Solicitors in limbo as Quinn ruling adjourned
The concerns of 2,911 law firms and sole practitioners who took out professional indemnity insurance (PII) policies with Quinn Insurance are set to continue this week after the Irish High Court adjourned a hearing on the fate of the Irish insurer.
The court will now decide whether or not to place Quinn Insurance in permanent administration on Monday 19 April, leaving affected solicitors in limbo for another week.
The Solicitors Regulation Authority today reiterated its advice to solicitors to sit tight pending the outcome of the administration hearing.
According to reports, Quinn Insurance today presented fresh information to the court at the last minute, and the Irish Financial Regulator, which is attempting to have the company placed into permanent administration, asked for a week-long adjournment.
Quinn Insurance, which provides PII to around 10% of the solicitors’ profession, will remain in provisional administration for the time being.
Quinn Insurance was forced into provisional administration after the regulator successfully petitioned the High Court on 30 March. At the time, the regulator directed Quinn to cease writing new business in the UK ‘to prevent Quinn Insurance Ltd suffering further financial losses from its currently unprofitable UK business’, and simultaneously began an investigation into financial guarantees, estimated to be worth €448m (£394m) altogether, set up by subsidiaries of Quinn Insurance. The guarantees were alleged to have been used inappropriately to set off debts from other companies that make up the Quinn group conglomerate – an allegation that Quinn fiercely denied.
Quinn attacked the regulator’s actions as ‘pre-emptive, aggressive and unnecessary’ and said that a planned refinancing would have addressed the regulator’s concerns around the financial guarantees.
Solicitors’ rules state that law firms must find alternative cover or apply to enter the assigned risks pool within four weeks if an insurer has provisional administrators appointed, but the SRA said that the situation with Quinn falls outside its definition of provisional administration.
In a letter to the Gazette this week, Law Society chief executive Des Hudson says that Quinn's predicament is a cause for concern, but advises solicitors that there is no need for panic.
Update: On Tuesday 13 April, Quinn Group hired financial restructuring firm Talbot Hughes McKillop to provide financial restructuring services to the company. Talbot Hughes McKillop partner Murdoch McKillop was also appointed as an interim executive director of Quinn Group.
Quinn Group chief executive Liam McCaffrey said: ‘Mr McKillop’s role will be to assist the board and the executive management team to successfully work through the group’s current issues and to ensure that executive management are not excessively diverted from the vitally important job of running our manufacturing business.’
Read previous articles on Quinn Insurance:
Comments
Quinn
According to your report the regulator has petitioned the High Court and Quinn is in provisional administration, however the SRA says the situation with Quinn falls outside its definition of provisional administration. What sort of definition is the SRA using then?
Provisional administration
The relevant definition is contained in the Solicitors' Indemnity Insurance Rules 2009, which define Insolvency Event as including, in relation to a qualifying insurer, "the appointment of a provisional liquidator, administrator, receiver or an administrative receiver". Rule 6.1 provides that, if a firm is insured with a qualifying insurer and that insurer is the subject of an Insolvency Event, then (subject to any waiver which may be granted under Rule 19.1) the firm and any person who is a principal of the firm must ensure that insurance with another qualifying insurer is put in place "as soon as may be reasonably practicable and in any event within four weeks of [the] Insolvency Event" or (if the firm is a firm eligible to be in the ARP) must ensure that the firm applies to enter the ARP during that four-week period.
Why the SRA thinks that "the situation with Quinn falls outside its definition of provisional administration" is not clear, given the definition of Insolvency Event referred to above. Presumably, the SRA thinks either that the word "administrator" in the clause quoted above does not include a provisional administrator or that provisional administration under the Irish legislation (The Insurance Act (No.2) 1983) does not amount to an act of insolvency under English law; but the definition quoted above does not distinguish between English and Irish law.
Neither is it clear why the SRA continued to allow Quinn to write solicitors' business, in circumstances where the RICS removed Quinn from its list of approved insurers in 2008, after Quinn withdrew from its credit rating contract with the rating agency, Moodys (see the piece entitled "RICS drops Quinn from PII list", which James Dean wrote in the Law Society's Gazette on 31 July 2008 and in which an SRA spokesman was quoted as saying that the SRA was "monitoring the situation"). Having been "monitoring the situation" in 2008, the SRA's position now appears to be that it does not vet insurers, that being the job of the FSA (or, in the case of Quinn, the Irish Financial Regulator). But it surely cannot be the case that the SRA is obliged (by the relevant provisions of the Solicitors Act 1974) to allow an insurer to write solicitors' business provided simply that the insurer is authorised to write business in the UK and is prepared to sign a Qualifying Insurer's Agreement. If the SRA believes that that is indeed the case, it should say so.
Quinn
Quis custodiat custodies?
Who was it who granted Quinn Insurance Group qualified insurer status and who was monitoring it subsequently? Presumably a claim will lie against them in negligence, or breach of statutory duty, or both, for any loss suffered as a result.
If it does go into administration all those practices insured with it will be without cover and therefore unable to practise as otherwise they will be in breach of the practice rules. They will also be personally liable to their clients, or rather former clients..
What a mess and apparently plenty of warnings were given to those to whom we have to bow and scrape lest we should forget to tell our clients how to complain about our services.
David Crawford.
Provisional Administration - SRA - Please explain yourself now.
In view of the succint analysis of the SIIR 2009 by Tim Bullimore I hope the SRA will reply to this thread explaining why they believe that the appointment of a provisional administrator is not an Insolvency Event within the meaning of the 2009 Rules.
If they are unable to do so then perhaps Frank Maher @ Legal Risk LLP can give his view of the position.
Insolvency Event
I should add that, if the SRA is telling solicitors that no Insolvency Event has occurred, it must also be saying (implicitly or explicitly) that Rule 6.1 is not in play at present. That presumably explains the advice which the SRA has given to the effect that solicitors may sit tight for the time being.
Having told solicitors that no Insolvency Event has not yet occurred, it is incumbent upon the SRA to inform solicitors if such an Event occurs (though, of course, we all hope that that will not happen), so that solicitors know when/whether Rule 6.1 has come into play. At that stage, it will be open to the SRA to give a waiver under Rule 19, if that is an appropriate thing to do. Rule 19 appears to require each affected practice to apply in writing for a waiver within three calendar months of the Insolvency Event, but it is difficult to see why the SRA could not simply grant a waiver to all affected firms, if it saw fit.
Insolvency Event
Does a Rule 19 waiver mean that if an Insolvency Event occurrs and Quinn go into liquidation and the PII cover is worthless , then the 2900 Firms can still practice, even without PII cover, if they have been granted a waiver ?
Waiver
I believe the firm would have to ask that the obligations imposed by Rule 6 be waived. Whether the SRA would grant such a waiver is questionable. It seems inconceivable that the SRA would be prepared to run the risk of solicitors having no effective insurance cover (which is the risk against which Rule 6 is intended to guard); and, in any event, solicitors would not feel comfortable practising if there was a question mark over their insurance cover. So, presumably, the SRA would only grant a waiver if some other mechanism for protecting clients had been put in place. While one hopes that it will not become necessary, it might be that someone would have to put together some sort of "action group" for all affected firms and attempt to put the onus on the SRA to come up with a solution (preferably one which did not involve further premiums being payable). Brokers who placed 2009/2010 solicitors' policies with Quinn might have a role to play in trying to come up with that solution.
Would it not be possible for
Would it not be possible for the SRA to publish a "provisional" list of affected Lawyers in order for their clients, ATE Insurers and Disbursement Funders, to properly assess the risk of continuing to contract with these firms.
The shape of things to come
I am afraid that this is the first of many such shocks for the hitherto feather bedded SRA. They have been used to the English and Welsh judiciary bending over backwards to accommodate them. Now an international aspect has been introduced and soon they will be be regulating big business and some barristers. The days of -We can do what we like because no one cares about solicitors- are over and not before time.Future 'clients' of the SRAwill have money and influence unlike the poor high street today.
Rule 6 (f) goes on to define
Rule 6 (f) goes on to define an insolvency event as any analogous event in a jurisdiction outside England & Wales. I can only suppose that the SRA think the word provisional qualifies liquidator and not administrator.Surely though it is an analogous event.The mischief is the risk of insolvency not actual insolvency.A provisional liquidator can after all be appointed without proof of insolvency.The object of the rule is to ensure availability of PI cover to protect not only the public but also the firmsin question.Maybe the consequences of acknowledging that an insovency event has occurred are just to awful to contemplate.
Entry to the ARP
I agree with the final sentence of the last comment. As regards the SRA doing anything to help the profession, my understanding is that it is now the SRA's role to regulate the profession and the Law Society's role to "help, protect and promote" solicitors - at least, that what the "about us" page of its website says.
I agree that, as a general rule, professional bodies tend to be better at slapping wrists than advancing the interests of their members; but this is a situation where the interests of the public and the interests of Quinn-insured solicitors are aligned, so there should be no excuse for the SRA/Law Society not to do their utmost to resolve any problems which may arise.
The first step towards that would be for each to issue a clear written statement (reflecting their different roles), rather than posting inadequate ones on their websites while making unhelpful comments about not "vetting" insurers. Presumably, if the SRA were sufficiently concerned about the position, it could seek to intervene in the proceedings in Ireland as an interested party; at the very least, one hopes that it is "monitoring the situation" by studying the material which has been filed in those proceedings.
For the avoidance of doubt, I
For the avoidance of doubt, I was agreeing with the comment about free entry to the ARP: the helpful comment about limb (f) of the definition of "Insolvency Event" got in before mine.
Hypocrisy
This type of hypocrisy on the part of the SRA and the Law Society before them is nothing new. Solicitors are to be pounced on and often ruined whilst the SRA seemingly ignore rules when they think it is convinient to do so The difference in this case is that the stakes have been raised,so as to potentially wipe out 10% of the profession.Once real competition starts thensuch events will become commonplace.. Then the SRA will really be under the cosh.
For firms with a turnover of
For firms with a turnover of less than £1M I believe that the FSCS will step in to cover any loss if Quinn goes belly-up...http://fscs.org.uk/news/2010/march/quinn-insurance-limited/
The FSCS
Confirming the position with the FSCS and issuing a statement to solicitors on that topic is one of the things which the Law Society (as the organisation which is "here to help, protect and promote solicitors") and the SRA (as the organisation whose job it is to regulate solicitors) should now both be doing. Two obvious questions arise immediately: whether policies issued by Quinn (a company registered in Ireland, whose "lead regulator" is said by the FSA to be the Irish Financial Regulator) would be within the ambit of the compensation scheme and whether LLPs/limited companies would be eligible to submit claims under the scheme.
The Law Society is,
The Law Society is, regrettably, not there to "help, promote and protect the profession". If that were the case it would have set up a legal equivalent to the Medical Defence Union long ago.
In reality it is there only to disburse money and status to those employed by it.
The response of the "Chief Executive" (let alone the non response by the President) is utterly typical of its incompetence.
Heaven alone knows why these people are paid.
Turning a blind eye
The following is an extract from the Irish Regulators website.
"Quinn Insurance Limited (UK)
In addition, the Financial Regulator has separately directed Quinn Insurance Limited to cease writing new business in the UK. Existing UK policyholders will not be affected by this decision as existing policies will remain valid. Customers can make claims in the normal way.
The effect of this action is to prevent Quinn Insurance Limited suffering further financial losses from its currently unprofitable UK business."
The Irish side of the business is still to be allowed to write new business.
I can see why Des Hudson and the SRA would want to keep things going until the last possible moment. The alternative is probably collapse of the ARP. However, the courtesy of ignoring the rules is never extended to individual solicitors and this rankles.
Perhaps it would be better to reconstitute a "cut down" SIF. It is still around for solicitors whose run off cover has expired, in any case.
The PI insurance market will tighten because of this and radical measures may be needed this year. Preparation for this must begin now.
Looking Ahead
I think that this all points to a nightmare renewal season in October 2010. I would start expanding SIF now, to cover solicitors who cannot find insurance but who need to be kept out of the ARP (to stop that collapsing). This could be done by a "one off"" levy across the profession. I would also ask current insurance companies to contribute to the levy, on the basis that it would be cheaper for them rather than facing the consequences of a collpased ARP. It would be painful but the consequences of not doing this could be the entire collapse of the PII system.
I would be interested to know if others have more imaginitive ideas to "head off" the problem. This forum seems a good one for canvassing such ideas.
Panic over !
No need to worry as Des Hudson has spoken via the Letters page of the Law Gazette
"Tuesday 13 April 2010 by Des Hudson
Your article last week (‘Quinn’s future hangs in the balance’, [2010] 9 April, 1] is likely to have caused significant anxiety within the profession, particularly for those currently insured with Quinn.
While clearly the situation is of concern, it is important not to spread rumour and opinion unsupported by fact. It is not yet clear that this is a case of insolvency for the purposes of the SRA Qualifying Insurer Rules. The proceedings in Ireland have been adjourned again and, until the Irish courts take a view on the position, there is no need for the profession to take
action.
The advice of regulators reinforces that Quinn policies remain in full force and effect. The SRA will take a view on what needs to be done once those proceedings have been completed or other information comes to light. This is what the regulators are advising, and members of the profession should bear in mind that the commercial entities in the insurance market will have their
own commercial interests in this situation. Members should consider the position of those professing advice and act accordingly.
In the meantime, the Law Society is preparing advice for the various eventualities and will be issuing this if it becomes necessary. We are also holding discussions with all stakeholders. There are many ways in which this could resolve itself, but it helps nobody for there to be speculation and panic at this stage when the situation is so unclear.
Des Hudson, Chief executive, Law Society"
He has avoided addressing the Insolvency Event question which he has no doubt read about in this thread.
Mr Hudson's comments
I agree with Mr Maher's comment that the SRA could not and should not be the body which assesses the credit ratings of insurers; but it seems to me that there are three important points which are not met by that comment. First, Quinn withdrew from its credit rating contract with Moodys and that appears to have been what prompted the RICS (which, like the SRA, is not an organisation which regulates insurers) to remove Quinn from its list of approved insurers. Second, some of the comments which have been reported as emanating from the SRA appear to imply that the SRA is obliged to allow any insurer to write solicitors' business, provided that the insurer has the necessary authorisations and is prepared to sign the qualifying insurers' agreement. The implicit suggestion - that the SRA has no discretion in deciding which insurers can be qualifying insurers - strikes me as highly unlikely to be correct. Third, the role of the SRA is to regulate solicitors and thus protect the public in its dealings with solicitors. It is an important part of that role that the SRA makes sure that solicitors are properly insured. If that means that the SRA has to do some "vetting" (which is not the same a regulating) of insurers, so be it - the RICS did not seem to have any trouble doing so.
Mr Hudson's comment about the importance of not "spread[ing] rumour and opinion unsupported by fact" is correct insofar as it relates to rumour. No one wants to precipitate any kind of panic and it is of course to be hoped that everything will work out in the end; but there are almost 3,000 practices out there which must be panicking already and it is the job of the SRA (and, indeed, the Law Society) to address those concerns effectively. The best way to do that would be for the SRA to demonstrate that it is on top of the situation and, as the regulator of the solicitors' profession (solicitors and the public being the ultimate "stakeholders" here), is preparing for whatever contingencies may arise. As for "spreading opinion", there can be no objection to anyone expressing opinions. Most of the opinions expressed by those contributing to this thread have taken the form of a discussion of the Solicitors' Indemnity Insurance Rules 2009 and the roles of the SRA and the Law Society, to which there can be no possible objection. So far as facts are concerned, perhaps the SRA's next statement will confirm that it has obtained a copy of all of the evidence which has been filed in the Irish proceedings and will explain what form its "monitoring" took from 2008 onwards (see Mr Dean's article in the Gazette dated 31 July 2008).
A practical word... If you
A practical word...
If you were a Solicitor acting for a Claimant who potentially had a negilgence claim against a Solicitor's firm and there were no limitation problems, and it was a 5 Partner or less firm (and thus potentailly insured by Quinn) you will surely be advising your client to stay schtum and write no Pre-Action letter until November 2010 at the earliest, so as to ensure that any claim will be insured.
And surely any Quinn-Insured Solicitor getting in the meantime a misguided Pre-Action letter will make a quiet phone call to the Claimant's Solicitor to suggest that the letter and file-copy is shredded, and that they write again when new Insurer is on the scene...
A practical word... If you
But what happens if the 2900 Quinn firms can't find PII cover after 30 September and close down.Their last insurer will be Quinn who will be obliged to provide 6 years run-off cover for potentially no premium and if Quinn go bust there will be no insurance cover at all. Is it not better to get your Pre-Action letter in sooner rather than later whilst Quinn are still around ?
SIF to cover
After six years SIF provides free run off cover. I suggest that it charge Quinn customers for six years run off cover at the going rate and then after six years they can be merged into the post run off cover SIF scheme.
Quinn to 'accept administration'
http://www.irishtimes.com/newspaper/breaking/2010/0415/breaking39.html
& BBC & RTE say same
It looks like its time for
It looks like its time for the SRA to be issuing the advice to which Mr Hudson referred in his letter to the Gazette, then.
quinn
interesting how this article was quietly dropped from the printed version after Des Hudsons letter.Anyway the inevitable has happened despite the Ostrich approach.I guess the proverbial will hit the fan shortly
Time to start panicking !
There is a similar report on the bbc website
"Staff at the Quinn Group say they have been told the firm will drop an objection to its insurance business being placed into administration."
http://news.bbc.co.uk/1/hi/northern_ireland/8622707.stm
RTE has now confirmed that
RTE has now confirmed that Grant Thornton have been appointed as full administrators.
The clock is now ticking...
Quinn Insurance get permanent administrators
http://www.rte.ie/news/2010/0415/quinn.html
every firm can now expect all
every firm can now expect all major lenders to ask for details of insurers to remain on their panel i would think
On the assumption that the
On the assumption that the SRA now accepts that an "Insolvency Event" (within the meaning of the Solicitors' Indemnity Insurance Rules 2009) has occurred, Rule 6.1 is engaged: unless the SRA grants some form of waiver, Quinn-insured practices will have to arrange cover with another qualifying insurers (or apply for entry to the ARP) within four weeks.
The consequences of granting a waiver
If the SRA grants a waiver, won't this be a high risk strategy by the SRA? If someone finds themselves unable to claim for negligence, then won't the SRA be liable on the basis that it shouldn't have granted a waiver to allow a firm to effectively practise uninsured?
Quinn
Why is there no updated guidance on the SRA's website? Surely the SRA should have planned for the possible appointment of full administrators and therefore been able to issue updated guidance immediately this occurred. At the time of posting this comment, the guidance on the SRA's website remains that dated 30 March 2010.
Oh dear! Real decisions are
Oh dear! Real decisions are going to have to be made by the SRA and the Law Society.
Yet again the "leaders" of the profession have totally messed up its insurance situation. They obviously didn't realise that insurers as well as Banks can go down-welcome to the real; world.
I have no doubt that the SRA
I have no doubt that the SRA would not allow a firm to practise uninsured. But the SRA has to date seemed content to rely on comfort statements from the Irish Regulator (see Mr Hudson's letter to the Gazette, quoted above); and one of the latest press reports (www.rte.ie) indicates that the administrators will be issuing a report within the next month.
As regard high-risk strategies, there may be a school of thought which says that the SRA has been pursuing such a strategy by allowing Quinn to remain a qualifying insurer despite its:
(i) having had no Moody's credit rating since July 2008 (its rating having previously been Baa2: "Adequate financial security. However, certain protective elements may be lacking or may be characteristically unreliable over any great length of time.");
(ii) having been removed from the RICS's list of insurers in July 2008;
(iii) having been fined 3.25 million euros by the Irish Financial Regulator in October 2008, following the Regulator's having reasonable cause to suspect Quinn of contravening "obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies" (see the press release dated 24 October 2008 on the website of the Regulator); and
(iv) having issued a Part 8 claim against the Law Society in mid-2009, seeking disclosure of documents held by the Society following its intervention in a Quinn-insured firm, in what Peter Smith J described as " an attempt to obtain material as against its insured so as to enable it if possible to refuse indemnity" ([2009] EWHC 2588 (Ch)]).
The SRA's response to such a school of thought would presumably be to repeat that it does not regulate or vet insurers; but I am not aware of anything in the Solicitors Act 1974 (or the rules made under it) which obliges the SRA to accept an insurer simply because the insurer holds the relevant authorisations and is prepared to sign a qualifying insurer's agreement.
Law Society's Statement
The statement which has today appeared on the Law Society's website indicates that the Society is not sure whether an Insolvency Event has occurred. It appears that the Society is not clear whether an administration in Ireland is "analogous to" an administration in England and Wales, within the definition of "Insolvency Event" within the 2009 Rules.
One might have thought that an administration order obtained by the relevant Financial Regulator, as a result of the Regulator's concerns over the insurer's ability to meets its obligations to policyholders, is very clearly an Insolvency Event within the meaning of the 2009 Rules. The Society's attempt to suggest that this might not be an Insolvency Event - because it is a regulatory intervention aimed at maintaining the business as a going concern - is odd. Maintaining the business as a going concern is one of the standard aims of an administration occurring in England and Wales; and the fact that the administration order was obtained by a regulator can scarcely be said to mean that the administration is less worrying than an administration instigated by someone who is not an regulator.
It is difficult to resist the conclusion that the Society is trying to persuade itself that no Insolvency Event has occurred, thus avoiding a situation in which almost 3,000 practices must within the next four weeks (i) arrange alternative cover, (ii) apply to enter the ARP, or (iii) apply for a waiver/extension of time under Rule 19. Contrary to the statement issued by the Society today, waivers are not granted by the SRA: Rule 19 makes clear that the power to grant waivers is vested in the Council of the Law Society. Thus, the Society cannot simply leave it to the SRA to deal with this issue.
Time for reflection
Tim, your analysis may well be correct - we shall see. However, we are only a few hours on from significant and perhaps unexpected events that happened in another jurisdiction. You may well seek some immediate reaction from the Law Society, but others, including myself are happy to await guidance from the Law Society that is reflective, considered and not rushed. The world has not come crashing down - the urgency you seek is simply not necessary. You almost seem to be enjoying the situation. Calm down dear - its only an insolvency. Get a good nights sleep and we will assess the situation in the morning.
Considered advice would not
Considered advice would not involve posting a statement on the website which demonstrates confusion over whether an Insolvency Event has occurred and a misunderstanding of who issues waivers under Rule 19, Andrew.
If only there were something good on TV.
Not that clear surely?
You assert that an insolvency event has occurred, and you may well be correct; but lets not rush to celebrate the consequences. But of course, the situation is not in fact clear cut, see for example http://www.bailii.org/ew/cases/EWHC/TCC/2009/1603.html for a different take on the situation. It is notable that there is, to my knowledge, no case on direct point here.
I will give you the waiver point, but it is not really relevant to the important issues at stake here.
I am not saying you are wrong. However, I am defending the proper wish of the Law Society to make sure it is right before making critically important decisions. Time, maybe you are so very clever and correct, and maybe all of us should be able to achive such clarity in your time frame. But, what is the rush?
Well, Andrew, there may be no
Well, Andrew, there may be no rush, but one would have hoped that those who are paid to look after these matters would have anticipated the eventuality. They should therefore have had something cogent to say. They designed the system but appear not to have understood its consequences.
It is extremely likely that the result will be "every man for himself" and "nothing to do with me , guv".
Well, Andrew, there may be no
Well, Andrew, there may be no rush, but one would have hoped that those who are paid to look after these matters would have anticipated the eventuality. They should therefore have had something cogent to say. They designed the system but appear not to have understood its consequences.
It is extremely likely that the result will be "every man for himself" and "nothing to do with me , guv".