From Legal Futures’ Associate JLT.
Whilst in the past we have seen a number of insurers (for example Quinn, Balva, Enterprise) involved in the solicitors professional indemnity (PI) market get into financial difficulties, it was the hope that insurer failure was a thing of the past. Unfortunately, this does not seem to be the case, as demonstrated by the news that an administrator has been appointed over the insurer CBL Insurance Europe by an Irish court, to avoid the risk of a “disorderly failure”.
Although JLT’s Legal Practice Group does not place cover with CBL, in our position as specialists and leaders in the field of solicitors PI insurance we are issuing this guidance note to help firms insured by CBL understand the position that they may find themselves in as a result of the administration.
CBL – What do we know?
CBL insurance is experiencing financial difficulties. Here is what we know to date.
- CBL Insurance Europe writes solicitors professional indemnity insurance in England and Wales and is based in Ireland
- The Irish regulator (Central Bank of Ireland) ordered CBL Insurance Europe to stop writing business with effect from 19 February 2018 due to its distressed financial position. As a result, it is prevented from issuing new policies or renew existing policies, but this does not affect current policies until they are due for renewal. On the same day, the Irish Central Bank applied to the Irish Court to have a provisional administrator appointed to CBL Insurance Europe
- On 23 February 2018, CBL Insurance Limited (the New Zealand based parent of CBL Europe) was placed into interim liquidation by the Reserve bank of New Zealand. At this point CBL Europe was still active although it was still barred from writing business
- On 26 February 2018 the Irish court appointed an administrator to CBL Europe. It may be the case that this will trigger an insolvency event as defined in the solicitor’s indemnity insurance rules
- The Solicitors Regulation (SRA) are currently investigating the position before deciding whether or not an insolvency event under Rule 6.1 of the SRA indemnity insurance rules has occurred.
How does this affect solicitor firms in England and Wales?
- CBL rolling renewal policies.
We are aware that CBL issued a number of policies where the policy period started from a specified date and runs until the policy is cancelled. In effect this means that they are renewed each and every month. We are also aware that CBL have issued cancellation notices on these policies. Assuming that these policies were taken out on the first of a month then they must all be replaced with effect 1 March 2018. In the event that an affected firm has not rearranged its insurance it will have entered the extended indemnity period by default and must inform the SRA.Firms affected should make strenuous efforts to arrange alternative cover before the end of the extended indemnity period (30 days) in order to avoid entering a cessation period (which means the firm would have to stop accepting new instructions and start the process of closing the firm in an orderly fashion).
- CBL policies with a normal policy period.
Assuming that CBL are still barred from writing business and the SRA has not declared an insolvency event, then cover will need to be replaced at next renewal. Firms with these policies should start planning now particularly as it is possible that an insolvency event could occur at any time.
What happens if the SRA declares an insolvency event?
Given that the definition of an insolvency event includes the appointment of an administrator, then it may have already happened. The SRA is investigating and is expected to make an announcement soon. In the event that an insolvency event has happened what does this mean for firms?
Rule 6.1 of the SRA indemnity insurance rules requires that any firm that is insured with a participating insurer that is the subject of an insolvency event arranges as soon as practicable (and in any event within four weeks of that event) alternative insurance with another participating insurer.
What happens if a firm is unable to find alternative insurance?
The number of insurers prepared to offer cover to solicitors is currently as high as it has ever been and there is plenty of choice across all sectors of the profession. With this in mind it would be hoped that most if not all firms would find alternative insurance, albeit possibly at a higher premium.
In the event however that a firm is unable to find alternative insurance, it will be forced to close and must rely on its last insurer (the insolvent insurer) for run off cover. Such run off cover may well be of little comfort if the insurer is unable to meet claims whether in full or in part.
What does this mean for firms?
Any new policy will only respond to claims made during its policy period. In the event that the firm has already notified claims or circumstances to its existing insolvent insurer or suffers a claim or circumstance prior to being able to arrange alternative insurance then these will fall to the insolvent insurer to deal with. Of course it may well be the case that the insurer will be unable to meet these claims in full or in part.
A firm in these circumstances may be able to claim from Financial Services Compensation Scheme (FSCS) subject to the FSCS qualifying rules.
On arranging alternative insurance the firm will need to pay the premium demanded by the new insurer. It will not receive any credit from the new insurer for premiums paid to the prior insurer.
This blog was originally compiled for the benefit of clients and prospective clients of companies of the JLT group of companies (“JLT”) and published on jlt.com. It is not legal advice and is intended only to highlight general issues relating to its subject matter; it does not necessarily deal with every aspect of the topic. Views and opinions expressed in this document are those of JLT unless specifically stated otherwise. Whilst every effort has been made to ensure the accuracy of the content of this document, no JLT entity accepts any responsibility for any error, or omission or deficiency. If you intend to take any action or make any decision on the basis of the content of this document, you should first seek specific professional advice. The information contained within this article may not be reproduced and nothing herein shall be construed as conferring to you by implication or otherwise any licence or right to use any JLT intellectual property.