Risk management

Systems for notifying insurers of problemsWith professional indemnity insurance renewal rapidly approaching, now is the time to give careful thought to obligations to notify insurers of circumstances that may give rise to a claim.Many firms went to considerable lengths last August to trawl through all files to identify any such circumstances, and notified the Solicitors Indemnity Fund (SIF) before it closed its doors.

The SIF received 36,782 notifications for the year 1999/2000, compared to 11,279 for the 1998/1999 year.In the open market system, law firms are obliged to notify circumstances that may give rise to a claim, not merely to notify claims as the SIF required.

Failure to do so may have serious consequences for partners.

The firm should have a system in place to facilitate early notification and avoid potential problems.

When creating and implementing the system, consider:l Staff awareness.

Any member of staff is capable of making an error that may result in a claim.

Therefore, it is extremely important that they are made aware of the need to notify circumstances, however remote.

The ultimate decision to notify the insurers should be made by a partner.l Culture.

To facilitate this, the firm must have the right culture - where staff are able to notify partners of potential problems, without fear of recrimination or dismissal.

Such a culture must be balanced by the partners' approach to disciplining fee-earners for substandard work.

This may be difficult; we are all capable of making mistakes, but there is a difference between a well-intentioned error and ineptitude.l File Audits.

A useful risk management tool, regular file audits may identify potential problems with a fee earner.

An effective audit does not necessarily require every single file to be checked.

A small number, carefully selected, should give an accurate picture of the standard of work.

Look for files that appear to have been open for an inordinate length of time, where there has been no movement on the client ledger, or where no time costing has been recorded, again for a long period of time.

In some cases a full audit should be considered, for example, where a fee earner has resigned, or where a complaint or claim is made against a fee earner.l Circular.

Send a memo to all fee earners, on a regular basis (say, quarterly) asking them to advise of any potential circumstances.

Don't leave it to the last minute, when you are struggling to complete your proposal form with only days to go to renewal.l Complaints.

When dealing with any complaints under your complaints handling procedure (which complies with the Office for the Supervision of Solicitors requirements) check for any circumstances within the complaint which should be notified to your insurers.Finally, fee earners' obligations apply to partners too - no one should be exempt from compliance.l This column was prepared by the St.

Paul risk management team.