”), must be reported to ALIA during the policy period in which the insured becomes aware of them.

This means that all claims or potential claims that the insured becomes aware of in this current policy year ending June 30, 2019, must be reported to ALIA on or before June 30, 2019. Failure to report the claim or potential claim on or before the June 30 deadline will result in denied coverage.

It is critical that claims or potential claims are reported as soon as an insured becomes aware of them, as the Group Policy also provides that once the policy period has expired, the insurer is free from liability if no claim has been made and reported during the policy period. This includes situations where the insured becomes aware of a potential claim in the policy period but fails to report it in that policy period. The reinsurance that ALIA purchases from third parties is premised on this requirement.

  • To assist lawyers with examples of when to report a claim or potential claim, ALIA offers the following list of common claims or potential claims that should be reported immediately:
  • A client has asserted that you made a mistake or alleges you have caused a financial loss;
  • You are served with a Statement of Claim or you receive a courtesy copy of a Statement of Claim alleging negligence or an error by the insured/firm;
  • You receive a demand letter outlining negligence allegations against you;
  • You receive notice of an application where your client’s claim could be dismissed or summarily decided as a result of an error or alleged error on your part. For example:
  • Notice of a 4.31/4.33 application;
  • An application for summary dismissal based upon a missed limitation period (including liens, litigation, and claims against insurers or governments);
  • The other party alleges a specific defence based on something you have done (e.g., failing to name the correct party in an action);
  • You fail to serve pleadings within the required time;
  • You fail to register security properly resulting in lost priority or entitlement (e.g., PPSA, mortgage security);
  • You receive notice of a Law Society complaint in which your client alleges negligence or that you have caused a financial loss.

If you are in doubt, you are strongly encouraged to report your claim or potential claim. ALIA is here to help and can assist you with determining how to move forward. Don’t try to take steps on your own to repair a potential claim. These steps may make the situation worse and could jeopardize your insurance coverage. If you report a claim or potential claim and it is not necessary to attempt to rectify the error or defend a legal proceeding, your deductible will not be triggered and there won’t be any surcharge to your levy. 

The list of examples set out above is not meant to be exhaustive, and is provided for information purposes only and not as legal advice. The summary of Group Policy provisions contained above is also provided for information purposes only and not as legal advice, and is qualified in its entirety to the terms and conditions of the Group Policy. The Group Policy contains other terms and conditions which may affect coverage. Members should always review the Group Policy to confirm their obligations in any circumstance.
Cyber Dangers and How to Avoid Them
As part of ALIA’s ongoing efforts to help lawyers protect themselves against fraud, we ask all private practice lawyers to help us and their peers remain vigilant and aware by notifying the profession of attempted frauds against lawyers and firms in Alberta. 

We offer this article as an introductory caution to lawyers who are less experienced in cyber protection. Below, you will find a brief summary of the kinds of attempted crimes that Alberta lawyers and firms have shared with ALIA over the past several months.

ALIA also proactively publishes ALIAlerts to warn of specific frauds and scams.

Lawyers as targets

Like banks, law practices hold valuable information and money. Computer systems may contain client information, trade secrets, and intellectual property. Trust accounts often hold large sums of money. A cyber breach or trust account theft harms clients and could potentially cripple a practice reputationally and financially. Security guards, specialized safes, and sophisticated procedures protect banks. What safeguards have you put in place for your practice?

Perceived to be less sophisticated than banks and big companies, lawyers make easy targets for tech-savvy criminals. The payoff, which can include emptying trust accounts and taking advantage of confidential information, is tempting for hackers. 

Bad-cheque frauds

Potential bad-cheque frauds are continually targeted at Alberta lawyers. While some of the emails are obvious – riddled with typos and suspect fact patterns - others are much more sophisticated, containing smooth language and forged documents.

Bad-cheque fraud occurs when a fraudster, posing as a legitimate client, retains a lawyer on a contrived legal matter. The fraudster may ask for help with collecting a business debt, facilitating a loan, enforcing an agreement against an ex-spouse, or collecting a fee for trademark or copyright infringement. Whatever the legal issue, a common red flag is that the matter must be resolved quickly and with little effort.

A cheque arrives from the (fraudulent) opposing party, and the lawyer deposits the cheque. 
The client demands the funds from the cheque be released immediately. The lawyer releases the funds before the cheque clears. The fraudster vanishes into thin air, and the lawyer discovers, too late, that the bad cheque has bounced.

These deceptions can be sophisticated. Fraudsters use realistic looking fake identification. They will have all the usual supporting documents a real file will have. They will seek to add you on LinkedIn and may appear in your social network as “friends” of people you know. In Canada, there have even been fake websites created to support these frauds. Organized crime is behind some of these frauds, and more money and effort is invested into duping lawyers than ever before.

Spot the red flags

Fraudster clients are often in a rush and pressure you to take shortcuts to get the deal done quickly. They have no issue with paying higher fees. They may use names that do not match their email addresses and often express a preference to only communicate by email. Without explanation, the payment amounts may not match the expected payments and no explanation is forthcoming. The cheque is drawn from an unrelated party and, in all cases, fraudsters demand the funds from the cheque to be transferred before the cheque clears. Additional red flags can be found on the Law Society of Alberta’s Fraud & Loss Prevention website.

Protect yourself with these tips

Never disburse funds from your trust account until you are sure the incoming funds are real and in your account. Be aware that the bank can reverse a bad cheque, even a certified cheque or bank draft, after any amount of time. Cross-check names online, including LAWPRO’s practicePRO AvoidaClaim.com blog where you can find the names of confirmed fraudsters, and follow these Client Identification and Verification Rules before taking on a client. Look up addresses using Street View in Google Maps, and conduct reverse searches on phone numbers using canada411.ca. And, if you are in doubt, please send an email to the ALIAlert mailbox and we will help you determine if the matter is legitimate.

Email dangers

Email is the most frequent way law firm systems are compromised. This occurs when someone opens an infected attachment, clicks on a link in an email, or responds to a phishing message. Once installed, malware can give hackers access to your system and/or destroy your data. Educate your staff about the dangers of email.

Phishing - don't take the bait

Phishing is the attempt to acquire sensitive information such as usernames, passwords, and credit card details by masquerading as a trustworthy entity in an email. Phishing scams are usually bulk emails sent to large numbers of people. Even if only two or three per cent of recipients fall for them, hundreds or even thousands of people can be victimized.

Phishing messages take the form of an email, allegedly from your bank or another business you know, that suggests your account has been compromised or that payment is overdue. They will have the same layout, logos, and links as legitimate emails from these companies. They try to create a sense of urgency and ask you to login to reset your password or verify a payment was made. However, the link you click takes you to an imposter website that looks much like the familiar company site, and when you login you are actually giving your password or other personal information to the hackers. They will use your information for malicious purposes such as ID theft or credit card fraud.

Prevent phishing by putting your cursor over the link in an email. Your email program should show the actual web address at the bottom of the screen. If it is not familiar to you, it is likely a phishing attempt.

Spear Phishing - a bait just for you

The “spear” in spear phishing alludes to the fact that messages are targeted to specific individuals. Spear phishing messages are more convincing because they are personally addressed, appear to be from someone you already know, and may include other detailed personalized information. In some cases a phone call will come in as a follow-up to the message. ALIA has seen cases where lawyers in a firm receive emails purportedly from another member of the firm (usually a partner) asking for business development funds and other transfers that the partner (falsely) was unavailable to deal with.

Follow your firm’s processes and procedures for the review and approval of financial transactions, and do not bypass them due to urgent circumstances. Never share confidential client or firm information without being sure it is appropriate to do so by getting confirmation from someone familiar with the file. Be on the lookout for and question any last-minute changes on fund transfers or payments.

Loss of client data on portable devices

Laptops, tablets, and mobile phones may contain confidential and sensitive information. Should a portable device be lost or stolen, client data may go with it. Prevent the intrusion by ensuring all portable devices have a strong password and are encrypted. A good practice is to enable the device to allow a remote wipe of all data.

Other cyber fraud

There is no end to the efforts and imaginative schemes that hackers will employ to infiltrate law practices. In 2012, a Trojan banker virus infected an Ontario law firm. This virus presented a spoofed version of the website of the firm’s bank on the bookkeeper’s computer, and passwords entered on the fake site were passed on to the hackers, who then used them to wire funds from the firm’s trust account.

ALIA has also recently seen several instances where a fraudster hacks into a client’s or lawyer’s email and surreptitiously monitors emails going back and forth between the lawyer and the client. At the opportune time, usually just before a real estate deal is closing or other funds are to be advanced, the hacker sends an email redirecting where the funds should go. This change of instructions appears to be coming from the client via the client’s email, but if the lawyer follows these instructions, the money goes to the fraudster. Other recent Alberta cases have seen firm emails hacked with fraudulent instructions coming from the lawyer to the client in an attempt to intercept funds being sent to the firm.

Ransomware is another form of attack. It is usually spread by clicking on an infected email attachment or website. That single click launches a virus that encrypts all the data files on a firm’s computers. A message then pops up stating that if you do not pay a certain amount of money within a tight deadline, the files will be destroyed.

Be proactive

Maintaining good tech hygiene requires vigilance, awareness, and regularly following safe computing practices. Passwords should be used at entry points and changed regularly. Poor passwords are one of the main ways hackers gain access to law firms.

Operating systems (Windows, Linux, OS X) and other software should be updated regularly. Once out of date, operating systems are vulnerable, as known weaknesses can be exploited. Firewalls, which protect access to the network, should be turned on. Anti-virus software should be installed and updated. Networks and systems should be checked regularly. Professional IT assistance is encouraged.

The legal profession handles massive amounts of information and money. Cyber criminals continue to find inventive ways to hack in. The need to be vigilant and keep up with technological safeguards is high. Hackers will look for and exploit the weakest link in your systems and hardware.

Be proactive and take the steps discussed here. See the ALIAlert Fraud Alert website for more information on recent fraud activity and tips to keep your professional and personal data safe. 

Lawyers are urged to consider buying cyber insurance as part of the overall insurance coverage for their firm or practice. Although insurance may not cover all of the situations described above, it can be an important part of a lawyer’s overall risk management strategy.

More information on the availability of cyber insurance can be found here.