Earlier this year, the Law Society called on the Solicitors
Regulation Authority to extend the current post six-year run-off
cover scheme for professional indemnity insurance to 2020 so that
retiring solicitors could have peace of mind from any claims
arising after they have left the profession.
The current scheme was established in 2000 when the Solicitors
Indemnity Fund (SIF) was closed and runs until 2017. However, this
meant that post-six-years claims arising after 31 December 2011 are
not covered by the scheme.
I am glad to say that our arguments were strong and the SRA has
agreed to extend the run-off scheme to 2020. However, it is not all
good news and we will continue to lobby on a key part of the SRA's
plans.
It may be helpful if I explain why we felt it important to press
the SRA to extend cover and highlight what this means to the
profession.
Run off cover under solicitors' compulsory PII policy is
provided by their insurer and lasts six years from the end of the
indemnity period in which a firm ceases to practise. After that
contractual cover expires, any further claims are currently dealt
with by a scheme managed by SIF, and funded collectively by the
entire profession. The SIF scheme was due to expire in 2017, but
the Society, with the Law Society Council's backing, urged the SRA
to extend it for another three years, until 2020.
A three year extension might appear a random period. Why didn't
we call for a longer extension?
We felt that three years was advisable to give us time to work
further on the details of any extension with the SRA and SIF
regarding the extent of any future cover and how it will be funded.
A limited extension gives breathing space to allow us to assess the
availability of SIF reserves and in terms of predicting claims
development. The SRA may also need to consult on any future levy
that may be required from the profession in order to support an
extension of cover.
The SRA saw the common-sense in our arguments and now the
extension we called for on the profession's behalf will give
retiring solicitors some peace of mind in what are for many,
uncertain times.
It means that those considering leaving private practice in the
current climate can now make an informed decision over potential
costs emerging from the risk of future claims. The availability of
the SIF run off cover will be a key factor to consider in making
that decision.
However, the SRA Board was not asked to even consider our
proposal to cap the profession's total liability at 10
million and introduce individual limits.
There is a risk to the profession in that a possible future levy
could be imposed if there are insufficient SIF reserves to meet
post six-year run-off claims. The Law Society sought to ensure that
the profession was not unduly exposed and suggested a cap that
would limit cover only in the event of abnormally high level of
claims within the three year period. This was not put to the SRA
Board.
This is a major concern for solicitors, which is why I am
contacting the SRA further on this particular matter.
Other changes made by the SRA that we support include changes to
the authorisation rules to withdraw authorisation at the end of 90
day EIP/cessation period, as well as the SRA's decision to not
introduce a notice period prior to the EIP. We considered the
latter proposal impracticable. We have long lobbied for and
supported the removal of the single renewal date. The SRA has
announced it will introduce variable renewal from 1 October 2013,
which we consider will result in greater flexibility in policy
length, which may allow insurers and solicitors to work through
issues without necessarily triggering the provisions of the
EIP.
We also support the introduction of a requirement that insurers
are transparent about their credit ratings (or lack of rating) for
the 2012 renewal.
There remain some areas of the SRA's decision that we oppose.
All of our concerns, as well as changes we support are available on
website
All of the SRA's proposals are subject to approval by the Legal
Services Board (LSB) of course.
I will update further on what our, the profession's, next steps
will be.
Desmond Hudson
Law Society chief executive