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Risk Alert Bulletin - August 2017

28 September 2017

A note from the editor
This edition of the Bulletin will be published one month into the 2017/2018 AIIF insurance scheme year. The professional indemnity Master Policy and the Executor Bond policy for this scheme year were published in the July 2017 edition (3/2017) of the Bulletin. We trust that practitioners have taken time to carefully read both policies in order to understand the respective conditions. The AIIF team will gladly answer any queries regarding the policies.

The inception of the new policy year is an opportune time for practitioners to conduct a risk assessment and also complete the risk management self-assessment questionnaire. It will be noted that some of the questions in the risk management questionnaire are similar to those included in the proposal forms of most top-up insurers. The completion of the risk management should not be seen as a ‘tick box’ exercise but rather as an opportunity for the practitioners (and their staff) to focus their minds on the risks associated with their respective firms.

Since the cybercrime exclusion (clause 16(o)) was introduced on 1 July 2016, we have been notified of more than 50 claims cybercrime related claims with a total value exceeding R25 million.

As these claims fall within the exclusion and have been rejected, the firms concerned will have to bear these losses themselves, should they not have appropriate cybercrime cover under another policy. We note with concern that despite the warnings in respect of cybercrime risks published by the AIIF and other bodies, many firms are still falling victim to the various scams. All staff must be alerted to the risks associated with cybercrime and appropriate measures must be put in place to avoid and/ or mitigate the dangers of this risk materialising. On the AIIF website (www.aiif.co.za) a useful document compiled by Shadrack Maile on the interest risks for legal practices can be accessed.

Cover for the risks associated with cybercrime can be purchased in the commercial insurance market. There are a number of insurers who offer this type of cover and practitioners should enquire with their respective brokers and insurance underwriters in this regard.

The high number of claims arising out of circumstances where practitioners and their staff have failed to apply basic procedures remains a serious cause for concern. We have received a number of requests to publish practical risk management tools and, in response thereto, we publish a precedent for file audits. This file audit precedent was previously published by the AIIF. The precedent can be adapted by practitioners for their particular needs.

Conveyancing transactions
In so far as conveyancing transactions are concerned, practitioners must take precaution in the handling of the funds not only during the course of the transaction but also post the finalisation thereof. It will be noted that bridging finance related claims as well as cybercrime related claims mainly arise out of conveyancing related transactions. Inadequate supervision of staff and a failure to develop and apply minimum operating standards are some of the underlying causes of the increase in conveyancing related claims. Conveyancers must also take particular care in defining the scope of their mandates- it has been found that many claims arise from an act or omission which takes place in the firm after the conveyancing transaction (the transfer of the legal title or the registration of the real right in immovable property) has taken place. Practitioners who hold funds post the conclusion of the conveyancing transaction, without any current underlying instruction to carry out any legal services, may then be holding for pure investment purposes. Investment related claims are excluded from the AIIF policy (clause 16 (e)) and also fall within the limitation of the AFF’s liability (section 47 of the Attorneys Act 53 of 1979).

Risk Alert Bulletin August 2017

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