Law Society - special general meeting - indemnity insurance

Minutes of the special general meeting (SGM) of the members of the Law Society held at the Law Society's Hall, Chancery Lane, on Tuesday, 2 March 1999 at 2.30pm.The President Michael Mathews, was in the chair.

The chairman welcomed members to the meeting, confirmed that there were more than 50 members of the Law Society present in person and therefore declared a quorum.

The notice convening the meeting was taken as read.MinutesThe minutes of the annual general meeting held on 16 July 1998 had been published (see 1998 Gazette, 22 July, 32-34 and were taken as readIt was resolved that the President be authorised to sign the minutes as correct.Professional indemnity - the Council's decision of 2 March 1999The chairman explained to the meeting that earlier that day the Council had considered a number of options for the future of professional indemnity and had decided to continue with a compulsory mutual fund.Small firms - waiver from indemnity rules to permit approved insurance (resolution 3)Kevin Martin (Coventry), a Council member, on behalf of the proposers, requested the chairman to take first resolution 3 on the notice of the meeting.

The chairman agreed that this resolution could be taken first.

Mr Martin moved resolution 3 on the notice of the meeting which read:'That in the view of the meeting, the Solicitors Indemnity Rules 1998 and SIF Ltd's uncommercial and unreasonable claims loading policy are imposing an uncommercial and unreasonable burden on solicitors' firms of four partners or less ('the Group') which represents 83.9% of all solicitors' firms (Law Society figures as at 31.7.97).

In the view of the meeting, the Council is therefore currently endorsing a discriminatory and inequitable policy amongst its members which is unfairly forcing members of the Group out of business, and the Council has failed to deal with the issue of its insolvent Fund decisively or commercially and the matter continues to drag on unsatisfactorily while damage is being caused to a substantial number of the Society's members.

The meeting considers that the SIF Ltd is unable to provide competitive and commercial professional indemnity insurance for this Group.

The meeting therefore strongly urges that the Council allow those who so wish of this Group, which has negotiated its own professional indemnity insurance facility with an open market insurer, to take up their facility by granting the Group a waiver or exemption of the Solicitors Indemnity Rules 1998 or approve their facility insurer as an approved insurer.'Mr Martin then moved an amendment, the text of which had been handed round.

This had the effect of amending resolution 3 such that it read as follows: 'That the meeting calls upon the Council of the Law Society to take whatever steps may be necessary to allow those firms of solicitors who seek to do so the freedom of choice forthwith to obtain their professional indemnity insurance on the open market.'The amendment was necessary as the original motion had been framed in October 1998 since which time matters had moved on.

Earlier that day, the Council had voted 32 in favour, 29 against, for continuing with a compulsory mutual fund.

Great concern remained about remedying the problems for firms which were badly affected by the mutual scheme.

Many in the profession wished to obtain their cover through the market and the market was in a position to offer cover to the profession.

The possibility that the market might harden could be addressed by arranging three-year policies.

Aon, which had advised the Council, thought that the chances of the market hardening quickly were fairly unlikely.

In comparison to other professional bodies, solicitors were paying far more for their indemnity insurance and were constrained by a compulsory mutual scheme.

A decision was needed now, as further delay would mean that a longer period would elapse before a scheme of approved insurance could be introduced.Michael King (Oxford), a Council member, seconded the motion and the amendment saying that he was a passionate believer in choice and the profession need not be covered by a compulsory mutual scheme.

He also wished to see firms to remain in practice - the current arrangements would see firms go out of business.

There were advantageous premiums for cover in the market place.

The prospect of multi-disciplinary practices in the future needed to be taken into account.The chairman invited the meeting to indicate if it was content that the amendment should be accepted.

The meeting indicated by acclamation that the amendment should be passed.Sam Wilson (Ipswich), a Council member, indicated that he was speaking on behalf of the Council and reminded the meeting of the history of professional indemnity including the difficulties which had been experienced in the 1980s leading to the establishment of a compulsory mutual scheme.

The SIF had been in place since 1987 and had served the profession well.

Although the shortfall had arisen, it had to be remembered that had the assessment of contributions required been made accurately at the time, this would have been reflected in the level of contributions paid then.

In September 1998, the Council had indicated that it wanted to have choice alongside the continuation of a mutual.

In January 1999, Aon had presented a further option of a master policy operating alongside approved insurers.

Four options had been before the Council earlier that day: a compulsory mutual; a mutual fund with opt-out to approved insurers; a master policy with opt-out to approved insurers; and approved insurers only.

The debate had polarised between the option of a compulsory mutual and the option of a master policy with an opt-out to approved insurers.

Slightly fewer than half the Council members had spoken in the debate.

This had been a difficult choice and the voting had gone 32 to 29 in favour of the compulsory mutual.Mr Wilson reminded the meeting that cost was not the only consideration.

The cost of claims would always drive the cost of indemnity cover, but other factors to be borne in mind were: the availability of run-off cover, no avoidance for non-disclosure, continuity of cover, protection from the hard/soft cycle in the insurance market and control in the hands of the profession.

There had been many changes at the SIF since the shortfall had been discovered and the fund was doing its best within the constraints of the statutory fund.

Mr Wilson urged the meeting to vote against the resolution as to support it would continue uncertainty.Mr Barrie Gore (Kent) was not convinced that the public deserved or expected full pr otection given the level of cover given by other professional bodies to their members.

Under the SIF, claims experience had taken a long time to be taken account of.

It was questionable whether the SIF could improve in the future.

There seemed to be a rooted objection to outside insurance companies taking a view.

The Council had acted impertinently in debating the issue before the SGM.

While the Council did good work in other areas, indemnity insurance should be in the hands of the market.Tony Wilson reminded the meeting that recent governments and the EU, encouraged freedom of choice for consumers but this was not apparently allowed by the Council.

Claims loadings experienced by his firm meant that it would go out of business and much lower premiums were available on the open market.John Franks (west London), a former Council member, spoke on behalf of retired solicitors, those who were about to retire and those who were deceased.

If there was a move from cover through the SIF, this could lead to considerable exposure for those solicitors because continuity of cover might be withdrawn.

Furthermore, the market might no longer wish to cover those with poor claims' records.

Those who wished to opt for cover in the market might soon find they were in difficulties.

The Council needed to consider these points carefully.

The shortfall may have been overstated as it had been calculated by reference to the year in which the claim had been made rather than the year in which the event had occurred.

Also, it seemed likely that the worst claims' period was now past.

It was important that the Council did not take a precipitate decision on this issue.Holme Mainprice (London) informed the meeting that he had advised on the VAT position of the fund when it had been set up in 1985-86.

The previous week, the European Council had decided that such funds could no longer be free of VAT and this needed to be borne in mind for the future.

In areas of low risk work, solicitors should be able to insure themselves but should also be required to contribute to the cover for their fellows who did higher risk work.

The Council should look to providing a dual system of cover through mutual and approved insurers.Kenneth Byass (Loughborough), a Council member, related his own situation of having to face a claim for a personal omission on the sale of a property some 12 years previously.

The stress caused had only been bearable because he had had the assurance of continuous and comprehensive cover through the SIF.

His enquiries suggested that six years' past cover was the best likely on the open market and there was a likelihood of claims being repudiated for non-disclosure or late disclosure.Marcus Selman was in favour of choice and predicted that there was a build up of claims still to come through from poor conveyancing practices.

While insurance market conditions were favourable and the housing market was reasonably buoyant, the Society should take the opportunity to move to the market.Neil Jopson (Milton Keynes) looked to the Council to reach decisions and look after the profession.

Its decisions on indemnity proved that it ignored the profession, which bore out the findings of the customer focus survey of 1998.

The charter established the Society on the lines of a limited company and therefore the Council's deliberations were subject to the will of general meetings.

The SIF had been described as the 'Rolls-Royce' of the insurance funds - the profession could not afford a Rolls-Royce.Andrew Wilson (Derby), a Council member, said that it was the duty of the Council to approve an indemnity scheme which would obtain the concurrence of the Master of the Rolls and was in the public interest.

While his own firm would be better on the market, he was concerned about issues such as non-disclosure and run-off cover.

There was a risk to access to justice if firms went out of practice because of the market's decisions and he urged the meeting to reject the resolution.A retired member reflected on the real concern expressed in the profession when the compulsory insurance scheme had been introduced in the mid 1970s - these reservations are even stronger now.

The SIF was an expensive scheme that had failed.

The Society should specify the minimum level of insurance cover, the insurers who should be approved and the minimum requirements as to the terms.

Beyond that, the profession should be left to obtain the best terms it could in the market place even if this proved more expensive.Mark Sheldon (London), a past president and former Council member, asked the chairman whether the amended resolution would enable the Council, in taking account of the resolution to take forward one of the options which had been before the Council, ie that of a master policy with opt-out to approved insurers.The chairman indicated that if the resolution was passed, the Council would take it seriously but it was up to the proposers how it might be interpreted.

In the chairman's view, the arrangement of a master policy with opt-out to approved insurers was consistent with the terms of the amended resolution.Richard Ford (Marlborough), a Council member, indicated how his views had changed as the indemnity debate had developed over the past few months.

It was clear that the SIF had changed significantly bringing onto its board three senior figures from the insurance industry.

It was also clear that the only outgoings from the SIF were those caused by members of the profession.

The SIF had a tremendous reputation as provider of insurance and for its good claims settlement procedure.

The views of the Association of South Western Law Societies, the North Wiltshire Legal Association, the Gloucestershire and Wiltshire Law Society had been unanimous in that they all wished to see the SIF continue.

This groundswell of opinion had only emerged in February 1999.A member moved that the question now be put and this was duly seconded.

On taking a vote, the meeting voted in favour of the question being put by a considerable majority.Kevin Martin in responding to the debate reminded the meeting of the recent changes in the insurance market both European and global.

The profession should take advantage of the market, which wanted the business.

The SIF had failed in regard to its handling of claims arising in 1988-92 - could the profession be confident that it would do any better in the future? The main argument was about cost, which was prohibitive for a large number of firms under the compulsory mutual fund.

Run-off cover could be obtained in the market.

Aon had advised the Council that the market was unlikely to change significantly in the next six months.

While acknowledging the new regime at the SIF, it could not necessarily be relied on to avoid problems such as the shortfall in the future.

The public interest concerns could be met through cover in the market and the concurrence of the Master of the Rolls was not an insuperable problem.

Access to justice could be a problem under the current system as much as it might be in the market.

The SIF's good reputation in claims handling need not be sacrificed under an alternative system.The chairman then formally put to the meeting resolution 3, as amended.It was resolved on a show of hands by a large majority that the meeting calls upon the Law Society's Council to take whatever steps may be necessary to allow those firms of solicitors who seek to do so the freedom of choice forthwith to obtain their professional indemnity insurance on the open market.The chairman then said that because of the extremely important issue at stake, he considered the views of the members of the Society should be sought and therefore directed a postal vote on the resolution.Under bye-law 30(9), the Council had appointed Electoral Reform (Ballot Services) Limited as postal vote scrutineer to receive and examine the voting papers and to certify the results of the postal vote.

Bye-law 29(3A) provided that the chairman should fix the date to which the meeting, at the conclusion of the other business, should stand adjourned.

In all the circumstances, the chairman indicated the most convenient date for the adjourned meeting would be 12 May 1999 at 2.30pm.Neil Jopson indicated on behalf of the proposers of the resolutions, that he did not wish to move the other resolutions on the notice of the meeting, namely those numbered 1, 2, 4, 5 and 6.

Leslie Dubow (Cuffley), asked to speak to at least two of the resolutions but the chairman indicated that as they had not been moved, there were no motions to speak to.After asking if any member whose name appeared on the requisition for the meeting wished to move any of the other resolutions and receiving no response, the chairman indicated that the business of the meeting stood adjourned until 12 May 1999 at 2.30pm when the only business to be transacted would be to receive the result of the postal vote.

The chairman thanked members for attending and declared the meeting adjourned at 3.52 pm.