Ontario lawyers have been spared a one-time $450 LawPRO levy for the harmonized sales tax, in part due to the $8-million settlement reached earlier this year between the Law Society of Upper Canada and its former auditors.
Beth Symes, chairwoman of the law society’s audit committee, told Convocation the LSUC had filled a $10.7-million hole in LawPRO’s accounts with money from its errors and omissions fund.
Although the HST doesn’t come into effect until July, LawPRO was forced to acknowledge the effect its introduction would have on unresolved claims from last year. For 2009, unresolved claims totalled $384 million, leaving an HST liability of $10.7 million.
“It had to be funded,” Symes said, noting LawPRO had warned in its annual report late last year that one solution was the special levy on law society members. “It didn’t have to happen because the money flowed from errors and omissions to LawPRO.”
Symes explained the LSUC could afford the payment to LawPRO because the proceeds from the $8-million settlement with its former accountants, Ernst & Young, and actuary, Tillinghast, went directly into the errors and omissions fund.
The law society began its action against the defendants in 1997 alleging professional negligence after discovering a $154-million deficit in its insurance program.
In a report to Convocation, law society CEO Malcolm Heins defended the mediated settlement, in which the defendants admitted no liability, to benchers.
“The costs and complexity of the trial were important factors in pushing all parties to settle, together with the potential exposure of the losing party to costs,” he said.
“This was a reasonable resolution of the litigation, having regard to the risks in continuing to pursue the action and a realistic appraisal of law society’s and LawPRO’s recoverable damages.”
Heins also revealed for the first time that the net recovery to the errors and omissions fund, which covered the litigation costs, was $5 million.
“Given the fact that the events took place giving rise to this litigation over a four-year period, the complexity of the matters at issue, the length of the litigation, including the interim proceedings that took place, the costs and the circumstance, at least in my view, were reasonable,” he said.
The HST liability compounded what Symes called a “challenging year” for LawPRO, which lost $6.5 million last year compared to a $7-million profit in 2008. As a result, it had already hiked base premiums by $500, or 20 per cent, to $2,950.
LawPRO figures show the number of claims from members was the highest since 1994, increasing 4.5 per cent over the previous year. The cost to settle each claim is also steadily rising, trends LawPRO expects will continue in the coming years. However, Symes insisted the company is in a strong position for the future.
“Although there are real challenges for LawPRO, they are on top of those challenges,” she said, noting that insurance ratio tests by auditors showed it was prepared to handle its anticipated liabilities. LawPRO also earned an A rating from A.M. Best Company Inc. “That is an excellent rating with respect to their financial performance,” Symes said.
Fellow bencher Judith Potter commended Symes on the comprehensiveness of her report but expressed concern about the lack of questions from her colleagues.
“We are glossing over the reports and we are glossing over them on the understanding perhaps or the assumption that all benchers are reading all of the reports,” she said.
“I would like to see a little bit more fleshing out of some of these reports that are presented at Convocation because I do believe that people will not ask questions if they haven’t read the report. Therefore, there are things that are not being addressed but perhaps should be.”