Law firms have taken advantage of a soft insurance market to secure 18-month professional indemnity insurance (PII) deals at a “very good” rate, a report has found.
Specialist broker Howden also said more firms were asking about additional cover to protect solicitors against defence costs in disciplinary proceedings, in the wake of the massive costs racked up by Leigh Day at the Solicitors Disciplinary Tribunal (SDT).
Howden said “many insurers” were prepared to offer 18 months of cover, rather than the traditional year, at a “very good rate” to those law firms that wanted it, reflecting “soft market conditions”.
In a market update, the broker said many other firms achieved reductions in their premiums in 2017 if their profile was broadly the same as at the previous renewal.
“Others managed to contain or avoid an increase in their premium that would normally have been expected. This was partly due to the pricing competition that was generated by the availability of insurance capacity.
“Another important factor was the broadly-held view that we are now in ‘safer waters’ from a claims perspective. Claims activity has certainly slowed in recent years as we move further away from the fallout generated by the last recession.”
Howden said a “considerable level of inquiry” about cover for defence costs in disciplinary investigations and proceedings had been generated by press coverage of the SDT hearing into Leigh Day’s handling of Iraq war claims last year.
The report said not all insurers provided unlimited cover for defence costs arising from a claim on a firm’s PII policy – a provision removed from the minimum terms and conditions in 2010.
Insurers that included the cover often set it at a “low limit” compared to what the real cost could be, given the £5m costs of Leigh Day, none of which it recovered despite being cleared.
“There are directors and officers’ (D&O) policies in the market that offer cover up to their full limit for this exposure at competitive prices.
“It is no surprise that more firms have since purchased D&O cover and this is an issue that we consider firms should look to address for the future – particularly given that the SRA continues to be robust in terms of its approach to regulation and enforcement.”
Looking forward to the next renewal, Howden warned that the media had been full of reports on onerous ground rent clauses in relation to new-build leasehold homes and solicitors were “identified as being in the firing line for professional negligence claims”.
The brokers referred to one media report that a law firm had been established to bring group litigation against law firms, and total losses could be as high as £500m.
“To date the claims activity in this area has been very slow and it is being mitigated by remedial action that has been taken by some house-builders.
“At this stage we are quietly confident that the suggested loss figure has been significantly overstated, but we will need to adopt a ‘wait and see’ position as we move towards April renewals. Any marked increase in this activity could change the landscape.”
Howden also referred to the High Court’s “rather bizarre decision” in Dreamvar v Mishcon De Reya, due to be scrutinised by the Court of Appeal later this month. The High Court held that the buyer’s solicitor was subject to a duty to release funds only to a ‘bona fide’ seller, even though the seller was not the law firm’s client.
“If the decision is upheld, then insurers will be concerned and we could see some reaction in terms of upward movement in the rate for conveyancing work. It could also impact upon insurers’ appetite for conveyancing work generally.”
In a separate development, the number of suspicious activity reports (SARs) in the legal profession relating to conveyancing has surged by two-thirds in the past two years, according to anti-money laundering (AML) technology specialists Fortytwo Data.
Chief executive Julian Dixon said that 37% of SARs, alerts about possible money laundering submitted to the National Crime Agency, now related to either residential or commercial conveyancing.
“Property purchases provide perfect cover for those attempting to hide dirty money because of the large sums involved,” he said.
Fortytwo said SRA figures showed that 158 of the 506 legal SARs between 2014 and 2017 related to residential conveyancing, and 31 to commercial conveyancing.
This compared to 47 reports for general civil work, 23 for investment business, 22 for personal injury, 20 for probate, 20 for commercial and 16 for criminal.