Call to restrict scope of PII cover as 1,000 firms face risk of closure

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17 September 2013


Maher: cover is too broad

The risk of as many as 1,000 law firms having to shut down because they cannot find professional indemnity insurance (PII) means it is time to narrow the scope of the cover solicitors are required to have, a leading adviser has argued.

Frank Maher, a partner at specialist Liverpool law firm Legal Risk, said some firms may re-emerge as “phoenix practices” if they can obtain Solicitors Regulation Authority authorisation and insurance in time, “two hurdles which may together prove insurmountable for all but a few”.

The upheaval has been caused by last week’s revelation that Berliner – which was seen as a lifeline for the 1,300 firms which had been with fellow unrated insurer Balva – is unlikely to offer cover after all.

Mr Maher predicted that, though welcome, the Law Society’s new scheme with rated insurers, Chancery Pii, is unlikely to be the saviour of many firms who were relying on Berliner. The reason they were with Berliner in the first place was because they could not get a quote from a rated insurer, he explained.

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The money from those who have already paid their premiums to Berliner is being held in a client account while it seeks to resolve its problems. Mr Maher said that if firms cannot get it back in time, many will struggle to find the cash to pay another premium.

“We predict many small firms will close because they are unable to obtain insurance. Of these, many transferred their cover from Balva to Berliner in June. There are now doubts as to whether that transfer was effective. If the firms close, they will have six years’ run-off cover with one or other insurer, and it is debatable whether they are better off with an insurer which had its licence revoked by the Latvian authorities, or one prevented from offering solicitors’ cover by the UK authorities.

“Those relying on the extended indemnity period, which allows an orderly wind down of the practice, must observe the requirements strictly, including notices to the SRA.”

Mr Maher argued that a reduction in the scope of cover – which currently means insurers cannot void the policy even if the premium is not paid or there is fraud in the proposal form – would enable more firms to obtain rated cover, and cause less risk to the interest of consumers.

“The cover is too broad for there to be a sustainable market for many small firms. What appears to be in the consumer interest will now force many firms to close and operate to their detriment. A critical review of the minimum terms and conditions is now seriously overdue. Nor is this just a concern for consumers and small firms: the inevitable cost of interventions will fall on the profession as a whole.”

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