IMPORTANT CHANGE TO LIMIT OF INDEMNITY FROM 1 OCTOBER 2005…READ ON…

WHAT TO DO FOR A quote

Complete a proposal form (Contact us or download from this site) or send us a proposal form you have already completed – we will tell you if this is suitable.

Topics on this Page

• Arrangement of Compulsory Primary Professional Indemnity Insurance (in accordance with the Minimum Terms and Conditions appended to the Solicitors’ Indemnity Insurance Rules)
• Arrangement of Excess Layer or Top-Up Professional Indemnity Insurance (limits in addition to the compulsory limit of indemnity).
• The Proposal Form and Material Facts
• Your Claims History
• Risk Management and the Solicitors Practice

NOTE - This page concerns itself with firms in private practice in England and Wales.  The position in Scotland and Northern Ireland differs; there are different governing bodies and professional indemnity arrangements.

ARRANGEMENT OF COMPULSORY PRIMARY SOLICITORS PROFESSIONAL INDEMNITY INSURANCE (IN ACCORDANCE WITH THE MINIMUM TERMS AND CONDITIONS APPENDED TO THE SOLICITORS’ INDEMNITY INSURANCE RULES)

…IMPORTANT CHANGE TO LIMIT OF INDEMNITY FROM 1 OCTOBER 2005…

The Law Society Council has agreed a rewording of the definition of ‘any one claim’ (aggregation clause) and because of implications, an increase in the minimum compulsory limit of indemnity.  The minimum limit of indemnity has been increased from £1,000,000 any one claim to £2,000,000 for all firms, with the exception of LLPs and other recognised bodies, who must carry £3,000,000.  This new compulsory limit must be insured on a policy wording, which follows the requirements of the Law Society’s minimum terms and conditions of professional indemnity insurance.  This change will come into effect from the next common renewal date on 1 OCTOBER 2005.  See below ‘Limit of Indemnity’ for further details.

Professional indemnity insurance indemnifies you from the legal liability and legal defence costs you may incur, as a result of breaching a duty of care to your clients.

Classed as a ‘traditional’ profession, the Law Society of England and Wales recognises the importance of the work done by solicitors in private or public practice; solicitors must maintain their Practising Certificate, are closely monitored and the profession is governed and represented by The Law Society of England and Wales.  The interests of the public given the relationship of a solicitor with their client are of paramount importance, whilst at the same time considerations such as cost to the profession and ability/willingness of the insurance market to offer insurance are equally important.

The Law Society of England and Wales established a compulsory professional indemnity scheme in 1975 and since then we have seen changes to the administration of this; moving from a commercially insured Master Policy Scheme to the Solicitors Indemnity Fund (SIF).  On the 31^st August 2000, the fund ceased and with effect from the 1^st September 2000 the profession were able to present their own proposal to a range of commercial insurers approved by the Law Society (Qualifying Insurers), as other professions may also approach commercial insurers.   The SIF went into run-off; criticisms had included the estimation of volume and size of claims had not been assessed correctly along with other factors, however with the benefit of hindsight, perhaps not.  Nevertheless the move to the commercial insurance market  

has allowed an element of freedom of choice to solicitor practices and on the 1^st September 2000 and in subsequent years, without doubt, many firms have been able to obtain considerable reductions in premium or contribution spend.

Insurance coverage remains compulsory and follows Minimum Terms and Conditions

(MTC) appended to the Solicitors’ Indemnity Insurance Rules, annually receiving the concurrence of the Master of the Rolls.  The level of cover must comply with the MTC and insurers agree to the terms.  The level of cover agreed by Qualifying Insurers increases ‘legal liability’ to that of ‘any civil liability’ subject to terms and conditions.  It is without doubt, despite changes from time to time, one of the widest forms of professional indemnity insurance coverage available in the commercial insurance market.

Limit of Indemnity – 1 October 2005

It is now approximately 15 years since the current minimum sum insured was increased from £500,000 to £1,000,000.  This, based on simple indexing, would give an equivalent of about £1,700,000 today, however, in simple terms, although a useful tool, this method perhaps does not reflect claims settlements and so on accurately.  From 1 September 1989 until 31 August 2000 (the switch to the commercial market), the limit was £1,000,000 each claim and this limit was replicated by the new Solicitors’ Indemnity Rules on 1 September 2000. 

However, the move to the commercial market saw a change in the definition of ‘one claim’.  The SIF rules (17.2) stated this to mean: ‘All claims arising from the same act or omission (whether or not made or intimated or rising out of circumstances notified during the same indemnity period and whether or not involving the same or any number of different practices and/or members of such practices) shall be regarded as one claim.’ 

Under the new commercial minimum terms and conditions from 1 September 2000, the corresponding clause (2.5) provides that: ‘the insurance may provide that all claims against any one or more insured arising from the same act or omission or from one series of related acts or omissions will be regarded as one claim for the purposes of the limits contemplated by clauses 2.1 and 2.3.’ 

Clause 2.5 follows the standard commercial market wording; it was settled as part of negotiations with commercial insurers.  The main difference between the two sets of rules is the introduction of the words ‘or from a series of related acts.’ 

Qualifying insurers assumed that the wording of clause 2.5 would allow them to treat as one claim, ‘multiple claims arising not only from a series of related acts but also from a series of similar acts’.

However, a House of Lords’ decision in a case known as ‘the Lloyds TSB case’ established that the assumption was incorrect.  This case clarified ‘related series of acts or omissions’ and as a result, the qualifying insurers were concerned that this case narrowed the effect of the aggregation clause in the minimum terms and conditions to an unacceptable extent; the position was renegotiated.  The resulting, reworded definition, of ‘one claim’ agreed by the Law Society Council should mean that potential disruption in the marketplace, (perhaps fewer insurers would participate and so on) in relation to firms’ ability to obtain insurance at an affordable cost, has been limited.

There is however a greater scope for aggregation of claims, which could lead to an earlier exhaustion of limit of indemnity and as a consequence the minimum compulsory limits of indemnity have sensibly been raised.  Interestingly, both the Law Society of Scotland and the law Society of Northern Ireland schemes already imposed higher limits than £1m.

We will be happy to discuss the issue further, expand on the position regarding ‘one claim’ or review fully the minimum terms and conditions with clients.

USEFUL LINK – Visit the Law Society Website for up to date terms and relevant documents.

THE MARKET NOW

Without doubt, a large number of firms saw benefits on the 1^st September 2000 and in subsequent years, but as the years go by it is becoming apparent that a list of Qualifying Insurers might not be what it appears.  Insurers are commercially aware; they have carefully studied losses and claims from past years; they have their own market conditions to deal with and in turn have freedom of choice to refuse to insure, whether that be an industry sector (sole practitioners or practices with fewer than five partners for example) or an individual proposal within their ‘target’ criteria which falls outwith their acceptance rules.

The list of Qualifying Insurers changes as insurers opt to withdraw from the market for Solicitors Professional Indemnity Insurance and other insurers decide to apply to join.

Blackfriars – PROFESSIONAL RISK SOLUTIONS review the list regularly as is required on behalf of clients.  We have followed the entrants and leavers closely and we ensure clients remain aware of the position.

Practices unable to obtain cover from a commercial insurer are required to enter the Assigned Risk Pool (ARP), for which strict conditions and considerable premium rates apply.  It is in the best interests of every practice to arrange insurance without joining the ARP.

Blackfriars have been instrumental in positively assisting firms faced with this prospect.

The profession is diverse; there is a huge variety of firms across the UK; size and activities differ and insurers take all factors into account.

Blackfriars specialise in the placement of professional indemnity insurance for solicitors.  Our senior staff have been involved with assisting solicitors for many years; speak with us and that will become evident. 

We will provide compliant quotes to Solicitors in respect of all their professional indemnity insurance requirements, working with Qualifying Insurers and ‘top-up’ insurers who understand fully the disciplines and operations involved within the profession.

….THIS INCLUDES…

SOLICITORS COMPULSORY PRIMARY PROFESSIONAL INDEMNITY INSURANCE

SOLICITORS ‘TOP-UP’ INSURANCE

WHAT TO DO FOR A quote

Complete a proposal form (Contact us or download from this site) or send us a proposal form you have already completed – we will tell you if this is suitable.

THE FREE MARKET WAS CREATED BY YOU – IT IS UP TO YOU TO MAXIMISE THE POTENTIAL.

SOLICITORS ‘TOP-UP’ PROFESSIONAL INDEMNITY INSURANCE

Arrangement of Excess Layer or Top-Up Professional Indemnity Insurance (limits in addition to the compulsory limit of indemnity – terms may differ from minimum terms).

Please read the introductory comments ABOVE under

‘Arrangement of Compulsory Primary Professional Indemnity Insurance (in accordance with the Minimum Terms and Conditions appended to the Solicitors’ Indemnity Insurance Rules)’

You may have separately arranged additional ‘Top-Up’ insurance with a commercial insurer.  You may still purchase additional limits above the compulsory primary limit of indemnity now.

The compulsory primary limit of Professional Indemnity Insurance for Solicitor Practices, from 1 October 2005, is £2,000,000 each and every claim increasing to £3,000,000 for Limited Liability Partnerships (LLP) and other recognised bodies.

Even following the increase to the minimum compulsory limit, you might decide it is prudent to insure for a higher limit.   This is a matter for individual practices to discuss and decide.  Adequate consideration cannot be overstated.  A practice must review the work undertaken by the practice and consider the maximum potential liability – damages – claimant’s costs – other costs etc - should a matter go wrong, partially or wholly - (part of risk assessment procedure).

Blackfriars, PROFESSIONAL RISK SOLUTIONS can arrange higher limit insurance for you, if required.

You do not have to arrange your ‘top-up’ insurance with the same insurer

that is providing the primary compulsory limit of indemnity (any exceptions from individual insurers will be noted at quote stage).

It is not always the case, however considering a different insurer for ‘top up’ insurance could save you, in premium spend.

WHAT TO DO TO OBTAIN A quote

We are able to use the proposal form you complete for your primary professional indemnity insurer and will obtain quotes as soon as possible either as part of the renewal process or mid-year.

THE FREE MARKET WAS CREATED BY YOU – IT IS UP TO YOU TO MAXIMISE THE POTENTIAL.

THE PROPOSAL FORM AND MATERIAL FACTS

Over the years, we have tried to formulate a proposal form that will allow various insurers to offer a quote; certain questions cannot be avoided and responses are required by all insurers.  New practices have to provide business planning documentation.  Some insurers will ask for their form later; this might be more extensive and this should be noted.

We need to get to know you; your insurer needs to get to know you.  The more information you give us, the better we know you.

YOUR CLAIMS HISTORY

Best to start tracking this from the moment you have a notification because the more information you are able to give to a prospective insurer, the better.  Once prepared you don’t have to prepare it again – only update the information as the matter progresses!  Brief summaries of incidents from memory leave open the possibility for omission; for example it would be helpful for you to explain to us significant details such as…… insurers felt you had a valid defence, however settled for commercial reasons  - you might even have something to this effect on your file.  If you move away from an insurer, ask them to prepare a confirmed claims experience for you.  These are helpful and often difficult to obtain later.

If you have not already undertaken a thorough claims reporting exercise of both commercial insurer and SIF matters, it would certainly be sensible to do that before the facts disappear – from memory or otherwise.  Some insurers require more information than one line on a claims print.

RISK MANAGEMENT

Not to be underestimated.  Especially for Solicitor Practices.  Claims and complaints against solicitors are many.  Professional Liability Risk Management has met its day and it applies to all of us.  Some measures can be quite simple but will not happen overnight.  It concerns everybody in the firm and the administrative procedures as well as technical know- how.  In a nut shell it basically relates to a careful review of how you all do what you do; a consideration of what could go wrong with your work in each area; a careful examination of any near-miss and the implementation of realistic measures over a period of time that will actually help to minimise the possibility of circumstances and claims from occurring.

In addition regulatory reviews, legislation and changes will continue to be developed…

The government announced its broad endorsement of Sir David Clementi’s proposed reforms to the legal service industry in which Legal Disciplinary Partnerships and the Creation of the Office for Legal Complaints, which would be responsible for the binding determination in smaller negligence claims against solicitors, feature.  The new Criminal Procedure Rules came into force in April 2005.  Does your firm comply with the Insurance Mediation Directive?

And so it continues….partners must manage and ensure a broad base of requirements are understood and met.

TOPICS FOR CONSIDERATION

• Organisation & File Management

• Perhaps a Quality Standard would help? Considered LEXCEL?

• Communication with Clients

• Communication within the firm

• Communication with other Professionals

• Delegation and Supervision

• Legal Knowledge and Expertise

• Continuing Professional Development

• Individual Areas of Practice – disciplines 

• Client Selection and relations

• The implications of Delays

• The importance of Time Limits

• The giving of Undertakings

• Consult the Solicitors Guide for the Rules of Professional Conduct regularly

USEFUL RESOURCES

You have the resources of the Law Society of England and Wales and other links to draw on, use them -

You can often find advertised courses concerning risk management/complaints handling etc – OFTEN FREE – Take advantage of them.

Blackfriars WILL BE PLEASED TO ASSIST CLIENTS IN THIS AREA, in fact we always endeavour to assist clients to facilitate risk management improvement measures.  Ask us about the risk management service or the arrangement of ‘in-house’ risk management events available.

CONTACT US TODAY FOR FURTHER DETAILS