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Minimising risk and liability

Minimising risk and liability

By Peter Docherty

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“A liability cap that is upheld by the courts can act as a powerful shield to a claim from another party”

All firms need to continually review their risk management strategies and potential exposure in the event of a professional indemnity insurance (PII) claim. 

The cost of PII and top up insurance varies based on the profile of a practice, past claims and market availability. However, the insurance market is like the stock market, with peaks and troughs, and years of plentiful capacity and competition reflective of a soft market appears to be over with a number of PII insurers leaving the Australian market. LIV members are reporting an increase in the cost of top-up insurance which many firms purchase in excess of the LPLC compulsory PII policy.

As the market hardens and the cost of PII top up cover increases, astute firms are reviewing their risk management strategies and insurance, and revisiting the benefits of limited liability schemes such as those provided by the LIV Professional Standards Scheme.

One of the key benefits of the LIV Professional Standards Schemes is that it can limit the civil liability of LIV members and Incorporated Legal Practices (ILP) who are scheme participants, by capping the amount of damages that a court can award to a client if they succeed in certain claims against a legal professional or firm.

LIV Member and ILPs who participate in the Scheme can benefit by having their occupational liability capped to an amount of $1.5m or $10m depending on the number of practitioners in the law practice, the annual fee income of the law practice, and to the extent that liability can be capped under the Act.

There are two liability caps under the LIV scheme.  A cap of $1.5m applies to participating members who were at the relevant time in a law practice which constituted of up to and including 20 principals, and where the law practice generates a total annual fee income for the financial year up to and including, $10m.  A cap of $10m applies to participating members who were at the relevant time in a law practice which constituted of more than 20 principals, and where the law practice generates a total annual fee income for the financial year of more than $10m.

Professional Standards legislation is approved under the Victorian Professional Standards Act 2003 with the Commonwealth Government recognising and exempting schemes under relevant Commonwealth legislation including the Australian Competition and Consumer Act 2010 and the Trade Practices Act 1974.

For firms who wish to have higher caps, the LIV has discretionary authority, on application by a participating member, to specify in relation to the participating member, a higher maximum amount of liability (monetary ceiling) than would otherwise apply under the scheme either in all cases or in any specified case, or class of cases.

It’s time to reconsider the benefits of Scheme participation with the LIV scheme providing capped liability for eligible members for $167 including gst and $167 to also cover an ILP.

 

 


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