The Changing Nature of Real Estate Claims
Author: Caron Wishart, Vice President, Claims, LAWPRO
Date: March 2001

Historically, real estate has been considered one of the highest risk areas of law in which to practise. Both in terms of numbers and costs, real estate claims clearly outpaced the other major areas of practice, accounting for as much as 60 per cent of claims costs paid out by LAWPRO through the early part of the 1990s.

The signs that something was changing on the real estate claims front came in 1996 when, for the first time, real estate claims accounted for less than 50 per cent of LAWPRO's claims costs. In each succeeding year, the claims experience of the real estate bar has improved slightly. By 1999, for the first time in over a decade, real estate practice had slipped to second spot on the roster of areas of practice that represented the greatest claims risk, replaced by litigation as the most costly area of practice.

This article reviews some what's been happening to real estate claims over the past six years, and offers some explanations for the improved claims experience in the real estate bar.

Real estate claims are down, but still represent a large share of all LAWPRO claims
The good news: Real estate claims which in the pre-1995 period accounted for more than 60 per cent of LAWPRO's claims costs and 50 per cent of all claims reported, have fallen significantly in the past six years. In 2000, real estate claims represented just under 37 per cent of claims costs and 31 per cent of all claims reported. This compares favourably with litigation practice* claims, which in 2000 accounted for 38 per cent of all claims costs and 44 per cent of claims reported.

The bad news: The real estate bar's proportion of claims is still high and appears to be stabilizing at just under 40 per cent of all claims costs paid by LAWPRO.

This levelling off of real estate claims since the crisis days of the early and mid 1990s can be attributed to a number of factors:

		A more restrictive liability policy eliminated mortgage brokering from coverage;
		Claims arising out of the recession of the early 1990s have, for the most part, surfaced and been resolved as the time lag between when legal services are provided and claims arising out of these services are reported is on average three to four years;
		Increased use of title insurance in the latter half of the last decade appears to be having some impact, as more fully discussed later in this article.

Litigation includes claims arising from civil litigation (plaintiff and defense litigation): family law and criminal law

Litigation includes claims arising from civil litigation (plaintiff and defense litigation): family law and criminal law

Poor client relations the leading factor in real estate claims
Across the profession, failures of the lawyer/client relationship are a major, and growing, underlying cause of claims. This appears to be particularly true in real estate practice, where over the last three years client relations are cited as the cause of nearly one in every two claims reported to LAWPRO.

Moreover, as the chart accompanying this article illustrates, the proportion of claims attributed to poor client relations has grown consistently over the years both in terms of number of claims reported and the costs associated with resolving these claims. In 1996 and 1997, about 36 per cent of claims costs and claims reported were attributed to poor client relations. In the last three years, those statistics have mushroomed: between 1997 and 2000, client relations claims accounted, on average, for 48 per cent of claims costs and 42 per cent of claims reported.

What does this category of error encompass? Issues such as: failure to follow the client's instructions; failure to obtain the client's consent or keep the client informed; and improper withdrawal from representation. In other words, real estate lawyers - like the rest of the bar - need to manage all aspects of their relationships with clients more effectively. As detailed in LAWPRO's practice management booklet, Managing the Lawyer/Client Relationship, better communication, better client/case screening, comprehensive systems and trails to monitor files, improved time management systems and skills are some of the fundamentals of improved lawyer/client relationships.

Conflicts claims a significant but declining factor in claims
Although the second most prevalent cause of real estate claims, conflict of interest issues have declined significantly in the last three years, when compared to the mid 1990s. Education efforts by LAWPRO, the Law Society, OBA and other legal organizations to raise practitioners' awareness of the potential downside of acting on both sides of a transaction no doubt have contributed to this downward trend. Recent changes to the Rules of Professional Conduct, which further clarify and limit this type of activity, should have a positive impact on conflict of interest claims going forward.

Title insurance is having an impact
In the last three years, we are seeing for the first time some impact from the increased use of title insurance in conveyancing. This is particularly apparent when looking a claims arising out of property search issues: Before 1998, when title insurance became a more widely used resource, claims arising out of property search errors represented on average nine per cent of claims reported and seven per cent of claims costs. By 2000, less than two per cent of claims costs and four per cent of claims reported could be attributed to property searches. Title insurance, when used in a transaction, typically covers these types of errors.

TitlePLUS the best option
Over the last three years, title insurance has made steady inroads into real estate practice. LAWPRO's title insurance product, TitlePLUS, is no exception. In 2000 alone, we almost doubled the number of policies issued under the TitlePLUS banner, after tripling policy volumes a year earlier. We grew the TitlePLUS subscriber base (number of lawyers who use the online software) by more than 400 lawyers, enhancing the availability of TitlePLUS in all corners of the province.

Like all other title products, TitlePLUS title insurance covers a myriad of title-related issues that could give rise to a claim. But TitlePLUS is unique among title insurance products for the comprehensive legal services coverage it provides. In fact, it is the only title insurance program on the market today that insures your clients for the services you provide - the very same services the underlie the client relations claims that are THE leading cause of claims against real estate lawyers.

In other words, TitlePLUS can be a vital risk management tool: It not only helps you streamline your real estate practice, but also provides you with a vital tool to better manage the risk of a claim being made against you. Ultimately, TitlePLUS has the potential to significantly help improve the claims experience of the real estate bar - and the cost of professional liability insurance.

* Litigation practice claims include claims arising out of civil litigation, family law and criminal law.

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