Retired solicitors say they are living in fear of historical negligence claims landing on their doorsteps, as the backstop for protecting them draws to a close.
The Solicitors Indemnity Fund is set to close from September – a move delayed by a year previously – as the safety net for claims against a firm dating past the six-year run-off date is whipped away.
After a law firm closes, run-off cover must be purchased to protect solicitors and their clients if a claim arises because of negligence. The SIF has been dubbed as a ‘sleep easy’ clause as it protects retired solicitors – or potentially their estates – from historical claims.
There are still concerns that no viable product has been made available for firms and solicitors to purchase supplementary cover. The Solicitors Regulation Authority, which took over administration of the fund from the Law Society, has no plans to do anything after September as it is no longer a regulatory issue.
'As things currently stand, after the closure of SIF, if a firm ceased trading without a successor practice and its run-off cover has expired, and the former principals haven’t made alternative arrangements, then any new claims will be uninsured,' Law Society of England and Wales president I. Stephanie Boyce said.
'Make no mistake, there is a significant risk of claims arising more than six years after firms cease operations, with data suggesting over 10% of claims are made outside the SRA’s mandatory run-off period.
'If you practised in areas such as conveyancing, wills and trusts, child personal injury settlements or matrimonial property, claims can occur decades after work was completed.'
The Law Society advises that firms that closed without successor practices after 31 August 2000 should consider their exposure and – if warranted – investigate the possibility of alternative cover. Replacement cover would not have to be on the SRA’s minimum terms
Boyce added: 'Given the adverse conditions that currently prevail in the insurance market, it is unfortunate that many firms will struggle to find an appropriate solution.
'Factors such as poor claims histories, having worked in areas with higher risk of late-arising claims, and especially not having paid your run-off premium, are all likely to preclude a realistic prospect of finding supplementary run-off cover on the open market.
'The Law Society is aware of these difficulties, and making every effort to find a workable alternative. However, the problems are serious, complicated, and difficult to overcome, especially because – as the representative body for the solicitor profession – we have no powers with regard to matters of indemnification.
'Members and former members should ready themselves for the possibility that no broad solution can be found.'
Several retired solicitors have contacted the Gazette, worried about their potential exposure to historical claims. One former practitioner said: ‘The consequence of this is that I may, willingly or unwillingly, be uninsured, which means that anyone who may have a claim against my former firm could be left without a means of redress.’
While most claims against firms are covered by the six years of run-off, around 11% of claims are made after the mandatory period, potentially leaving owners personally liable. The most common types of legal work exposed to historical claims are conveyancing, wills and trusts, and child personal injury.
In the more than 20 years since solicitors in England and Wales voted to move from a mutual system of professional indemnity insurance (PII) to a market-based model, the Solicitors Indemnity Fund (SIF) has provided supplementary run-off cover for firms that have closed, ensuring ongoing protection for clients, partners and staff once their mandatory six year run-off period has come to an end.
Frank Maher, a partner with north west firm Legal Risk, said retired solicitors are right to be concerned as SIF has continued to receive claims for firms whose six years run off has expired. He added: ‘I believe some are substantial and many involve trusts and estates where claims can come in many years later. So too can personal injury-related claims where the children or others under a disability are involved. It is worth bearing in mind that you can have large claims from low value work – I have seen a multi-million pound claim arise from a personal injury case which had been settled for £2,000, and a £3m claim from a £25,000 conveyancing transaction.’
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