How solicitors’ firms can prepare for the renewal of professional indemnity insurance

At the end of March, approximately a third of solicitors’ firms in England & Wales will be renewing their professional indemnity insurance.

What should firms consider?

• How much cover do you need? Rule 3.2 of the SRA Indemnity Insurance Rules requires you to have ‘adequate and appropriate’ insurance. That may be more than the minimum cover, and substantially so, particularly when account is taken of the risk of claims arising (broadly speaking) from similar circumstances or the same matter or transaction aggregating and being subject to a single policy limit.
• You are under a duty to make a fair presentation of the risk. In addition, the proposal form will contain a declaration which may say something to the effect that you have enquired of all principals, consultants and employees to confirm the details are correct. Have you – and not just fee earners? The consequences of an unreported circumstance or claim can be severe: while insurers under the primary policy will generally have to meet the claim, they may be able to seek reimbursement from anyone responsible for non-disclosure. Excess layer insurers may be able to decline cover altogether.
• Is the firm financially viable? Many policies contain provisions purporting to make individual LLP members of company directors personally liable for excesses and even run-off premiums. While these raise interesting points of law (which the writer has contested on behalf of many individuals), failure to pay may affect your ability to obtain insurance in another firm, and the SRA may also investigate as a matter of conduct.

If you have been offered terms with another insurer at a lower premium than your current one, you should consider the following in addition to the above:

• Is the insurer’s rating as good as your current one? You can check their rating on the SRA website.
• Who handles claims – both for notification and panel solicitors – and do they have real, long-established experience of solicitors’ claims? They differ from other professional liability claims, partly because of the breadth and scope of solicitors’ duties, and only in the rarest of cases do they turn on expert evidence.
• If you have notified circumstances to your previous insurer, with the intention that any claim arising from those circumstances will fall on their policy rather than your new insurer’s cover, are you confident that you have notified everything required to achieve that result? While some circumstances are straightforward to notify, others are not, and care is needed – particularly where there may be multiple potential claims, such as those from failed investment schemes. The writer has advised many firms on this over the years.
• Changing insurer increases the risk of policy coverage points being taken by insurers – is the saving sufficient to justify it?

If you have questions about professional indemnity insurance and/or professional regulation, please contact Frank Maher.