UK: Indemnity Insurance And The Regulatory Revolution

Last Updated: 13 August 2019
Article by Suzanne Wharton and James Hazlett

The SRA Handbook came into force on 6 October 2011, introducing a new Code of Conduct that was in part prompted by the advent of alternative business structures, and the desire of the SRA to open up the legal market in the wider public interest. That drive to keep pace with the changing consumption of legal services will, with effect from 25 November 2019, give rise to the new and more streamlined SRA 'Standards and Regulations', and the creation of two codes of conduct for firms and solicitors.

The latest reforms followed the SRA's March 2018 consultation paper which proposed significant revisions to the Minimum Terms & Conditions ("MTCs"), to include dramatically reducing the minimum limit of indemnity, as well as an overhaul of the operation of the Compensation Fund. Amidst much opposition, in late 2018 the SRA decided to park the issue of changes to PII cover, but to focus on plans to liberalise the market, and effectively to change the way that solicitors are regulated.

The aims of the SRA as part of its 'Looking to the Future' programme are to focus upon what is deemed most important; maintaining high professional standards (and the protection of client money) and making it easier to both access legal services and for firms and solicitors to perform those functions. A major part of this involves the rise of the 'freelance solicitor' and the ability for 'non-reserved' legal work to be conducted from outside regulated firms.

According to SRA statistics, almost one quarter of firms are sole practitioners. Balanced with the pressures of ensuring there is a sufficient work stream, it can provide greater flexibility to fit around changing lifestyles and, ultimately, more control. The scope to be able to provide reserved legal activities as a freelance solicitor is an extension of this, without needing to be a formally recognised sole practitioner and with a reduced regulatory burden.

To be 'freelance', the SRA's 'Authorisation of Individuals Regulations' sets out a series of preconditions. The solicitor will be more than three years qualified, self-employed and practising in their own name rather than through a trading name or company. They will be instructed directly by their clients, and be paid directly for the services. They will not employ anybody and not be able to hold client money (other than for disbursements which have not yet been paid).

However, it then becomes far more vague around the professional indemnity insurance requirements. If the freelance solicitor is carrying out purely non-reserved legal activities, they can do so without any form of PII. This includes Will writing and employment advice, both of which are fertile areas for negligence claims.

As for reserved legal activities, the freelance solicitor only has to take out and maintain "adequate and appropriate cover" for the services provided, taking into account any alternative arrangements that either the solicitor or client may have made. "Adequate and appropriate" as a concept remains undefined, but the basic standard of protection afforded by the MTCs falls away. More significantly from the perspective of the client, if the solicitor has failed to put appropriate insurance in place, there will be no right of recourse by the client to the Compensation Fund. It necessarily increases the potential risks to the client unless wholly satisfied that there is suitable insurance in place, and that the policy will respond to the specific reserved activity.

It remains to be seen how this will operate in practice, whether Insurers will have the appetite to write cover that will be acceptable to the SRA as 'adequate and appropriate', how those policies will be priced, and if clients will be happy to relinquish the security of the MTCs in favour of greater flexibility and freedom of choice in representation. Having witnessed what can go wrong on seemingly the simplest of matters, the consequences of inadequate or no insurance could be devastating, which clients will need to appreciate before embracing the changing models of legal representation.

Equally, and with only three months to go, far greater clarification will have to follow from the SRA before it can be expected that there will be any significant adoption of these new methods, and whether the reforms have in turn achieved the desired aims of improving access to justice, promoting competition, and helping to increase consumer protection. Without careful control and guidance, the potential variations in quality of cover have the danger of confusing consumers and leaving them exposed in the unfortunate event that something goes wrong.

Post six year run-off cover

Whilst considering the forthcoming changing insurance landscape for solicitors, it is worthwhile revisiting another imminent deadline: the 2020 closure of the Solicitors Indemnity Fund, which will finally bring an end to the post-six year run-off cover extension for firms that have closed without a successor practice.

As it stands, on closure of a practice the former clients are currently protected by six years of run-off cover, either pre-arranged by the retiring partners, or else provided by the last Insurer on risk in accordance with the MTCs. However, with PII policies operating on a 'claims made' basis, many professional negligence claims do not emerge until some years later and so would potentially fall between the (i) end of the six year run-off period and (ii) the 15 year long stop date under s.14B of the Limitation Act 1980. The additional cover afforded by SIF helped to bridge this gap.

In 2016, and despite its own research suggesting that 11% of claims arose 15 years or more after a firm's closure, the SRA confirmed that there would be no extension to the arrangements for providing cover beyond the run-off period, and similarly declined to extend the SIF deadline for a further three years, until 2023. The SIF will run down its existing book of claims, but will not then be accepting any new notifications.

All of this means that partners and employees of firms that closed without a successor practice should give careful thought to obtaining post six-year run-off cover after 2020, to avoid the danger of being held personally liable for any historical claims. We are aware of at least two Insurers having expressed an interest in providing such cover, although the actual products have not yet been developed and will likely only emerge once they are needed next year.

It is not clear what they will look like or how they will be priced, but policies are predicted to be underwritten on an individual basis with a careful consideration of the risk, and the ability to refuse to quote. This dictates that a detailed record should be preserved of the closed firm's historical data and claims history, to present to underwriters. It is also anticipated that, unlike under the constraints of the MTCs, the premium will have to be paid before cover is confirmed, hence an additional expense that it would be prudent to budget for as part of the closure process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions