From 1 September 2000, choice in connection with the purchase of professional indemnity insurance will be available for the first time in more than 20 years.

Solicitors will no longer be required to purchase the first £1 million of indemnity insurance -- the compulsory cover -- by way of contributions to the Solicitors Indemnity Fund.As of 1 September, this insurance will be available from a number -- yet to be determined -- of qualifying insurers.

In order to be a qualifying insurer, the insurer must have entered into the necessary agreement with the Law Society and must provide the first £1 million of cover subject to the terms and conditions of that agreement.

In particular, each insurer must agree that: the cover it provides will comply with the minimum terms and conditions; it will participate in an assigned risks pool; and it will comply with any claims handling guidelines required by the Law Society.The compulsory cover for solicitors in private practice in England and Wales will have to be purchased from a qualifying insurer.

For this reason, all solicitors in private practice in England and Wales -- including those practising as multi-national partnerships -- will need to take care to purchase the required insurance from insurers that they know to be qualifying insurers.

Evidence that the appropriate insurance is in force effective 1 September will have to be provided to the Law Society.

This obligatory evidence of insurance can be provided by a broker or by the insurer itself but, in any case, the required insurance will have to be in force at 1 September or a solicitors' firm will find itself in the assigned risks pool by default.

Therefore, it is important to ensure that, whatever the option ultimately chosen, negotiations are complete and cover is in place by 1 September.A solicitors' firm will find itself in the assigned risks pool if:-- It is unable to secure indications for professional indemnity insurance from any of the qualifying insurers.-- It finds that the premium indications of the qualifying insurers are such that the assigned risks pool is the only affordable option.

The premiums that will be applicable in the assigned risks pool will almost certainly be higher than most firms wil l be able to accomplish in the commercial market.-- It has neglected to place appropriate insurance as of 1 September with a qualifying insurer.The minimum terms and conditions (as a minimum) must apply to the compulsory cover.

A firm may purchase a policy in respect of the compulsory cover that has terms broader than the minimum terms and conditions, but not narrower.It should also be emphasised that the mandatory nature of the minimum terms and conditions is applicable to the compulsory cover only.

If limits of cover beyond £1 million are purchased, a firm is free to negotiate different -- that is to say, narrower -- terms and some insurers may themselves impose restrictions on the upper limits of the cover.The minimum terms and conditions upon which the insurers must provide the compulsory cover will, broadly speaking, be modelled on those applicable under the Solicitors Indemnity Fund rules.The key features as currently proposed are that:-- indemnity must be provided to each Insured against civil liability to the extent that it arises from private legal practice in connection with the firm's practice.-- the insured must include without limitation: the firm and each service, administration, trustee or nominee company owned as at the date of occurrence of relevant circumstances by the firm or the principals of the firm.

The Insured must also include, each principal, each former principal and each person who becomes a principal during the period of insurance as well as each employee, each former employee and each person who becomes an employee during the period of insurance and the estate or legal representatives of any of these.An employee is any person employed or otherwise engaged in the firm's practice including without limitation as a solicitor, lawyer, trainee solicitor or lawyer, consultant, associate, locum tenens, office or clerical staff member or otherwise and also includes any person seconded to work in the firm's practice or seconded by the firm to work elsewhere.

The minimum terms and conditions do not require that the definition of employee include an independent contractor who provides services to the insured, for example, auditing, advisory or consulting services.

If cover for these persons is desired, it will need to be specifically negotiated with the relevant insurer.The firm means the partnership -- as constituted at the commencement of the period of insurance -- or recognised body which, or sole practitioner who, contracted with the insurer to provide the insurance.It also includes the partnership referred to as constituted from time to time whether prior to or during the period of insurance.

It has been determined that mandatory insurance under the minimum terms and conditions will only apply to the UK offices of a firm -- including multi-national partnerships -- but that overseas offices do not have to be Insured on this basis.Overseas offices are excluded from the new rules but remain covered by the Solicitors Overseas Practice Rules 1990, which require the extent or amount of insurance or indemnity against professional liabilities to be reasonable having regard to the various matters referred to in rule 17.Only civil liability arising from private legal practice in connection with the firms' practice is to be insured.

It is currently understood that the definition of private legal practice will include, without limitation, all of the professional services provided by the firm.

This would include acting as a personal representative, trustee, attorney, licensed insolvency practitioner or in any other role in conjunction with a practice.

It does not include, for example, a practice consisting only of providing professional services without remuneration for friends, relatives or companies wholly owned by the solicitors/registered lawyer's family, or registered charities.

If cover is required for any services not within the definition of private legal practice, this will need to be specifically negotiated with the relevant insurer.Defence costs in connection with claims or circumstances in respect of such liability and also in relation to any investigation, inquiry or disciplinary proceeding arising from circumstances first notified during the period of insurance must be covered in addition to the sum insured.

The insurers may -- and almost certainly will -- limit this to the same proportion that the sum insured bears to the total paid or payable to dispose of the claim.

By way of example, if a solicitor purchased a policy for £1 million only and suffered a £2 million claim, the insurance may be restricted to provide only 50% of the cover for the defence costs in connection with that claim.This is an example of a feature that could also be restricted at higher levels -- depending on the options chosen.The insurance must indemnify each insured against civil liability to the extent that it arises from private legal practice in connection with a prior practice.

That is to say, if one firm is a successor to another, its insurance must -- at least for the first £1 million -- provide cover for claims arising out of the prior practice to which the firm has 'succeeded'.Each principal, employee, service company, etc, of the prior practice must be covered, even if these have not become part of the successor firm, for example, where certain principals and employees have not joined the successor firm.One firm may be a successor to another in many ways.

Examples include: acquisition of a smaller firm, acquisition of the majority of the principals of another firm, acquisition of a sole practitioner, acquisition of the name, or the appearance of continuing the practice of, another firm.Likewise, if one firm is succeeded by another, the successor firm's insurance must indemnify the original firm's principals and employees as a prior practice.This is another example of a feature that may be restricted at the higher levels of cover.

The insurers may not be willing to provide -- and indeed many firms may not wish automatically to include -- cover for all of the principals and employees of so-called 'prior practices'.

They may wish to add cover -- excess of £1 million -- on a negotiated basis, rather than by default.The insurance must indemnify each Insured against any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman or any other regulatory authority to the same extent as it indemnifies the insured against civil liability.The limit must be at least £1 million and must be applicable to any one claim without aggregate.It is permitted for the insurance to provide that all claims against any one or more Insureds arising from the same act or omission or from a 'series of related' acts or omissions will be regarded as one claim for the purposes of both limit and excess.

A careful look at overall limits purchased would be wise, since this language will restrict the number of limits available to be paid by the insurance, by restricting the number of claims.The excess can be any size.

However, if an Insured fails to pay the claimant an amount within the excess, the claimant ma y give notice of the Insured's default to the insurer whereupon the insurer is liable to remedy the default on the Insured's behalf.

In this case the insurance may provide that any amount paid by the insurer to remedy such a default will erode the sum Insured.

However, this does mean that the insurers will be cautious about offering terms with large excess obligations the firms may be unable to meet.The excess must not apply to defence costs.

The excess will not normally reduce the limit of the insurer's liability except in the case of default.The insurer is not entitled to avoid or repudiate the insurance on any grounds whatsoever.

The insurer is not entitled to reduce or deny its liability under the insurance on any grounds whatsoever accept where allowed exclusions apply.The insurance cannot be cancelled other than if the firm's practice is merged into a successor practice provided that there is insurance complying with the minimum terms and conditions in force for the successor practice.The insurance must provide that the amounts payable by the insurer to indemnify an Insured against civil liability are payable to the claimant or at the claimant's direction.

The insurer is not entitled to set off against any such amount any payment due to it by the insured.The insurance must not provide that the liability of the insurer is reduced or excluded by reason of the existence or availability of any other insurance.

The exception to this is where the insured is entitled to be indemnified by Solicitors Indemnity Fund or under a primary professional indemnity insurance contract for a period earlier than the period of insurance.There will be an arbitration procedure for dispute resolution.The insurer will provide a defence on behalf of an insured who is alleged to have committed or condoned dishonesty or a fraudulent act or omission.

However, once the insured either admits or is found guilty of such dishonesty or fraudulent act or omission, the insurer may cease paying the costs and almost certainly will.The minimum terms and conditions must prevail -- unless the cover negotiated is broader.If a firm's practice ceases without a successor practice the insurance must provide six years of run off cover.

The insurer is entitled to charge for such run off cover and almost certainly will do so, either as part of the premium for the initial cover, or at the time of the cessation of the practice.Death or bodily injury can be excluded except that cover for liability for physiological injury or emotional distress arising from breach of duty in the performance of or failure to perform legal work must be covered.Destruction or physical loss of property may be excluded other than property in the care, custody or control of any Insured in connection with the firm's practice.

In addition, the insurance must nonetheless cover liability for such damage, destruction or loss which arises from breach of duty in the performance of or failure to perform legal work.Partnership disputes can be excluded.

Wrongful dismissal, repudiation or breach of an employment contract or arrangement, termination of a training contract, harassment, discrimination or like conduct can be excluded.Debts and trading liabilities can be excluded as can fines and penalties.

Fraud or dishonesty can be excluded, except that the insurance must cover all innocent Insureds and no dishonesty, act or omission may be imputed to a body corporate unless it was committed or condoned by all directors of that body corporate.Liability of any natural person in their capacity as a director or officer of a body corporate other than an Insured may be excluded.

However, the insurance must cover any liability of that person which arises from a breach of duty in the performance of or failure to perform legal work and the insurance must also cover all other Insureds against vicarious or joint liability.It is permitted that the insurance allow the insurer to seek reimbursement -- to the extent that it is just and equitable having a regard to the prejudice caused to the insurer by any non-disclosure, misrepresentation, breach of conditions, or dishonest or fraudulent act or omission.It is permitted for the insurance to provide that the insured will reimburse any unpaid excess and also any amount paid by the insurer which on the basis of the resolution of any coverage dispute, the insurer is not ultimately liable to pay.It is permitted for the insurance to require the firm to account to the insurer for any asset or entitlement of any person who committed or condoned any dishonesty or fraudulent act or omission provided that the firm is legally entitled to withhold that asset or entitlement from that person.The premium may be calculated on such basis as the insurer determines and the firm accepts.It is understood that the minimum terms and conditions applicable to the assigned risks pool cover will be the same as those applicable to any other policy of commercial insurance post 1 September 2000.It is also understood that the Law Society will be entitled to discipline insureds who, for example, do not pay their premiums or excesses to the Insurers within three months of request.

The Law Society will also require the qualifying insurers to inform them of situations where the insurer suspects fraud or dishonesty on the part of the insured and where the insurer wishes to take certain actions, such as the seeking of reimbursement -- in accordance with their rights under the minimum terms and conditions -- against the insured.The Law Society Council has approved the draft terms and contracts applicable in respect of the new regime.

The Master of the Rolls has given his final approval and insurers that wish to become qualifying insurers may now do so by signing the qualifying insurers' agreement in the approved form.From that time onwards, the profession will be able to pursue indications from a range of markets including, but not limited to, the St Paul Insurance Company programme.