The Kentucky Supreme Court established a Clients' Security Fund for the purpose of providing indemnification to clients who have suffered monetary loss because of the dishonest or fraudulent acts of a member of the KBA. The purpose of the Fund is "to promote public confidence in the administration of justice and the integrity of the legal profession by reimbursing losses caused by the dishonest conduct of lawyers admitted and licensed to practice law in the courts of this State occurring in the course of arising out of a lawyer-client relationship between the lawyer and the claimant." The Court has opined that every lawyer has an obligation to the public to participate in the collective effort of the bar to reimburse persons who have lost money or property as a result of the dishonest conduct of another lawyer." Dishonesty and fraud denote wrongful conduct in the nature of theft, embezzlement and conversion of money, property or other things of value.
The Fund, established in 1971, has been funded by allocation of a portion of the dues payments of KBA members. The proceeds are invested in interest bearing instruments, and are a trust administered by a Board of Trustees, under the supervision of the Kentucky Supreme Court.
The Court may assess fees or allocate such funds as are from time to time necessary and proper for the payment of claims and the costs of administration of the Fund. A lawyer's failure to pay any fee assessed for the Clients' Security Fund shall be cause for suspension from practice until payment is made.
A lawyer whose dishonest conduct results in reimbursement to a claimant shall make restitution to the Fund in the amount of the claim plus interest and costs incurred in processing the claim. A lawyer's failure to make satisfactory arrangements for restitution shall be cause for suspension, disbarment or denial of any application for reinstatement to the practice of law.
Clients' Security Fund Trustees are appointed for three-year terms by the KBA Board of Governors. The Board of Trustees consists of five members; three are lawyers and two are non-lawyers. The Trustees serve without compensation, elect a Chair and meet as often as necessary to consider claims and conduct the business of the Fund.
Information concerning the Clients' Security Fund and claim forms may be obtained from the Office of Bar Counsel, which provides administrative support to the Trustees and investigates claims. Eligible claims are described in SCR 3.820(10), and must be filed no later than two years after the claimant knew or should have known of the dishonesty or fraud by the lawyer.
The KBA Board of Governors, with approval of the Supreme Court, may institute caps on claims. The current limits are $50,000.00 per claim and $150,000.00 aggregate payment per lawyer.
The Trustees may have access to records of pending or closed disciplinary proceedings involving the same attorney, or conduct. However, a finding by the Trustees that dishonest conduct has occurred which justifies reimbursement does not constitute a finding of dishonesty for purposes of imposing professional discipline.
Payment of a claim, in whole or in part, is a "matter of grace," as no person shall have the legal right to reimbursement from the Fund as a claimant, third party beneficiary or otherwise. Claimants may be required to exhaust other remedies prior to reimbursement by the Fund.
The Trustees will not entertain a claim of consequential damages arising from the wrongful act of an attorney. Reimbursement is limited to actual pecuniary losses.
Clients' Security Fund proceedings and records are confidential until reimbursement is made. After payment of a claim the Trustees may publicize the nature of the claim, the amount of payment and the name of the lawyer. The identity of claimants is not disclosed absent specific permission. Law enforcement agencies, disciplinary authorities and other entities may be granted access to relevant information gathered in the proceedings.
No lawyer shall accept any payment for prosecuting a claim on behalf of a claimant.