Law Society calls for new approach to sharing ARP liabilities so that solicitors are not left to pick up tab

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By Legal Futures

6 January 2012

Insurers: Law Society says they must have “skin in the game” from the outset

Solicitors and insurers should share equally any exposure to the assigned risks pool (ARP) in the 2012-13 indemnity year to ensure insurers have “skin in the game”, the Law Society is to urge.

However, the profession’s liability for claims arising from law firms which cannot get insurance could still reach £30m.

In a draft response to a Solicitors Regulation Authority consultation on the detail of its reforms to professional indemnity insurance – which it has exposed for comments – the Law Society said the huge drop in the number of firms in the ARP this year has led it to reassess the most appropriate way to structure the profession’s contribution.

The current plan is for solicitors to pay the first £10m of any liability and insurers the next £10m, alternating up to £60m, above which insurers alone would be responsible.

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The approach, which had been signed off by the Law Society council, was agreed in the context of a large number of firms in the ARP and claims at the high point reaching over £50m.

But if this year’s small number of ARP firms is replicated in 2012-13 and claims do not exceed £10m as a resul

t, the profession would have to pick up the whole tab.

“The society considers that a more equitable founding arrangement would be to share the entire first £60m of liability on a 50:50 basis between qualifying insurers and the profession… It ensures that insurers have ‘skin in the game’ from the beginning of the 2012 ARP,” the draft response says.

In 2013 the ARP will be scrapped and, under the SRA’s proposals, insurers will have to provide a 30-day ‘extended indemnity period’ (EIP) if the insured firm has been unable to find cover for the next indemnity period, and further cover of 60 days for a ‘cessation period’ if, at the end of the EIP, a firm has not obtained insurance for the remainder of the indemnity period. It will then have to provide run-off cover if no insurance is found by the end of that.

Among other concerns expressed by the society in its draft response is the requirement that insurers give one month’s notice of an intention to not renew terms – which it said could lead to “blanket notifications of non-renewal or economic declinature” – and that insurers should have to give solicitors at least 21 days to consider quotations. The SRA has suggested that five days may be enough.

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