The Law Society Council will next week decide what to do with a £54 million surplus generated by the Solicitors Indemnity Fund (SIF).

The SIF's annual report, published this week, says its financial position should now allow it to deal with the remainder of the run-off of the fund - which closed in 2000 - 'with minimal financial exposure to the profession'.


Chairman Paul Marsh said the SIF is to put in place substantial reinsurance to cover any future adverse developments. 'This will achieve practical finality for the profession,' he said. The SIF will then release some of the surplus back to the Law Society.


Though commonly referred to as a mutual, the SIF is a statutory fund, and so contributors do not have any legal entitlement to the surplus, which belongs to the Society. A spokeswoman said a working party chaired by Deputy Vice-President Fiona Woolf will put 'a number of options' for using the surplus to the council next week.


Under the Solicitors Indemnity Rules, the Society must apply any surplus 'if and to the extent the Society considers it reasonably practicable for the purposes of providing indemnity in any other way... and otherwise for the overall benefit of the solicitors' profession in such a manner as it may decide'. The 'reasonable' qualification was added last year to avoid applying the surplus to a practical indemnity purpose that was not desirable or reasonable.


The surplus has emerged as law firms have paid off the £454 million shortfall in the fund discovered in 1997, which ultimately led to its demise and the profession entering the open market.


It took five of the expected seven years to pay off and so for the last two years, the contribution level has been set at nil.


The speed has been put down to several factors, including provision for Y2K claims that never came, and a sharp rise in protective reporting of potential claims back in 2000, a good number of which did not materialise. Mr Marsh said the fund had been right to be prudent.


The report shows that in the 15 years of the SIF's operation, it has so far paid out £2.8 billion on 83,282 claims. Conveyancing was the main culprit, causing 38,110 claims and £1.3 billion in payouts.