Tuesday, 15 September 2020

Changes to How an Insured
Practice’s Annual Contribution is Calculated

Regulation 92 of the Legal Profession Regulations 2009 (‘the Regulations’) provides that law practices are liable to pay an annual contribution to the Law Society for the purposes of the professional indemnity insurance arrangements.

It also sets out the matters the Law Society may take into account in determining a method of assessment of those annual contributions. These include:

• Gross past or estimated future fee income;
• Claims history;
• Area of practice;
• Number of principals and employees; and
• Risk management practices.

The primary rating factor that has been included in the method is number of principals and employees. The other factors listed above have given rise to discounts and loadings, as appropriate. The details of this are set out each year in the Annual Information Booklet received by insured practices.

For the 2021/2022 insurance year, it is intended that the primary rating factor will change to the historical gross fee income of a practice in the prior calendar year. However, some discounts and loadings will still apply based on other factors. Importantly, the number of principals and employees will no longer be a factor in the assessment of annual contribution.

The implementation of this change will be subject to the successful changeover by Law Mutual (WA) to a new insurance and claims system that is scheduled for November 2020.

Further details of the changes will be provided to insured practices in a series of communications commencing later this year.

Regulation 93 Reviews of Annual Contribution

Regulation 93 of the Regulations provides that:

A law practice that is not satisfied with the assessment of its annual contribution under regulation 92 may apply to the Law Society for a review of the assessment, and the Law Society must review the assessment.

The Council of the Law Society has recently clarified the scope of such reviews. It has confirmed that such reviews will be directed only to the application of the methodology for assessing annual contributions.

In effect, a review will only be concerned with whether Law Mutual has correctly assessed the annual contribution having regard to the assessment factors that are set out in the Annual Information Booklet. A request for a review that is based on factors that are not relevant to the assessment, such as the financial circumstances of an insured practice, will not be entertained.

Any insured practice that requests a review will be asked to provide details as to why they consider Law Mutual has incorrectly applied the method of assessment which has resulted in an incorrect annual contribution.

Insured practices should note that:

A request for a review will not relieve them of their responsibility to pay the annual contribution as and when required (Regulation 93(4)); and

They have a right of appeal to a person nominated by the Attorney General if they are not satisfied with the assessment after review (Regulation 93(3)).

Qualifying for the Risk Management Discount

As insured practices would be aware, they are entitled to a discount of 5% of their base annual contribution if they meet the risk management training requirements for such a discount each year.

We are very pleased that 318 insured practices qualified for this discount in the 2020/2021 insurance year.

An insured practice that has not met the requirements to claim the risk management discount due to exceptional circumstances may apply to Law Mutual to be allowed the discount on the basis that:

1. There were exceptional circumstances that resulted in some practitioners not completing the required hours of training; and
2. The insured practice could not have been aware of the impact of those circumstances prior to the closing of the relevant training period.

Exceptional circumstances may include, but are not limited to:

• unforeseeable events that prevented a practitioner from undertaking approved training; or
• a genuine but wrongly held belief that training that was undertaken was approved.

The discount may be allowed based on any conditions imposed by Law Mutual and at the absolute discretion of Law Mutual.

Risk Management Seminar Programme Update

Please note that participation in the online webinars will be monitored during each session. Practitioners are required to actively participate in discussion and provide feedback by utilising the online voting tools.

Following the release of the 2020/2021 Risk Management Seminar Programme and in response to the demand for sessions, Law Mutual (WA) will facilitate six additional webinars throughout November 2020 and February 2021 to ensure that all insureds have the opportunity to attend risk management training. Details of these are set out below.

Getting off risk effectively

Some client engagements end well, some end badly, some seem never ending and still others end and get resurrected.

This session will look at the surprising variety of end of matter and file closure risks that have led to professional liability claims.  It will also provide an overview of the strategies and controls that when implemented, can mitigate, and manage the risk of a claim arising.

Speaker: Ronwyn North, Streeton Consulting

1 Point, Competency 1, Practice Management

In-House Claims Management

In November last year, Law Mutual increased its resources to enable it to manage some claims ‘in-house’ to provide a more efficient claims service to insured practices.

This initiative saw Verginia Serdev-Patterson join Law Mutual as a Claims Manager in November 2019. Verginia is a former Special Counsel at one of Law Mutual’s panel firms and brings nearly two decades of experience in defending professional indemnity claims on behalf of insurers, including, of course, claims against lawyers. She now looks after the in-house management of claims at Law Mutual and provides guidance to insureds in relation to risk mitigation steps and strategies in the event of circumstances that may result in claim.