Owners of closed law firms told: Find extra run-off cover – if you can


Boyce: A market-wide solution may not be found

Owners of law firms that closed down in the last 20 years – and even the estates of those who have died – have been warned that they face a difficult task in finding insurance to replace the automatic supplementary run-off cover that ends later this year.

The closure of the Solicitors Indemnity Fund (SIF) on 30 September 2021 means that principals of closed firms whose run-off cover has expired will be personally liable for any claims that arise thereafter if they do not secure their own insurance.

According to the Law Society, around 10% of claims are made beyond the usual six years of run-off cover.

The SIF is a hangover from the days of mutual insurance that used the money left in the pot to provide the supplementary run-off cover.

It was originally due to close to new claims in 2017 and then last year before the Solicitors Regulation Authority (SRA) agreed to keep it open until 2021.

Law Society president I Stephanie Boyce warned solicitor that there was “a significant risk” of claims arising more than six years after firms ceased operations.

“If you practised in areas such as conveyancing, wills and trusts, child personal injury settlements or matrimonial property, claims can occur decades after work was completed.

“Our current advice is that firms that closed without successor practices after 31 August 2000 should consider their exposure and – if warranted – investigate the possibility of alternative cover.”

Ms Boyce said replacement cover did not need to be on the SRA’s minimum terms, and less comprehensive cover could do the job.

“However, given the adverse conditions that currently prevail in the insurance market, it is unfortunate that many firms will struggle to find an appropriate solution.

“Factors such as poor claims histories, having worked in areas with higher risk of late-arising claims, and especially not having paid your run-off premium, are all likely to preclude a realistic prospect of finding supplementary run-off cover on the open market.”

She said the Law Society was trying to find “a workable alternative” but sounded pessimistic.

Ms Boyce explained: “The problems are serious, complicated, and difficult to overcome, especially because – as the representative body for the solicitor profession – we have no powers with regard to matters of indemnification.

“Members and former members should ready themselves for the possibility that no broad solution can be found.

“If you have retired, or intend to retire, or if you were employed by a firm that has closed without a successor practice, then there is a possibility that you could find yourself personally liable for claims arising once the firm’s run-off cover has lapsed, and should prepare accordingly.”




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