Risk Management Column: Who is insured by the LPIIF?
In this edition, we continue with the series of articles aimed at addressing some of the common questions raised in respect of the Master Policy issued by the Legal Practitioners Indemnity Insurance Fund NPC (the LPIIF).
In the November 2020 edition, we explained who the LPIIF insures and the amount of cover provided. The December 2020 edition gave details on the excess payable. The current edition will cover who an insured is in terms of the policy.
The statutory framework
A useful starting point is an examination of the applicable provisions of the Legal Practice Act 28 of 2014 (the Act). The LPIIF is the insurance vehicle established by the board of the Legal Practitioners’ Fidelity Fund (the Fidelity Fund) to provide the insurance cover and suretyships referred to in section 77 of the Act. The relevant parts of section 77 of the Act read as follows:
“77. Provision of insurance cover and suretyships- (1) The Board [of the Fidelity Fund] may-
(a) acquire or form and administer a public company; or
(b) together with any other person or institution, establish a scheme, underwritten by a registered insurer, In order to provide insurance cover, subject to the provisions of the Short-[t]erm Insurance Act, 1998 (Act No. 53 of 1998), to legal practitioners referred to in section 84(1) in respect of any claims which may arise from the professional conduct of those legal practitioners.
(2) The Board may enter into a contract with a company or scheme referred to in subsection (1), or any company carrying on professional indemnity insurance business, for the provision of group professional indemnity insurance to legal practitioners referred to in section 84 (1) to the extent and in the manner provided in the contract” (my emphasis).
The Short-term insurance Act has since been replaced by the Insurance Act 18 of 2017.
Section 84 (1) of the Act creates an obligation for certain categories of practitioners to practice with a Fidelity Fund certificate and reads as follows:
“84. Obligations of legal practitioners relating to the handling of trust monies.-(1) Every attorney or every advocate referred to in section 34(2)(b), other than a legal practitioner in the employ of the South African Human Rights Commission or the State as a state attorney or state advocate and who practices or is deemed to practice-
(a) for his or her own account either alone or in partnership; or
(b) as a director of a practice which is a juristic entity, must be in possession off a Fidelity Fund certificate.”
The obligation on an attorney to practice with a Fidelity Fund certificate received in-depth consideration in NW Civil Contractors CC v Anton Ramaano Inc & Another (1076/2018) (1024/2018)  ZASCA 143 (14 October 2019). The Supreme Court of appeal, in that case, considered the implications of an attorney practising without a valid Fidelity Fund certificate in violation of section 41(1) of the Attorneys Act 53 of 1979 (the corresponding provision to section 84(1) in the repealed legislation) and analysed the previous decisions on that question. The LPIIF was admitted to the proceedings as amicus curiae. The court found that an attorney practising for his or her own account must be in possession of a valid Fidelity Fund certificate.
The LPIIF is an insurer registered in terms of the Insurance Act. The LPIIF’s lines of business accord with section 77 of the Act. The insurance licence issued in terms of section 23 of the Insurance Act authorises the company to conduct business in the following classes and sub-classes of non-life insurance business:
|Class of business||Sub-class|
The liability class of business is relevant for present purposes as the current focus is on the company’s professional indemnity line of business. The guarantee line of business (executor bonds) will be addressed in a separate edition of the Bulletin. The company can only conduct business in the approved classes and sub-classes of business (see Chapter 4 of the Insurance Act).
The statutory framework applicable to the LPIIF thus only authorises the company to provide professional indemnity insurance to attorneys and trust account advocates with Fidelity Fund certificates.
The LPIIF policy
The relevant clauses of the policy read as follows:
“Who is insured?
5. Provided that each Principal had a Fidelity Fund Certificate at the time of the circumstance, act, error or omission giving rise to the Claim, the Insurer insurers all Legal Practices providing Legal Services, including:
a) a sole Practitioner;
b) a partnership of Practitioners;
c) an incorporated Legal Practice as referred to in section 34(7) of the Act; and d) an advocate referred to in section 34 (2) (b) of the Act. For purposes of this policy, an advocate referred to in section 34 (2) (b) of the Act, will be regarded as a sole practitioner.
6. The following are included in the cover, subject to the Annual Amount of Cover applicable to the Legal Practice:
a) a Principal of a Legal Practice providing Legal Services, provided that that Principal has a Fidelity Fund Certificate at the time of the circumstance, act, error or omission giving rise to the Claim;
b) a previous Principal of a Legal Practice providing Legal Services, provided that that Principal had a Fidelity Fund Certificate at the time of the circumstance, act, error or omission giving rise to the Claim;
c) an Employee of a Legal Practice providing Legal Services at the time of the circumstance, act, error or omission giving rise to the Claim;
d) the estates of the people referred to in clauses 6(a), 6(b) and 6(c);
e) subject to clause 16 (c), a liquidator or trustee in an insolvent estate, where the appointment is or was motivated solely because the Insured is a Practitioner and the fees derived from such appointment are paid directly to the Legal Practice.
The words in bold text above are defined in the policy. Only a legal practice conducted in one of the forms listed in clauses 5 (a) to 5(d) of the policy are indemnified by the LPIIF. It will be noted from section 34 (1) to 34 (7) of the Act, read with paragraphs 1.13 and 1.16 of the code of conduct for legal practitioners and rules 1.18 and 1.22. Incorporated practices are personal liability companies must comply with the section 34 (7) of the Act. A practice conducted in any other form of company (a Pty (Ltd), for example) will not be indemnified. A separate article will be published in a later edition of the Bulletin analysing the requirements for an incorporated practice.
Legal practices conducted in any format, other than those listed in clauses 5 (a) to (d) of the policy, will not be covered by the LPIIF. The Supreme Court of Appeal in Propell Specialised Finance v Attorneys Insurance Indemnity Fund NPC (1147/2017)  ZASCA 142 (28 September 2018) confirmed that the LPIIF can only provide indemnity to insured practitioners (as defined in the statute and the policy).
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