CLIA’s Founding Principles
- to provide a reliable and permanent source of insurance on a non-profit basis
- to ensure the availability of reasonably priced and effective excess insurance
- to stabilize premiums in both mandatory and excess layers
- to ensure premium rates reflect the loss experience of Canadian lawyers
History & Structure
Canadian law societies are traditionally both the professional regulatory body and the professional association for lawyers. By the early 1970's, they had all established mandatory professional liability insurance programs. Initially, a commercial insurer would issue a master policy to the law society for the benefit of its members (i.e. all practicing lawyers) and certificates of insurance would be issued by the society. The premium was recovered by a levy on the membership.
The law societies gradually entered into self-insurance by retaining risk through a society deductible on each claim. The liability associated with the retained risk was funded by reserves accumulated from the difference between the levy on members and the premium paid to the insurer. As a result the societies established reserve funds and comprehensive information on claims against lawyers within their jurisdiction.
While these plans had served the profession well, it became apparent that their overall effectiveness was extremely vulnerable to fluctuations in the insurance market.
Law societies, as insurance consumers, only had access to commercial insurance markets. The number of insurers offering coverage, particularly for the initial $5,000,000 to $10,000,000 of coverage, was very limited. The law societies were at the mercy of the market, which was unwilling to differentiate between the poor claims experience in the U.S. and that of Canadian lawyers. During the liability insurance market crisis of the mid 1980’s, price and availability for this coverage grew increasingly volatile. Vulnerable to the vagaries of the market as they were, the Law Societies were unable to modify their programs to keep pace with the increasing need for higher coverage limits and the public interest was increasingly less protected as the level of protection carried by members of the profession (especially small firms and sole-practitioners) dwindled relative to the need.
As a result and in response to the demands of the profession at large for more stable and effective professional liability coverage, a study was conducted by the Federation of Law Societies of Canada (an association of the law societies) and the Canadian Bar Insurance Association ("CBIA" a national not-for-profit organization formed by the Canadian Bar Association to establish and manage insurance programs for the legal profession).
The purpose of the study was to explore and seek out more effective alternatives to the status quo. One such alternative was to establish a reciprocal insurance exchange, a form of unincorporated insurance company in which subscribers exchange policies. By banding together to form an insurance company, the law societies would have access to direct insurance markets (akin to shopping wholesale) that would recognize the years of Canadian-specific claims history the law societies had built. Stable and fair rates
and a permanent source of coverage were now within reach and the Canadian Lawyers Insurance Association ("CLIA") was formed.
CLIA was established as a reciprocal insurance exchange and issued its first policies on July 1, 1988. The subscribers now include Nova Scotia, Prince Edward Island, New Brunswick, Manitoba, Saskatchewan, Yukon, Nunavut, Newfoundland and Labrador and Northwest Territories. The participating societies agree on standard limits and policy terms, and each select a member society retention appropriate to their circumstances. CLIA continues to issue a master policy to each member society for the benefit of its practicing insured members. Most of the member societies manage their own programs, including claims management within their retained limits. CLIA administers claims which exceed the society deductibles, and performs a coordinating role.
At the time of the Federation study, it was also recognized that there was a need to ensure that higher limits of insurance were available to those lawyers who wanted them. Accordingly, CLIA created its voluntary excess program offering limits of $1 million to $9 million in excess of the mandatory requirements.