According to the calls received by the Law Society's practice advice service, the main concerns regarding the new indemnity arrangements relate to the position of retiring principals.Professional indemnity cover operates on a 'claims-made basis' rather than on an 'occurrence basis'.

This means that responsibility for paying a claim lies with the insurer at the time the claim is made against the firm - or circumstances which may give rise to a claim are notified - rather than with the insurer that was providing cover when the alleged negligent act or omission took place.

This is an important distinction between professional indemnity insurance and most other forms of insurance.So long as there is a single compulsory scheme with one insurer, as has been the case for the solicitors' profession since 1976, this distinction has been relatively unimportant.

In the future, with the introduction of choice for the profession, it will be crucial.Run-off coverThe solicitors' profession has not had to concern itself with cover post-retirement as run-off cover has been given to all those sole practitioners and partners who ceased to be principals.

It has been paid for by the practising profession and in this way the protection of the public has been maintained.This contrasts with the position in other professions which have become accustomed to the run-off problem.

For example, it is prudent for architects and accountants who retire from practice to ensure that cover is in place in the event of a claim being made after their retirement.New arrangementsWith effect from 1 September 2000, the current fund-based scheme will be replaced by one based on qualifying insurers.

One of the conditions of becoming a qualifying insurer is that an insurer must agree to provide cover which at least meets the minimum terms and conditions prescribed by the Law Society.

The liability of the deductibles in either case will still have to be considered.Under the proposed minimum terms, run-off cover for firms which close with no successor practice will last for six years from the date of expiry of the policy, rather than indefinitely as with the Solicitors Indemnity Fund (SIF).

It is proposed that the Law Society should make other arrangements to ensure that claims arising after six years are met without requiring retiring principals themselves to take out cover, although the position regarding deductibles still has to be considered.Under the new arrangements, a qualifying insurer will be providing cover not only in respect of claims made against the current practice but also in respect of claims made arising from any predecessor practice.

It should be noted that run-off cover will only become relevant once the chain of succession is broken.Under the new arrangements, run-off cover will only be relevant when a practice ceases with no successor, such as when a firm is wound-down and and all principals retire.

It is proposed that the qualifying insurer on cover as of the date the practice ceases will be liable to provide six years run-off cover from that date the date of expiry of the policy.What happens once the six-year run-off cover expires?Statistically there are few claims that first arise more than six years after a practice has ceased.

However, such claims do arise.

The Law Society intends to make other arrangements to make sure that claims arising after six years are met without requiring retired principals themselves to take out cover.What happens if a retired principal sets up in practice again?If a retired principal decides to become a principal again then if he does not do so by joining a firm which already has indemnity cover, then he will need to obtain fresh indemnity cover.Can a practice lock into the run-off cover by arranging for all the principals to retire before 31 August 2000?If the firm ceases to practise before 1 September 2000 without there being a successor practice (and the definition of successor practice is likely to be drawn widely) then it is proposed that run-off cover will be available under arrangements to be made by the Law Society.

If there is a successor practice, then claims arising after 31 August 2000 would be dealt with by the qualifying insurer providing cover for the successor practice at the relevant time.What is t he position if the firm becomes aware before 1 September 2000 of circumstances which could lead to a claim arising thereafter?If those circumstances are notified to the SIF before 1 September 2000, the fund will deal with the claim if and when it materialises.

If those circumstances are not notified to the SIF before 1 September 2000 the qualifying insurer which is providing cover when the claim is made will deal with it, but if that insurer can show that the circumstances could properly have been notified to the SIF before the insurer assumed the risk it could be entitled to recover the full amount of the claim from the firm.