Professional indemnity insurance

SRA rule change application for PII and the Compensation Fund - Law Society letter to LSB

The proposals

The Solicitors Regulation Authority (SRA) has applied to the Legal Services Board (LSB) to carry over the existing rules for professional indemnity insurance (PII) and the Compensation Fund into the new Handbook, which was approved in November last year.

The application proposes new rules to govern the PII arrangements for ‘freelance solicitors’, a new class of solicitors who will be self-employed, practise in their own name, and be engaged directly by their clients.

The SRA explains in their application:

‘The new rules confirm the financial protections that are in place for consumers using a solicitor practising in different ways. They confirm which acts or omissions of a solicitor will give rise to a claim on the SRA Compensation Fund and that only businesses authorised by the SRA will need to have professional indemnity insurance (PII) in accordance with the minimum terms and conditions which we prescribe.’

The application seeks to:

  • preserve the current PII and Compensation Fund arrangements for most solicitors, including the requirement to purchase PII that complies with the SRA’s minimum terms and conditions (MTCs)
  • create a regime for the new freelance solicitors in which only those who are providing reserved services are required to purchase PII and that insurance does not have to comply with the MTCs
  • establish that there is no obligation for solicitors working in unauthorised firms, who provide advice to the public, to purchase PII, and
  • exclude clients of freelance solicitors who failed to purchase adequate and appropriate insurance from making claims against the Compensation Fund.

Our view

The Law Society supports the SRA’s decision to keep the existing PII and Compensation Fund requirements largely intact, as they apply to solicitors in established modes of practice.

However, we are concerned that the rules that they have proposed for freelance solicitors do not provide sufficient protections for our members or their clients.

In particular, we are concerned about the confusion that will arise as a consequence of divergent PII requirements for different kinds of solicitors, which we believe is likely to:

  • increase the potential for consumer confusion
  • create situations where some cases are covered by an insurance obligation and some not, and
  • lead to arguments by insurers over what does or does not constitute reserved legal activity.

What this means for solicitors

For most solicitors, who continue working in established forms of practice, the SRA’s proposed rules would have very little effect.

However, the regime which is ultimately established to cover freelance solicitors will have profound implications for freelancers, their clients, and the profession.

Therefore, we hope that the LSB will not approve the rules as they apply to freelance solicitors until such time as the SRA has adequately addressed our concerns.

Next steps

The Law Society awaits the LSB’s decision and remains open to discussing any of the issues raised in our letter.

View the SRA’s application on the LSB website (PDF 192kb)

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