Compensation fund faces £2.5m bill for uninsured law firms

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27 August 2014


SRA: number and value of claims will increase

The Solicitors Regulation Authority (SRA) expects its compensation fund to have to pay out up to £2.5m in the next practising year to cover the cost of negligence claims against uninsured law firms, it has emerged.

The regulator said that, following the closure of the assigned risks pool (ARP) in September 2013, claims against uninsured firms would potentially fall on the fund. These would include claims on firms ineligible to join the ARP in its final year of operation.

The SRA said that £500,000 had been incorporated into the compensation fund contributions for the past two years to cover the expected impact from uninsured firms, but only one grant of £750 had actually been paid out.

However, in its application to the Legal Services Board (LSB) for approval of changes in contributions to the fund for the 2014/15 practising year, the SRA said the “number and value” of claims against uninsured firms was increasing.

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In its decision notice approving the changes, which cut the individual contribution to the fund from £56 to £32 and the firm contribution from £836 to £548, the LSB said the regulator had explained that it was expecting an increase in claims.

“Having considered the number of open cases, and the original and revised amounts claimed for these cases, the LSB is satisfied that the SRA has assured itself that the level is appropriate.”

As part of its calculations, the SRA said it expected that intervention costs to fall from £12.3m in the current practising year to £7.93m next year. The cost for 2014/15 includes £3.04m in legal fees to external agents of the SRA, down from £5.9m this year and £4.52m in archiving costs, down from £6m last year.

The SRA expected archiving costs to fall this year “as we start destroying files”, but that would depend partly on applications to the court.

The regulator said it assumed that there would be 52 interventions in this and subsequent practising years. It added that interventions in the practising year to the end of May 2014 were “more usual in scale and type” than the previous year, it may be “only a matter of time” before another large intervention took place, with its “associated costs and possible claims”.


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