What kind of benefits clients might have from their lawyer’s professional liability insurance?

The Law on Lawyer’s Profession of the Republic of Srpska, adopted in September 2015, stipulates that for damage (presumably referring to their clients) a lawyer shall be liable in accordance to general rules on liability for damage, and lawyers shall also be obliged to take out insurance on professional indemnity. The lowest sum insured per individual case is 250,000.00 BAM for a lawyer or 500,000.00 BAM for a law firm. The deadline for the conclusion of the insurance contract, in accordance with the provisions of the new Law on Lawyer’s Profession of the Republic of Srpska has expired at the end of January 2016.

As soon as the lawyers in the Republic of Srpska fulfilled the obligation to take out the professional indemnity insurance a question arose what it exactly means for the users of legal services i.e. what is a benefit that clients might have from the professional liability insurance of their lawyers?

In order to answer this question we firstly need to determine who has no obligation to take out professional liability insurance. Exempted are, primarily, limited liability law firms for which the legislator, due to some unknown reasons, did not lay down an obligation to take out professional liability insurance. Then, it also refers to the branch offices of foreign law firms, which work without authorization and thus violate the regulations of the Republic of Srpska. And finally it refers to various domestic consulting, accounting, auditing firms/offices as well as offices with unauthorized legal practice that are engaged in activities as defined in Article 3 of the Law on Lawyer’s Practice (the most common is the provision of advices and opinions and drafting submissions, contracts or some documents, although it happens that such persons are also representing their clients in an administrative procedure or even perform registration, and all of course illegally). Therefore all these entities are not obliged to insure against damage that they can commit performing legal practice for which they are engaged. Even worse, as opposed to law firms and law partnerships, all mentioned groups (i.e. nor law firms with limited liability, nor offices of foreign companies nor domestic consulting / accounting / auditing firms) shall not be liable for damage with its entire property, but only with its share capital, which usually amounts 1 BAM or 2,000 BAM for firms that have been registered a few years ago.

Most of insurance companies in the Republic of Srpska and the Federation of BiH dealing with the insurance of lawyer’s professional liability exclude from insurance all damages resulting from lawyer’s intent or damages occurred due to the gross negligence of the same. Since the situation when a lawyer intentionally commit a damage to the client is quite clear (although this will not always be the case) it still remains unclear when the failure of a lawyer shall be considered as a gross and when as an ordinary negligence. If a lawyer fails to file an appeal in time or to go to the previously scheduled hearing, and consequently the client suffers damage, shall such failure be considered only as an ordinary negligence or as a gross negligence? Is it a kind of negligence that could normally be tolerated to any other person but not to the lawyer who is expected to work in his office or law firm and be organized in a way to avoid such failures? Answers to those questions can only provide jurisprudence, especially if one takes into account that the insurance companies, in order to avoid paying damages, shall stand on the position that such failures of lawyers represent gross negligence.

Professional liability insurance covers damages which are consequences of poor or incorrect representation. However, for the recovery of such damages the clients shall encounter a problem of proving not only that the case was poorly represented by his lawyer, but also that the dispute or procedure after the same would have a different outcome if the lawyer represented him properly. In most cases (unless drastic cases, such as not filing an objection to the statute of limitation in the proceedings) it will be almost impossible to prove. Namely, with a purpose of succeeding in a civil proceeding conducted in order to collect such damages, it is necessary to prove, most likely with expertise, that for the damaged party the outcome of the dispute would have been different if his lawyer properly represented him. At the moment there are no experts who would expertize such situations (probably it would have to be a permanent court expert of legal profession, without prejudice to such expert evaluation carried out by the lawyers), nor should anyone could claim that a court decision would be different if the procedure otherwise managed, except possibly judge who made the subject decision. Thus, we can conclude that from this insurance on professional liability of lawyers their clients will have virtually no benefit.  Clients shall, primarily, be in need of insurance in cases when their lawyers deliberately, or even with gross negligence, cause a damage, but in such cases insurance companies shall not cover, nor can it be expected that they shall accept to cover the same, without additional guarantees that those insurance companies would require from the insured party (lawyer). Therefore the only guarantee for clients is the responsibility of lawyers, joint attorney offices and law partnerships who guarantee with the entire personal property of their owners / partners. With this, once again, is shown the wrong orientation of the legislator to allow the practice of law to the law firms with limited liability where there is no personal property liability of the lawyer-owner of the same, but the obligation to be liable shall be only on the limited liability company with its assets and its share capital which may be a value of 1 BAM only.

Author: Aleksandar Sajic, e-mail: [email protected]

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