Solicitors Indemnity Fund and post six-year run-off cover
On 1 October 2023, the Solicitors Regulation Authority (SRA) took direct control of the running of SIF.
This means clients continue to be able to claim compensation in the unlikely event a claim is identified beyond the usual six-year term of solicitors’ professional indemnity cover.
This move follows our work on behalf of solicitors and their clients urging the SRA to work with us, the insurance industry and wider stakeholders to find a sustainable solution to the issue of run-off indemnity cover and long-term consumer protection.
Bringing the arrangements in-house means the SRA will be able to monitor SIF and ensure it has the resources necessary to operate properly in the long term.
We believe a levy on the profession may be required to prevent SIF's assets from being run down, but the SRA has decided not to impose a charge at this time.
If the need arises in the future, the SRA has committed to carrying out a further consultation.
We are pleased the SRA has agreed to two significant suggestions we made:
- an independent body will be called upon to appoint an arbitrator in the unlikely event a dispute arises concerning the fund
- if SIF is wound up at some point in the future, and the SRA has no further indemnification purpose for the residual funds, any remaining money would return to the Law Society, to be used for the benefit of the profession
We look forward to continuing to work constructively with the SRA on this important consumer and solicitor protection, long into the future.
What is SIF?
Originally, SIF was the statutory fund that provided insurance cover to solicitors in England and Wales.
When the profession voted to move from a statutory fund to purchasing professional indemnity insurance (PII) on the open market, a portion of SIF was retained to provide ongoing run-off cover for firms that had already closed.
Later, its scope was extended to cover other closed firms once their mandatory six-year run-off cover had expired.
How the closure of SIF would have affected solicitors
After a law firm closes, run-off cover must be purchased to protect solicitors and their clients in the event of any civil claims that arise because of negligence.
This mandatory run-off cover is purchased as part of a firm’s PII and lasts for six years.
Coverage after this six-year period is called supplementary run-off cover and is currently provided by SIF by way of indemnity, at no additional cost to the former principals of a closed firm.
Had the SRA proceeded with its initial plan to close the fund to new claims, then the former principals of firms that ceased operations after 1 September 2000, their estates, and even individual employees, could have risked being personally liable for losses from any claims that were made.
Why supplementary run-off cover is necessary
Around 11% of claims are made after the mandatory run-off period has expired.
Most of these late claims occur between six and 15 years after a firm has closed.
Some types of legal work are at substantially greater risk of claims being made after the six-year run-off period. These include:
- wills and trusts
- child personal injury
What we did
Over the last decade, the Law Society has been actively engaged in trying to find a solution to this issue.
We successfully lobbied the SRA on two occasions to postpone the closure of SIF.
The SRA consulted in February 2022 to determine the future of SIF and post-six-year run-off cover (PSYROC).
We warned the SRA that the prospective closure of SIF, and the unavailability of alternative long-term run-off cover options, threatened an unacceptable transfer of risk from solicitors to their clients.
This risked seriously undermining public confidence in the profession.
We consulted with members to help shape and inform our response.
In August 2022, the SRA published a discussion paper about the future of SIF and PSYROC. The paper sought opinions on policy options, including:
- retaining SIF, but making changes to reduce its operating costs
- replacing SIF with a new consumer protection fund which would be run by the SRA
In October 2022, the SRA launched a further consultation, seeking views on proposals to:
- maintain consumer protection for post six-year negligence as an SRA regulatory arrangement providing the same level of cover as SIF, and
- provide this protection through an indemnity scheme operating under the SRA’s direct control
We set out three criteria for any new PSYROC scheme, which we believed should:
- provide indemnity as permitted by section 37 of the Solicitors Act 1974 and be an indemnification arrangement as defined by section 21(2) of the Legal Services Act 2007
- be ringfenced for the specific purpose of giving indemnity protection and dealing effectively with PSYROC claims against former principals or employees of ceased SRA-regulated entities
- provide the same access to, and scope of, indemnity as SIF
We were broadly satisfied that the SRA’s proposals met the criteria and offered our support to the scheme.
Our Wales office worked closely with the Welsh government around the issue of the future of SIF and we are grateful for the support of Welsh government.
We are also grateful to the City of London Law Society, which supported the principle of law firms paying a levy on the fund, proving the profession as a whole wanted to retain SIF, and to all members who wrote in support of retaining SIF.
Find out more
Are you thinking of closing down your practice? Check the SRA guidance on what steps you need to take.
Thinking about your PII renewal? Strengthen your firm management and business development skills with the courses on offer through Law Society Learning.