Editor's Notes: Changes to the AIIF Policies for the 2018/19 Scheme year
The 2018/19 AIIF insurance scheme year commences on 1 July 2018.
The Master Policy for PI claims and the terms and conditions under which bonds of security are to be granted in the new scheme year are included in this Bulletin. Practitioners must study both policies carefully and ensure that they fully understand all the provisions thereof.
The considerations taken into account in effecting the amendments include:
- An alignment of the policies with the Legal Practice Act 28 of 2014 (the Act);
- An improved definition and management of the risks covered;
- Further articulating the respective obligations and rights of the parties to the insurance relationship; and
- Clarifying some of the queries raised in the two years that the policies have been implemented.
The changes to the policies are set out below.
The Master Policy
The limits of indemnity (amount of cover) and the deductibles (excess) remain unchanged (see schedules A and B respectively).
Definition of an insured - In anticipation of the full implementation of the Act later in this calendar year, the relevant provisions of the policy (clauses I, XXI and 5) have been amended. Clause 5(d) has been added to the policy in order to include advocates practicing with fidelity fund certificates in terms of section 34(2) (b) of the Act. Attorneys and advocates with fidelity fund certificates will, subject to the policy conditions, be provided with PI cover under the AIIF Master Policy (see sections 77(1), 77(2) and 84(1) of the Act). In order to fall within the definition of an insured in the policy, the party applying for indemnity must have a fidelity fund certificate at the time that the cause of action (the circumstance, act, error or omission) giving rise to the claim arose (clauses 5, 6(a) and 6(b)) - in other words, the insured must have had a fidelity fund certificate at the time that the insured event occurred. The restriction on the circumstances under which a liquidator or trustee of an insolvent estate will be covered have been moved from clause 16(l) in the previous policy to clause 6(e) in the new policy. The activities of business rescue practitioners are exclud- ed from the policy (clause 16(I)).
The trading debt exclusion - clauses XXVII and 16(a). The exclusion has been extended to include disbursements in respect of any amount paid to counsel or an expert. The amounts paid to counsel and experts are not compensatory in nature. It will be noted from clause 1 of the policy that the indemnity provided to the insured is in respect of professional legal liability to pay compensation to a third party.
The defamation exclusion - clause 16(n). The exclusion has been extended to all defamation claims brought against an insured practitioner.
Claims arising out of dishonesty or fraud - clause 18. The exclusions set out in clauses 16, 19 and 20 will be applied to the Innocent Principal (as defined in clause XV). (clause 3.3.6).
Cession - the policy now includes an express prohibition against cession (clause 24.1).
The provision of assistance to the insurer- the insured must, at its own expense, provide the AIIF with any required information and documents. The assistance required may include the preparation, ser- vice and filing of notices and pleadings. Any expenses incurred in this regard must be agreed in writing and the AIIF tariff will apply (clause 25).
The Executor Bond Policy
The AIIF will, subject to the policy, continue issuing bonds of security (in favour of the Master of the High Court) to attorneys appointed as executors (not agents or representatives) of deceased estates - see section 23 of the Administration of Estates Act 66 of 1965 read with section 40A(b) of the Attorneys Act 53 of 1979- the corresponding section (section 77(3)) of the Act refers only to attorneys (not advocates) in respect of the granting of deeds of suretyship). Advocates, even those practising with fidelity fund certificates in terms of section 34(2)(b) of the Act, will thus not be entitled to be granted bonds of security by the AIIF as the scope of the company’s mandate is limited by the founding legislation.
The AIIF will, subject to the policy, continue granting bonds of security to executors up to a maximum of R5 million per estate, provided that no firm will have an aggregate exposure in exess of R20 million at any time.
Underwriting considerations - the prior record of the applicant in administering estates will be one of the factors taken into account in applying the discretion to issue bonds of security (clause 1.2). Subject to clause 3.3.1, no new bonds will be issued to applicants who have outstanding bonds open for longer than 12 months or to applicants who fail to adhere to the policy (clause 4.4).
Reporting requirements - where the administration of the estate is not completed within 12 months from date of issue of the bond of security, the executor must, no later than 30 days before the expiry of that period, provide the AIIF with a report in this regard setting out the reasons for the delay in the finalisation (clause 3.3.1). Letters of executorship must be sent to the AIIF within 30 days of being granted (clause 188.8.131.52). Copies of the provisional and final liquidation and distribution account must be provided to the AIIF within 6 months of the letters of executorship being granted. In the event of the 6 month period not being met, proof of the application to Master for an extension and the outcome of such application must be submitted to the AIIF- this provision aligns the duties of the executor with section 35 of the Admin- istration of Estates Act. A failure to comply with this requirement will result in the AIIF applying to the Master for the removal of the attorney as executor (clause 184.108.40.206).
The threshold in respect of outstanding bonds - when R15 million in active bonds in reached, the attorney must provide the AIIF with a written plan and evidence on how the firm will reduce its exposure (clause 3.3.6).
Accounting for estate funds and property - a separate estate late bank account (as required by section 28 of the Administration of Estates Act) must be opened for each estate administered by the firm and proof of such bank account must be provided to the AIIF. The estate funds and property must also be accounted for in the annual application for a fidelity fund certificate. The firm must, on an annual basis, provide the AIIF with the list of estates under administration as attached to its application for a fidelity fund certificate (clause 220.127.116.11). Estates are not to be administered through the attorney’s trust account.
Queries in respect of the amendments
Please contact the AIIF should you have any queries on the changes. Those practices which have purchased top-up insurance cover in the commercial market must bring the changes to the policies to the attention of their respective brokers and insurers.
We wish you a claim-free 2018/19 scheme year. Thomas Harban, Editor