What happens if you cannot renew your professional indemnity insurance
Law firms are obliged under the Solicitors Regulation Authority (SRA) Indemnity Insurance Rules to have professional indemnity insurance (PII).
If you’re not able to renew your PII before it expires, your insurer will extend your policy for 90 days.
This policy extension is to give you more time to arrange cover, but your firm will not be able to operate as usual for the whole of this 90-day period.
- What the 90-day policy extension means
- Extending the EPP and/or CP
- Insurance cover during the policy extension
- If your firm is uninsured
- If your insurer becomes insolvent
- Where to get support and advice
What the 90-day policy extension means
The extension is made up of:
- an extended policy period (EPP) of 30 days
- a cessation period (CP) of 60 days
What happens during the EPP
Your firm can accept new work and practise as usual. If you find new qualifying insurance during this time, the new insurer must backdate the policy to the start of this period.
To comply with regulatory obligations, you should email the SRA within five days of entering the EPP. It’s important for your firm to have a process in place to do this.
You must also tell the SRA if you get a backdated insurance policy, giving the name of your new insurer and the policy number.
If you do not have insurance at the end of the 30-day EPP, your firm will enter the 60-day CP.
Rule 4.2 of the SRA Indemnity Insurance Rules requires firms unable to renew their insurance by the end of the EPP to cease practise promptly and by no later than the end of the cessation period.
What happens during the CP
Your firm will not be able to accept new work, although you can continue to work on existing instructions.
You should still try to get insurance during the CP, but the policy must be backdated to the start of the 90-day policy extension period.
If you cannot get insurance by the end of this period, your firm will have to close. See rule 5.2 of the SRA’s Indemnity Insurance Rules.
If your firm closes on or before the end of the CP, your insurer must provide you with the mandatory six years’ run-off cover. This will be backdated to the start of the 90-day policy extension period.
Extending the EPP and/or CP
As a response to the circumstances surrounding the 2020 coronavirus (COVID-19) pandemic, the SRA has made allowances for firms seeking new cover to negotiate a longer:
- EPP – allowing them to continue taking on new work for more than 30 days
- CP – allowing them to carry on with existing work for more than 60 days
These possibilities are explained on the SRA website.
Insurance cover during the policy extension
Insurance for the policy extension period is provided by the same insurer that covered the previous indemnity period. It must meet the SRA's minimum terms and conditions (MTC).
The MTC will cover activities if you breach the obligation in rule 2.4 of the SRA's Indemnity Insurance Rules to take on no new work during the CP.
Anyone breaching this rule may face disciplinary action and liability for reimbursement if the insurer experiences a loss as a result of the breach.
Cost of cover
The SRA does not regulate the cost of cover for the policy extension period. This is set by your insurer. Many insurers do not charge for this because these costs will be recovered through the run-off premium if the firm closes.
If your insurer does charge for additional premiums, details should be in your insurance policy or quotation pack.
Ask your broker/insurer for more details about your specific circumstances.
If your firm is uninsured
It’s a disciplinary offence to practise without insurance.
The public needs to be able to claim against firms that do not have their own insurance. This includes run-off cover when these firms close.
If you firm does not have cover, any claims and associated costs, plus interest, can be recovered from your firm’s principals.
The maximum grant that may be made is £2 million. This amount is being reviewed by the SRA and is likely to be revised down to £500,000.
If your insurer becomes insolvent
You have to find replacement cover “as soon as reasonably practicable and in any event within four weeks” (see insolvency of a participating insurer, rule 5.1 of the SRA's Indemnity Insurance Rules). You’ll need to buy an additional premium for this.
If you cannot get replacement cover, you’ll have to cease practising and your run-off cover will fall on the insolvent insurer.
Where to get support and advice
Our Practice Advice Service provides free and confidential support to Law Society members and employees of law firms. It’s staffed by experienced solicitors who can answer your questions and offer guidance.