Employees of professional firms rarely check to see whether they are protected by professional indemnity insurance.

They probably assume that the partners have the necessary cover in place, and that in any case any claimant would always bring an action against the partners, rather than against an employee directly.Recent cases show that these assumptions may be mistaken, although employees of law firms can take comfort from the fact that the arrangements put in place by the Law Society last year for compulsory professional indemnity insurance provide them with significantly more protection than many other professionals enjoy.In February this year, the Court of Appeal's decision in Merrett v Babb [2001] 3 WLR 1 showed that negligent employees will be held to owe a duty of care to their firm's clients in much wider circumstances than previously thought.

In July, the House of Lords appeal committee refused leave to appeal, effectively upholding the decision of the Court of Appeal.Mr Babb, a professional surveyor, was found to have assumed personal responsibility to the buyers of a house which he surveyed, by virtue of signing the valuation report personally.

This was despite the fact that the buyer never knew or met Mr Babb, and the fee for the valuation was paid to Mr Babb's employer, rather than to Mr Babb personally.Normally, the claimant would have sued Mr Babb's employer, whose professional indemnity insurer would have paid the claim.

However, Mr Babb's former employer had been declared bankrupt, and the trustee in bankruptcy had cancelled the professional indemnity insurance.

This left Mr Babb uninsured for any personal liability, in addition to being the only target for the claimant to sue.The Court of Appeal's decision means that Mr Babb will have to compensate the claimant personally for losses arising from his negligence, instead of being able to rely on his employer's insurance cover to meet the claim.In the same month, the Court of Appeal gave judgment in Cave v Robinson Jarvis and Rolf [2001] EWCA Civ 245.

The court upheld the 1999 Court of Appeal decision in Brocklesby v Armitage & Guest [2001] 1 All ER 172.Taken together, these cases suggest that in professional negligence cases, the ability to rely on limitation defences will be severely restricted.Section 32 of the Limitation Act 1980 provides that in cases of fraud or deliberate concealment by the defendant, the limitation period does not start until the claimant could with reasonable diligence have discovered that he or she had the right to take action.The Court of Appeal considered itself bound in Cave to follow its earlier judgment in Brocklesby, which was that, to prove 'deliberate concealment', it is necessary only to show that the defendant gave the advice deliberately, in the sense that he or she intended to give it.It is not necessary to show, as was been thought to be the case, that the defendant showed bad faith or that there was any active attempt to conceal his or her actions.The effect of these decisions is to undermine significantly the prospects of a defendant to a professional negligence action being able to argue successfully that the claim is time-barred.

The lack of an effective limitation period means that the need for continuing insurance cover to meet claims after a firm has ceased practising is much greater.It is important to note that employees will not always be found to owe a personal duty of care to their firm's clients.

Whether they do so will always depend on the particular facts of the case.

In Merrett v Babb, it was clear that the court looked to see whether the employee assumed a personal responsibility for his or her actions such as to give rise to a special relationship with the client.

A claimant would also need to show there was reasonable reliance upon the advice provided.Nevertheless, where an employee plays a significant role in advising the client, it is likely that the court would find that the necessary special relationship existed.In the light of these decisions, partners and employees of professional firms, and their professional indemnity insurers, would be right to be concerned about the greater potential exposure to claims that could result.

For employees in particular, the fear will be that a negligent act or omission could come back to haunt them, perhaps years after they have left the firm concerned.However, employees of solicitors' firms are better protected than many other professionals in this respect, in view of the way in which the Law Society has structured the arrangements for compulsory professional indemnity insurance.

In particular, all firms are required to take out a policy of 'qualifying insurance', which must comply with the minimum terms and conditions, set out in appendix 1 to the Solicitors Indemnity Insurance Rules 2001.The minimum terms require all policies of qualifying insurance to provide cover for six years after a firm has ceased to practise.

In many cases a firm will merge with another, rather than cease altogether.

In these circumstances the policy of qualifying insurance taken out by the new firm must cover claims against the firm to which it is a successor.Insurance, once taken out, cannot be cancelled, and if a firm fails to take out a policy of qualifying insurance, it is automatically covered on the same minimum terms, although there will be disciplinary consequences if the firm has breached the rules.Under the minimum terms, all employees and former employees of the firm are insured.

The definition of 'employee' includes those engaged in the firm's practice under a contract for services, as well as those who are, legally speaking, employees.

Furthermore, the Law Socie ty Council has already indicated that it will look at ways to ensure continuing run-off cover is in place beyond the six years offered by policies of qualifying insurance.

The run-off cover offered by the Solicitors Indemnity Fund for firms ceasing before 1 September 2000 is unlimited in time.This does not mean that there are no circumstances in which employees of solicitors' firms could be sued.

If the claim exceeds the level of cover taken out by the firm (currently a minimum of £1 million for partnerships, or £1.5 million in the case of corporate bodies), an employee could be sued by a claimant for the shortfall.

The terms of any 'top-up' insurance above this minimum level are not prescribed.In addition, if an employee had committed or condoned (knowingly or recklessly) dishonesty or fraud, the minimum terms permit the insurer to recover sums from the employee where it is fair and equitable to do so.In practice a claimant will always prefer to bring a claim against the firm as a whole, since the partners are likely to have deeper pockets than a single employee.

Also, to bring a claim against a particular employee, the claimant must show that the particular employee's negligence caused the loss, and that the relationship between the claimant and the employee in question was one where the 'special relationship' needed to create personal liability existed.But, as Merrett v Babb showed, the risk to professional employees is a real one, which those without the protection provided by the minimum terms would do well to bear in mind.