Amid deep concern throughout the profession, the Solicitors Regulation Authority has today announced the extension of the insurance backstop designed to protect the former owners of closed firms from historical claims.
The Solicitors Indemnity Fund (SIF) will remain open to new claims beyond September, after talks with the Law Society and wider profession, the regulator said. The Law Society, which had called for an extension, welcomed the announcement - but urged the SRA to act quickly in deciding what comes next.
The SRA said the extension, subject to an ’affordability test’, should mean that cover is in place for closed firms beyond their six-year run-off for professional indemnity claims. The fund’s closure, already postponed by a year in 2020, would have left many retired principals in fear of losing their life savings to claims against long-closed firms.
In its statement, the SRA conceded that the insurance market had hardened in recent months, meaning that individuals would be unlikely to secure affordable cover.
SRA board chair Anna Bradley said: ‘The board welcomes the keen interest that is now being shown by the profession and others in SIF. But it is disappointing that this came so late in the day and as a result is set against the backdrop of significant concerns about the future viability of SIF.
‘There is now limited time available to look at what are complex matters around whether there is, in principle, a regulatory place for post six-year run-off cover. We will need to give careful consideration to finding the right regulatory balance between consumer protection and issues of proportionality, affordability and the wider public interest.’
The SRA says the latest extension will allow for work to agree a long-term position on whether there is a place for post six-year cover in its regulatory arrangements.
Attention will now turn to reviewing comparable run-off cover arrangements, claims patterns, impact assessments and ultimately winding up the SIF.
The regulator said it will consult on its next steps, including alternative indemnity and discretionary uses for any residual surplus in the SIF, for example a hardship fund. The SIF had net assets of £22.48m at 31 October 2020, with around 200 cases ongoing.
Law Society president, I. Stephanie Boyce, said: 'We are pleased the SRA has heard the many reservations expressed by us and others about the closure of the SIF and has now removed the risk of imminent SIF closure at a time when no viable alternative is available.
'We have been raising our concerns with the SRA, the regulator for this issue, for more than three years. We are pleased they are now taking steps to find an effective solution and undertake the detailed analysis required to assess the future of post six-year cover.
'The SRA has accepted, as an important element of consumer protection, it is a problem that it, as regulator, must solve. But it is not enough simply to delay closure again in the hope that next year the commercial indemnity insurance market will change and fill the gap in consumer protection that SIF closure will create. The SRA must move quickly to publish its consultation on future options and put a plan in place.
'We urge the SRA to work hand in hand with the Law Society, the insurance industry and others to find a long-term solution to the problem of run-off indemnity cover. It needs to show imagination in looking at long-term solutions that provide proper levels of consumer protection and do not expose solicitors to ruinous claims or consumers to potentially lengthy and complex litigation.'