Solicitors’ professional indemnity insurance covers you for civil liability claims arising from your work in private legal practice. Most claims brought against solicitors working in private practice relate to professional negligence.
Do I need it?
If you are a practising solicitor you are required to have professional indemnity insurance by the regulating body, which depends on the country in which you practice:
- in England and Wales the representative and regulatory functions are separated. The Law Society represents the profession, while the Solicitors Regulation Authority (SRA) is the regulatory body
- in Scotland The Law Society of Scotland both represents and regulates the profession
- in Northern Ireland The Law Society of Northern Ireland both represents and regulates the profession
Solicitors are required to have professional indemnity insurance cover for the entire time they are practising, and need to show their relevant regulator that they have professional indemnity insurance in place as part of the practising certificate renewal process.
As well as holding professional indemnity insurance cover in your work for your direct employer, you must have cover if you act for a client other than your employer in any of the following situations:
- pro bono work
- commercial legal advice services
- law centres, charities and other non-commercial advice services
- foreign law firms
Insurers who sell solicitors’ professional indemnity insurance in England must sign up to the SRA’s Qualifying Insurers Agreement. The agreement includes minimum terms and conditions which can be found on the SRA website. Insurers must adhere to these terms and conditions, regardless of the wording of individual policies.
What is covered
Solicitors’ professional indemnity insurance covers the cost of claims made against you by clients, where the claim is upheld by the Legal Ombudsman, the Office for Legal Complaints (run by the Legal Services Board), or any other regulatory authority.
You are obliged to notify your insurer of any claims made against you, or of any circumstances that may give rise to a claim. You should tell your insurer about all relevant situations, even if you are unsure if the situation will give rise to a claim.
What is not covered
Solicitors’ professional indemnity insurance does not usually cover:
- defence costs for disciplinary proceedings by the SRA or the Solicitors Disciplinary Tribunal
- dishonesty, a fraudulent act and / or an omission that has been commissioned or condoned by an insured individual
- liability for bodily injury (including death) and damage to property
- partnership disputes – any actual or alleged breach of partnership or shareholder agreements
- employment breaches, discrimination, wrongful dismissal
- personal debts and trading liabilities or guarantees, indemnities or undertakes [can we explain this?] which directly or indirectly benefit an insured person
- fines, penalties, orders to pay costs in the investigation into the professional conduct of an insured person
Your insurer may be able to seek reimbursement if your firm is found to have engaged in non-disclosure of relevant factors, misrepresentation, dishonesty, or fraud.
Buying solicitors’ professional indemnity insurance
In England and Wales you can only buy solicitors’ professional indemnity insurance from an insurer who has signed up to the SRA’s Qualifying Insurers Agreement. You can buy insurance directly from the insurer or from a specialist broker through the British Insurance Brokers’ Association (BIBA).
A list of qualifying insurers can be found on the SRA website. The SRA requires all qualifying insurers to disclose their financial security rating – you should take this rating into account when comparing quotes for solicitors’ professional indemnity insurance. For more information on the importance of insurer solvency go to The Law Society website.
How much cover do I need?
The SRA requires a minimum or primary level of professional indemnity cover, depending on the type of firm:
- firms defined by the SRA as relevant recognised bodies and relevant licensed bodies are obliged to have cover of at least £3 million for any one claim. For a definition of relevant recognised bodies and relevant licensed bodies see the glossary on the SRA website
- in all other cases, for example sole practitioners and partnership firms, cover of at least £2 million for any one claim is required
You can choose to buy extra cover on top of the SRA’s requirements, known as excess layer or top-up cover. The total amount of cover you need will depend on the size of your firm and its exposure to risk.
The price of your premium
Your professional indeminity insurance premium will be calculated based on a number of factors including:
- your insurance claims history
- the categories of work performed by your firm
- the number of people your firm employs
- your firm’s revenue
- other risk factors determined by your insurer
Upcoming changes to solicitors’ professional indemnity insurance
A number of changes to how solicitors’ professional indemnity insurance is sold will come into force on 1 October 2013.
Insurance renewal date and policy length
At present, firms are required to buy or renew their solicitors’ professional indemnity insurance on 1 October each year.
From 1 October 2013 this rule will no longer apply and solicitors firms will be able to agree to a different renewal date and / or an alternative policy length with their insurer.
Assigned Risks Pool
At present, solicitors firms who cannot get professional indemnity insurance from a qualifying insurer can get cover through the SRA’s assigned risks pool.
From 1 October 2013 the SRA’s assigned risks pool will no longer exist. This means that the only way of maintaining cover will be through a qualifying insurer.
From this date, firms that are unable to renew their insurance through a qualifying insurer will be given an extended indemnity period and cessation period by their current insurance provider.
The extended indemnity period gives firms a 30-day window during which they can continue to practise while they try to find professional indemnity insurance. If the firm fails to find cover during the extended indemnity period, a 60-day cessation period is then applied. During this time the firm will be unable to accept new instructions and can only perform work in connection with existing instructions.
For more information on the upcoming changes to the assigned risks pool see The Law Society website.