Sole practitioners warn of “dire consequences” if indemnity limit is cut

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SRA: “well meaning” indemnity reforms giving “unnecessary further grounds for concern”

Sole practitioners have warned of “dire consequences” if the Solicitors Regulation Authority (SRA) goes ahead with its plans to cut the minimum limit for indemnity cover from £2m to £500,000.

The Legal Services Board is considering whether to approve the change.

Clive Sutton, honorary secretary of the Sole Practitioners Group (SPG), said that although insurance premiums were a “big percentage” of turnover for sole practitioners, they rarely had to worry as to whether they were adequately covered.

Giving the SPG’s response to the regulator earlier this month, Mr Sutton said lack of cover, reduced cover or exhaustion of cover due to an inadequate policy could “have dire consequences” for a sole practitioner.

“At the moment approximately half of sole practitioners are not protected by limited liability for various reasons, and their own properties and personal assets would be put at risk by the cover being exceeded in the event of any one claim or an aggregate of claims.

“With the current limit of £2m in respect of individual firms and £3m in respect of incorporated firms, that cover is still rarely exceeded for most sole practitioners.

“Any sole practitioner who feels at risk of a greater claim can always take additional cover. However, the cost of taking additional cover is disproportionate to the cost of the minimum cover and will continue to be so.”

The SRA’s plans have been attacked from all sides, including the Law Society, the Association of British Insurers and the legal services consumer panel. Elisabeth Davies, chair of the panel, hit back at criticism that it was advocating a lower limit for accountants than solicitors.

The SPG’s opposition is particularly significant because the plans were designed to help small firms and sole practices.

Like many of the opponents to the cut in cover, Mr Sutton questioned whether it would lead to a fall in premiums.

He predicted that the savings would be as little as 2%, and would lead to a “directive or practice direction” that client care letters set out the extent of the solicitor’s current cover.

“This would place clients in the invidious position of choosing a solicitor not only on reputation and quality of service but also on the extent of their cover, which is an unnecessary factor to introduce into the client-solicitor relationship.”

The SPG said it was opposed to limiting claims on compulsory indemnity policies to individuals and small businesses, charities and trusts, and to reducing the run-off period from six to three years. The regulator has put both of these measures on hold until next year.

Mr Sutton said that while the proposed changes were “on the face of it well meaning”, an objective analysis gave “unnecessary further grounds for concern” by sole practitioners as to the level of their cover and the “potential for friction” with clients.

He concluded that, “with some regret”, the SPG had to take the view that the responsible approach was to maintain “appropriate minimum levels of cover”.


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