Professional indemnity insurance for licensed conveyancers is a high-risk problem. The licensing of conveyancers under the Victorian Conveyancers Act 2006 was expected to safeguard consumers by requiring all licensed conveyancers to have professional indemnity insurance cover. However, the requirement for professional indemnity insurance has had the reverse effect in that more consumers are now exposed to greater risk than had ever been anticipated. The problems discussed in this article are just the tip of a very dangerous iceberg.
In its document titled “Victorian Conveyancers Professional Indemnity Insurance 2008/2009” the Business Licensing Authority (which administers the licensing of licensed conveyancers under the Conveyancers Act 2006) provides a series of questions and answers to advise licensed conveyancers about their professional indemnity insurance policy.
The document starts with the following disclaimer:
DISCLAIMER – The information provided in this document is intended for general use only. It is not a definitive guide to the law, doesnot constitute formal advice, and does not take into consideration the particular circumstances and needs of your organisation. Every effort has been made to ensure the accuracy and completeness of this document at the date of publication. BLA, Resource Underwriting Pacific Pty Ltd, CAV or VMIA cannot be held responsible and extends no warranties as to the suitability of the information in this document for any particular purpose and for actions taken by third parties.
Obviously, the BLA doesn’t want to be sued by licensed conveyancers who rely on the document only to find themselves in strife. Without saying so directly, the BLA expects every licensed conveyancer to obtain their own independent legal advice from a qualified lawyer. While licensed conveyancers try to portray themselves as being equal to lawyers in the area of conveyancing, there always comes a time when the licensed conveyancer has no alternative but to call on a lawyer for assistance.
How can a licensed conveyancer tell the difference?
This is the greatest single flaw in the professional indemnity insurance carried by licensed conveyancers. Somehow, a licensed conveyancer is supposed to know enough about the law, and how the law applies to a given set of circumstances, to be able to determine when a client must be referred to a fully qualified lawyer for legal advice. This is because a licensed conveyancer’s professional indemnity insurance covers the licensed conveyancer only for conveyancing work, and not for other legal work or legal advice. Here’s how the BLA document explains it:
“What activities does this master policy for professional indemnity insurance cover me for?
The policy only provides cover for Conveyancing Work as defined by Section 4 of the Conveyancers Act 2006 (Victoria). The policy only covers Conveyancing Work in the state of Victoria.
The master insurance policy provides cover for any civil liability incurred in the conduct of the Conveyancing Work, subject to the terms, conditions and exclusions set out in the policy wording.”
This is followed by:
“What about non-conveyancing work which is conducted as a part of my conveyancing business?
Any activities, past and future, not deemed Conveyancing Work under the Conveyancing Act 2006 (Victoria) are not covered under the policy, even if they are conducted as part of your business…”
“Conveyancing work” has a specific and very limited definition in the Conveyancers Act 2006. Licensed conveyancers are not permitted to engage in any form of legal work beyond “conveyancing work”. This is because licensed conveyancers are not trained to identify legal issues associated with matters beyond basic “conveyancing work”. This raises a very important question, one which does not appear in the BLA document:
“How do I know when an issue involves conveyancing work AND non-conveyancing work if my knowledge of the law is confined to ‘conveyancing work’?”
Consumers are expected to rely on a licensed conveyancer to be able to identify the point at which “conveyancing work” becomes “non-conveyancing work”, or when the “conveyancing work” includes legal work that is beyond simple “conveyancing work”. For example, it is quite common for estate agents to change sale contracts. However, if this is not done correctly it can result in breaches of the law – possibly the tort of fraud, possibly the crime of fraud, and breaches of various Acts with which the conveyancer is unfamiliar.
Will the licensed conveyancer‘s professional indemnity insurance cover a situation where the licensed conveyancer was not aware of criminal breaches, or where the licensed conveyancer failed to advise the client of rights and remedies available to the client beyond those associated with simple “conveyancing work”? Probably not.
Licensed conveyancers and conflicts of interests
It’s not easy for licensed conveyancer to win clients. Most have to lure clients with barely sustainable “cheap” fees, and many pay estate agents “referral fees“. Conveyancers rely heavily on maintaining good relationships with estate agents, and are reluctant to do anything that may jeopardise that relationship.
A conveyancer who has invested effort and money in attracting clients will not willingly refer them away to a lawyer, particularly when such a referral is tantamount to an admission that the conveyancer’s abilities are limited, and that the client would be safer with a lawyer (and perhaps would have been in the first instance as well). Referring a client to a lawyer may also be seen by the estate agent as an act of treachery, particularly if the client seeks advice on his or her rights regarding the behaviour or conduct of the estate agent.
Thus arises a conflict of interests – the client may be entitled to know that the conveyancer cannot deal with a legal situation because it does not fall within the narrow definition of “conveyancing work”, and the licensed conveyancer cannot afford to lose clients to lawyers. How is the licensed conveyancer to deal with this dilemma?
According to Section 49 of the Conveyancers Act 2006:
“Before or at the time a licensee is retained by a client, the licensee must disclose to the client any actual or potential conflict of interests that the licensee has in relation to any transaction relevant to that client.”
The disclosure must be in writing, and failure to comply is a criminal offence. But what if the conflict of interests arises in the middle of the transaction? This is also dealt with by Section 49:
“If, while acting for a client, an actual or potential conflict of interest arises in relation to any transaction relevant to the client, the licensee must immediately disclose that conflict of interest to the client.“
While this may seem straight-forward, a further dilemma arises. How does the licensed conveyancer explain the conflict of interests to the client if the conveyancer is unsure as to whether or not a conflict of interests has arisen? In many cases both the licensed conveyancer and the client will need their own advice, particularly if the licensed conveyancer insists that there is no conflict, while a prudent and reasonable person would see that there most certainly is. It is not simply a matter of opinion on the part of the conveyancer.
Compounding the problem is the limitation of the licensed conveyancer’s professional indemnity insurance. If the conveyancer breaches Section 49 and thereby commits a criminal offence, will the insurer meet a claim associated with the breach? Probably not. The insurer will not want to meet a claim where the behaviour of the licensed conveyancer is tainted by illegal conduct.
This article has only scratched the tip of the iceberg of risk confronting consumers when using a licensed conveyancer. Professional indemnity insurance is supposed to protect consumers by giving them access to funds in the event that their conveyancer makes a mistake or is negligent in the conduct of a conveyancing transaction. However, the exclusions and exemptions arising from the limitations placed on conveyancers through the operation of the Conveyancers Act 2006, particularly in relation to conflicts of interests, mean that consumers are at greater risk than ever before.