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Case Comment: Lawyers' Errors and Omissions Insurance: Pollon v. American Home Assurance,
(1991-92), 13 Adv. Q. 571.

Kenneth W. Golish

August 5, 1991

Footnotes not included

 

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Not all clients can rely on their lawyers. The corollary of that is true as well: not all lawyers can rely on their clients. Yet clients have institutional protections when none exists for the profession. So it would seem. The decision in Pollon v. American Home Assurance Co. (1991), 3 O.R. 59 (C.A.) suggests otherwise.

In Ontario, as elsewhere, a client has some recourse when a lawyer can't or won't make good a loss arising from a breach of a professional duty. In the instance of misappropriation, for example, the Law Society has a compensation fund. When the breach involves negligence, the client has the protection of the solicitor's errors and omissions insurance. That insurance is compulsory, at least in Ontario. Elsewhere, lawyers are well-advised to have it. Many kinds of insurance provide protection from risks attributable to others. However, I would not have guessed that a lawyer's policy would safe-guard the lawyer from her own client. The result in Pollon v. American Home Assurance Co. makes this possible.

The facts are quite simple. The solicitor, Pollon acted for a numbered company in a land purchase. According to the report, she received her instructions from one Wolf who was the agent for the company. Wolf, also a lawyer, instructed Pollon to get an administrative review of the land transfer tax, then educated her on the review procedure. It required a solicitor, upon registering a conveyance, to give a written undertaking assuring later payment of the tax. Apparently lawyer and client understood Wolf would sign the required document. However, on the day of closing, Wolf surprised Pollon by telling her he could not execute the undertaking because of his suspension from practice. Instead, he asked her to sign and she agreed. Later the Ministry of Revenue demanded $62,000 from Pollon. The numbered company provided no funds for payment, then became insolvent and went into receivership. Pollon negotiated a settlement, paying the Ministry $27,000. Next, she demanded that sum, less her $5,000 deductible, from the Law Society's group policy.

The plaintiff based her claim on a common policy clause requiring the insurer to indemnify the solicitor as follows:

To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of an act or omission of the Insured...arising out of the performance or intended performance of professional services for others...in the Insured's capacity as a lawyer.

On a motion for summary judgment under rule 20.04, the chambers judge dismissed the action on the basis that the solicitor gave the undertaking in her personal capacity. A reasonably prudent solicitor, said the judge, might do all she could to extricate her client from such a predicament. This, however, did not require her to advance monies or credit to her defaulting client. With no professional obligation to her client to make the payment on its behalf, the Ministry debt was purely personal. The judge did not follow another case involving very similar circumstances. See Wolinsky, Liffman, Wolinsky & Wolch v. General Security Insurance Co. (1983), 21 Man. R. (2d) 138, [1983] 2 W.W.R. 761. He relied instead on Hazelwood v. Travelers Indemnity Co. of Canada, [1979] 2 W.W.R. 271, holding that an insurer was not responsible for a loss arising out of a lawyer's acceptance of funds for investment.

"Two issues are raised in this appeal." wrote Blair J.A. (Dubin C.J.O. and Tarnopolsky J.A. concurring). The first, according to the appeal court, was whether the undertaking was given in her capacity as a lawyer; the second, whether the judge should have followed Wolinsky. After discussing the capacity issue, the court dismissed the argument that the obligation did not arise out of the performance of professional services for others. Relying on the indisputable assumption that a solicitor is bound by undertakings given to parties other than clients, Blair J.A. concluded simply that, "the loss arose...in the performance of professional services." It followed, "that it is covered by the policy."

With respect, the dispute only involved one issue; namely, did a claim for damages arise out of the performance of professional services? To resolve that issue, it would have been helpful to strip away some excess language in the policy. Thus, both the terms "others" and "capacity as a lawyer" are mere words of limitation or qualification. "Others" simply limits the coverage for services performed for persons other than the lawyer. The policy does not apply when the lawyer represents himself in a transaction or proceeding. Even if a lawyer ends up obligated to a third party because of such self-representation, the policy provides no coverage. "Others," therefore, has no reference to whom a duty may be owed. As for the term "capacity as a lawyer," the phrase qualifies the expression "professional services." It is not equivalent to saying "not in his personal capacity." It means that if the lawyer performs services not related to the practice of law, the insurer assumes no responsibility. Thus if the lawyer acts as a talent agent or manager, as a lobbyist, or in another non-legal capacity, he has no right to be indemnified for his own negligence.

No doubt a liability arose in this case out of the performance of professional services in the insured's capacity as a lawyer. However, the wording of the policy does not provide coverage for every claim a lawyer may be exposed to. The policy only covers liability for damages. When Pollon gave the undertaking she simply entered into an agreement to pay an amount to be determined later. The consequent claim by the Ministry was in contract and not for tort damages. Therefore, the lawyer assumed a liability which was essentially no different from the obligation she might take on in employing office workers, buying equipment or ordering a transcript. When a firm incurs general expenses for its practice, identifying what portion of any given expense is attributable to services performed for a particular client may be impossible. Yet these obligations still arise out of the performance of professional services. What difference should it make when one particular obligation relates to one identifiable client?

In the United States where the same policy wording is common, cases go both ways. Most recently a court held that an insurance company was not responsible when the insured lawyer didn't honour another lawyer's account for services rendered assisting on a client file. Similarly another case found no duty to defend a suit brought by a former employee. Finally, one case held that an insurer was under no duty to defend lawsuits between members of a firm based on business conflicts. In contrast to these cases, one decision determined that an insurer had to defend a firm sued by former partners for fees claimed under an arbitration agreement. Still another case held the standard errors and omissions policy required the company to defend a firm in a civil antitrust suit. Finally one case is strikingly similar to Pollon. In Regas v. Continental Casualty Company, 139 Ill.App.3d 45, 487 N.E.2d 105 (1985), a law firm issued a cheque on a client's escrow account in closing a real estate deal. The account was empty and stayed that way. The bank, out the money, got a judgment against the firm. When the attorneys sued their insurer, the insurer contended that this was a loan transaction which did not constitute the practice of law. The court thought otherwise, employing similar reasoning to that found in Pollon.

While any number of liabilities may be assumed as a result of the performance of professional services, the policy only covers those for which damages may be claimed. In the normal course, these damage claims are those made by persons for whom services are performed. Of course if the policy had intended coverage be limited to client claims, it would have said so. Clearly, the policy covers the lawyer when he owes damages to a party, not identifiable as a client, but for whose benefit the services were intended. Not so clear is the situation where the lawyer might become liable in tort to some third party as a consequence of representing a client. Even assuming the insurer should provide indemnity in the latter situation, obligations voluntarily assumed should not come within the scope of the policy's coverage. In this instance, the Ministry of Revenue was neither a client nor a party to whom the lawyer, as a matter of tort law, assumed a duty of care. A claim by the Ministry of Revenue, while certainly enforceable against the lawyer, does not fit within the meaning of the contract.

Unlike errors and omissions policies elsewhere, the Law Society requires all practicing lawyers to participate in its plan. The plan is compulsory, not to serve as a financial safety net for members of the bar, but for the security of the public. No doubt, the class of persons for whose benefit the insurance was designed is not limited to clients, but neither does it extend so far as to include everyone to whom a lawyer might make a promise. Only acts and omissions involving the lawyers exercise of a professional duty are covered. They include advising a client to settle a claim for damages, but not the obligation to the third party to pay those damages. The chambers judge was correct; no exercise of any professional duty arises from a lawyer giving this kind of undertaking.

If Pollon is correct, lawyers in Ontario may find the protection it affords attractive. The insurer, however, who sets premiums, may have difficulty in calculating the risks associated with providing this kind of coverage. Perhaps too, policy may dictate that obligations rightly belonging to clients ought not be guaranteed by an insurer. For the insurer, if the policy is equivocal and the consequent risks unappealing, the language ought to be corrected.

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