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mardi 11 décembre 2012

The meaning of « professional services » under the Barreau’s insurance policy

By Ashley Kandestin
DeGrandpré Chait S.E.N.C.R.L/LLP

All members of the Barreau du Québec (hereinafter « Barreau ») are insured by the professional order’s insurance fund, the Fonds d’assurance responsabilité professionnelle du Barreau du Québec (hereinafter the « Fonds »). The Fonds, among other things, provides coverage to lawyers having incurred their professional liability. Thus, if a lawyer fails to exercise its professional services adequately, resulting in a monetary loss of its client, the Fonds will be required to defend any claim filed by the client and to eventually indemnify the client for the claim depending on the outcome of the trial. In Kaufman Laramée, L.L.P. c. Fonds d’assurance responsabilité du Barreau du Québec, 2012 QCCS 5981, Justice Collier determines the meaning of « professional services » pursuant to the insurance policy the Fonds issues to members of the Barreau.
In this case, the Fonds denied the coverage sought by a law firm and its partners after several suits were filed against it that involved losses of short term loans deposited in the firm’s and in one of the partner’s trust accounts. Acting as escrow agent and ensuring high returns on their loans, the partner solicited clients to participate in “business opportunities”. Once the loans and deposits were not returned to the clients, investigations were carried out and civil suits were filed against the partner and the firm.

The Fonds’ denial of coverage is based on the fact that the claims in no way result from the rendering of “professional services” as contemplated under the policy. Reading the policy in a different light, the firm argued that a broader interpretation to the term “professional services” be given in order to include the ancillary services provided by the firm, such as those in the abovementioned transactions, including the service of depositing monies in a trust account.

The firm brought Wellington motions before the Superior Court, seeking judicial declarations obliging the Fonds to take up their defence to the suits. Justice Collier, in analyzing the meaning of professional services, ruled in favour of the Fonds. An insurer’s duty to defend arises where the facts alleged in a Wellington motion, when analyzed on a prima facie basis, demonstrate “the mere possibility that a claim falls within the insurance policy ”. Justice Collier rather saw this particular situation differently, writing that:

“[48] … Even if one gives a broad interpretation to the pleadings, the conclusion that professional services were rendered cannot be purely speculative. In the present case, however, the pleadings raise no more than a conjecture that the trust deposits were held in connection with the rendering of professional services.”

Justice Collier’s analysis of the meaning of “professional services” is summarized as follows:

“[34] Furthermore, it cannot be concluded that Perras and Kaufman rendered professional services to the plaintiffs by accepting deposits, acting as escrow agent, or transferring funds from one trust account to another. A solicitor-client relationship does not arise from the mere receipt of funds for deposit. The provincial regulations dealing with lawyers’ trust accounts specifically provide that the operation of a trust account is not a professional act.
[…]

[44] The Ontario jurisprudence is consistent with the Quebec position. In that province the courts have considered whether the operation of a trust account constitutes a “professional service” under the law society’s insurance policy. In Stevens v. Lawpro, the court found that a trust account transaction was not a professional service, and that it fell under the policy’s investment exclusion, because it was not “ancillary” to legal services. In Cassels Brock v. Lawpro, the court considered a number of transactions that were similar to those in the present case and held that they did not constitute insured professional services. The Court stated:

[7] (…) the coverage is there for lawyers/law firms as to their activities qua lawyers and in that respect with regard to legal advice and activities (plus matters of a non legal nature but which are ancillary to that in the sense of being a direct consequenceof the legal work that investment advice and/or services is provided), but not with respect to investment advice or activities (or other entrepreneurial advice and activities). A person who is a lawyer may wear more than one hat, but just because at most times that person wears the hat of a lawyer does not mean that he always acts qua lawyer. [original underlinings]

[45] In the present case, nothing indicates that the plaintiffs’ deposits were ancillary to, or held as a direct consequence of, professional services rendered by Perras or Kaufman to the plaintiffs or any third party.

[46] Kaufman argues that the trust deposits are related to its legal services in preparing the loan and deposit agreements. While we do not know who drafted the agreements, even if Perras or Kaufman did so, this argument distorts the true nature of what transpired. The trust deposits were not held as an ancillary service to the preparation by Perras or Kaufman of loan and investment agreements; rather, the agreements were prepared as an ancillary act to the investment services offered by Perras and Kaufman to the plaintiffs.

[49] Moreover, the nature of the transactions suggests they were not related to the rendering of professional services. In return for their short-term deposits the plaintiffs were paid very large, guaranteed fees. The transactions were “surefire, no risk, get-rich-quick proposals” with no apparent connection to the type of legal services typically offered by lawyers.”
The full text can be read here.

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