Indemnity insurance

Rules governing law firms’ ability to acquire the case loads of failing firms should both be relaxed and made more certain for the benefit of the profession and clients, insolvency and legal experts have argued.

Solicitors Regulation Authority proposals to exclude lender and other financial institution claims from the scope of compulsory professional indemnity insurance will be “massively damaging to the profession” and lead to more expensive and longer conveyancing transactions for the public, Law Society chief executive Des Hudson has warned.

Solicitors are facing “bumper” years of claims for professional negligence as recession-driven legal actions start to bite, a leading broker has warned. The latest High Court figures indicate that negligence claims against solicitors rose from 80 to 210 in 2009, which is more than any other type of professional indemnity claim, and Lockton has predicted that the figure will continue to rise.

Solicitors have had to cover £15m in unpaid premiums of law firms that have been in the assigned risks pool (ARP) during its first 10 years, it has emerged. Of that, £6.1m is for run-off cover for firms that closed without insurance, and the figures reveal that the Solicitors Regulation Authority has collected just £500,000 in run-off premiums since the ARP was set up in 2000.

Three-quarters of lawyers who sought help with health problems last year complained of stress, support charity LawCare has reported, while warning that drug abuse in the profession is worse than its statistics indicate. LawCare opened 517 new case files in 2010, down from a record 549 in 2009, splitting 60/40 between women and men.

Law firms’ anti-risk measures are likely to be probed more thoroughly by insurers if the common professional indemnity insurance renewal date is abolished, according to a leading industry insider. He also revealed in detail a number of “creative accounting” techniques used by insurers to reduce their exposure to the assigned risks pool by declaring premiums that may be £60m less than actually received.

Solicitors Regulation Authority plans to exclude financial institutions from the requirement for compulsory professional indemnity insurance will drive some conveyancing firms out of business, the Law Society has claimed. The longer-term move to remove work for all commercial clients from the scope of the minimum terms and conditions of cover would be short-sighted, it adds.

Lawyers working alone in ‘silos’ present serious potential risks to law firms, but limiting partners’ autonomy can harm your practice’s bottom line, a conference heard last week.

Allowing the exclusion of claims by financial institutions and an end to every law firm renewing its professional indemnity insurance (PII) on the same day and are at the heart of Solicitors Regulation Authority (SRA) plans to shake up client financial protection arrangements next year. In a consultation being published today, the SRA also floats the idea of removing all corporate clients from the scope of compulsory PII cover from October 2012.

The High Court has ordered a solicitor to hand over client files to a mortgage lender despite his argument that those parts of them relating to the borrowers were covered by legal professional privilege. The judge ruled that express agreements between borrower and lender in each case overrode the right to privilege and confidentiality.