Ombudsman criticises insurance exclusion approved by the LSB last year

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By Legal Futures

4 March 2011


Fees: row over whether insurers should cover order to repay

The Legal Ombudsman has criticised changes to the minimum terms and conditions (MTC) for solicitors’ professional indemnity insurance that were approved by its parent Legal Services Board just last year.

In its response to the Solicitors Regulation Authority’s indemnity consultation, the ombudsman said the fact that the MTC do not require insurers to provide cover for both its case fee and an order to refund or remit fees – an exclusion introduced last year – “can potentially cause significant problems for the consumer”.

It explained: “For example, when we decide to offer a ‘refund of fees’ remedy against a firm which no longer exists in a form that makes it possible for them to provide a payment, the insurer will not cover the remedy. This means that we will make a decision that cannot be enforced and the consumer will receive nothing.”

The ombudsman said that though only a small number of cases are likely to be affected, “this could lead to a lack of confidence in our scheme among consumers, which would in turn influence access to justice more widely”.

Among the reasons given by the SRA last year for the change were that if such remedies were covered by insurance, the solicitor who wrongly charged fees would not suffer any direct financial penalty from doing so.

The ombudsman expressed its view then, but in approving the change for the 2010 renewal round, the Legal Services Board said that “due to the complexity of these issues and the different points of view” – insurers think all ombudsman remedies should be excluded – the relationship between insurance requirements and the Legal Ombudsman “should be considered fully” as part of the SRA’s wider review of indemnity arrangements. In the meantime it saw no reason not to approve the change.

However, there was no mention of this issue in the SRA’s consultation.

The ombudsman’s response also expressed concern at the time it takes the SRA to inform it which insurer to contact if it makes an award covered by the MTC against a firm that has closed down.

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