Plan of action
From 1 September, solicitors' firms will have to make their own arrangements for professional indemnity cover.
Michael Mathews explains what steps should be taken
The new arrangements for professional indemnity insurance come into effect on 1 September 2000.
Are you preparing to negotiate cover? If not, there is no time to lose if you want to ensure that you make the best arrangements possible for your firm.In 1999, a majority of those who participated in the Law Society ballot voted not to continue with a compulsory statutory fund, but to move to the open market.
Solicitors can now purchase professional indemnity insurance cover from a number of qualifying insurers which have signed an agreement with the Society to provide cover on terms set out in the Solicitors Indemnity Insurance Rules.
One of the qualifying insurers, St Paul International, has entered a joint venture with the Society to provide cover through a managing general agency, which will be known as Solicitors Professional Insurance Ltd (SPIL) and which will utilise the existing infrastructure of the Solicitors Indemnity Fund (SIF).
Act now - do not ignore the changesDo not leave it until the last minute to make arrangements - prepare now.
Solicitors should ensure they have their new arrangements in place well in advance of 1 September, because if they cannot obtain indemnity cover through SPIL or another qualifying insurer, they will have to apply to go into the assigned risks pool.The premiums paid by firms in the assigned risks pool will be very high, and even higher if the firm does not apply to go into the pool before 1 September 2000.
Firms will only be able to remain within the assigned risks pool for a maximum of two years.
If after that time they are unable to obtain cover through SPIL or another qualifying insurer, the firm will have to close.The following is a brief checklist of what solicitors must consider.
A leaflet providing further general guidance will be sent to firms in July.Gather relevant informationSolicitors should collate a set of statistics concerning their firm, including the breakdown of gross-fee income between types of work, details of the firm's claims record with the Solicitors Indemnity Fund, the number of fee-earning staff and the average number of files handled in a year.
Firms should have a detailed explanation of previous claims experience and a list of previous practices if there have been mergers.
The SIF has sent practices details of their claims records.
Report circumstances which could give rise to a claimThe insurer with which a firm is negotiating might ask for a list of circumstances, of which the firm is aware, that could give rise to a claim.
The insurer may well require the firm to confirm that such circumstances have been notified to SIF.
If the firm does not notify the SIF of those circumstances by 31 August 2000, the fund will not indemnify the firm against claims.Know the minimum termsFirms should ensure that they are fully aware of the details of the compulsory minimum terms of cover.
These are set out in full on pages 28-40 of the Solicitors Indemnity Insurance Rules 2000.
A copy of the rules with commentary was sent to each firm in May.Review partnership deeds and succession arrangementsFirms should review their current partnership deeds - if there is one - to see whether arrangements for retiring partners concerning indemnity insurance are adequate and, in particular, that the deed covers the payment of excesses.
If a firm has transferred its practice to a successor, or is a transferee, the transfer agreement should deal with who is to be responsible for the payment of any excess.
Remember that exesses might increase under the new arrangements.BrokersStart investigating the market now.
SPIL will communicate with firms directly - that is, not through brokers - in a similar fashion to that used by the SIF.
Some qualifying insurers might also approach firms directly, but many will prefer to go through brokers.
Solicitors will probably receive approaches from insurance brokers offering to negotiate indemnity cover.
Carefully check the commission arrangements and ask for evidence of their experience in arranging professional indemnity insurance.
Consider appointing a broker on the basis of a fixed fee, with any commissions being paid to the firm.
Check out LexcelThe Law Society's Lexcel scheme is the only practice management quality standard specially tailored to the needs of solicitors.
Gaining Lexcel accreditation may help a firm to negotiate better terms with insurers.
Solicitors wishing to receive additional information about Lexcel, should telephone the Law Society practice management unit on 020 7320 5756.Further informationAs part of its indemnity awareness campaign, the Law Society will be sending solicitors' firms a general guidance leaflet explaining some of the situation in more detail.
There is much useful information - such as the list of qualifying insurers - on the Society's Web site (see below).
The full text of the Solicitors Indemnity Insurance Rules 2000 and guidance are also on the Web site.
Michael Mathews is chairman of the Law Society's indemnity task force
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