Can members of an LLP be held personally liable for their firm's unpaid insurance premiums? This was the issue at the centre of this case, which was heard at the High Court on 5 September.
Mr Zeckler, a member of Zecklers (which is no longer trading), argued that the statutory demand served upon him by the ARP for unpaid premiums was invalid. His case was that the ARP could not demonstrate that the normal rules relating to the 'veil of incorporation' should be set aside, given that because he had no personal contract with the ARP nor did he provide them with a personal guarantee.
The ARP's view was that members would be liable in these circumstances. Professional rules requiring members to maintain professional indemnity insurance were incorporated into the contracts of insurance between the ARP and the firms it insures (more particularly rule 10.3 of the Solicitors Indemnity Insurance Rules 2009).
The Court agreed with Mr Zeckler. The Judge, Nicholas Strauss QC, explained that he could see some merit in the argument that there was an implied contract between the members of a firm and its insurers, arising as a result of the professional rules. That said, he was not convinced by that proposition and could not get away from the lack of an express contractual provision to render members personally liable.
Many commentators are now raising concerns that this decision will deter new entrants to the solicitor professional indemnity insurance market once the ARP is abolished in October 2013. Any negative impact will be disappointing to the SRA, given its zero tolerance approach to non-payment of premiums over the past year.
One way to allow insurers to hold members personally liable for unpaid premiums is revised policy wordings, but this will only apply in relation to new policies. Amidst some criticism, the SRA is considering whether to appeal the decision.
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