LAW SOCIETY GUIDANCE

The dos and don'ts of indemnity claims

This guidance - which has been approved by the Law Society's Standards Board on 26 February 2003 - has been issued to inform practitioners of changes which affect the way they should handle claims against their firms under the indemnity insurance regime.

The guidance also outlines how these changes affect the professional negligence pre-action protocol

The broad principles as to how a solicitor should handle negligence claims are set out in The Guide to the Professional Conduct of Solicitors, 1999, eighth edition, under principles 29.08 (claims handling - obligation to notify claims) and 29.09 (independent advice for clients).

The Solicitors' Indemnity Fund (SIF) also supplied guidance to solicitors on claims handling.

However, the guide and the SIF's guidance dealt with the situation before the introduction of the open market arrangements for indemnity insurance.

Therefore, this guidance reinterprets the

pre-existing conduct requirements, reflecting the new indemnity arrangements, and refers to the professional negligence pre-action protocol, which came into force on 16 July 2001.

It should be noted that claims made arising from circumstances notified to the SIF before

1 September 2000 will come under cover provided by the SIF.

The overall aim is to help ensure that when things may have gone wrong and a claim arises, the claim is dealt with fairly, speedily and efficiently.

Protection of the interests of the unrepresented claimant is particularly important.

Solicitors are reminded of their obligations under Law Society practice rule 15 to operate a complaints-handling procedure in accordance with the solicitors' costs information and client care code.

Solicitors should ensure that complaints are dealt with appropriately under that procedure, and are not inappropriately dealt with as claims.

For example, it would be inappropriate for a solicitor to treat a client's complaint which is relating purely to poor service as a claim.

Potential claims

If a solicitor discovers an act or omission which could give rise to a claim, the solicitor must inform the client of the position.

If a client makes a claim against a solicitor, or notifies an intention to do so, or if the solicitor discovers an act or omission which could give rise to a claim, the solicitor must inform the client that he should seek independent advice.

However, if the client's loss is trivial and the solicitor provides a remedy to that loss, the solicitor need not advise the client to seek independent advice.

There are then two separate issues for the solicitor to consider:

l Firstly, the solicitor must consider whether a conflict of interests has arisen.

In most cases where a claim is notified there is likely to be a conflict.

Where there is a conflict the solicitor must refuse to act further in the matter.

l Secondly, the solicitor must notify the qualifying insurer (or, if appropriate, the SIF) in accordance with the policy and

co-operate with the insurer or its agents to enable the claim to be dealt with appropriately.

However, a solicitor may need to take limited steps to preserve the client's position (having notified the qualifying insurer or, if appropriate, the SIF) and remedial action may be possible in certain circumstances.

A solicitor may consider that no conflict has arisen where immediate action can rectify the situation, so that no claim could then be made.

A typical example may be where a procedural time-limit has been missed and the solicitor agrees, or is granted, an extension of time.

However, even then the solicitor should consider whether the policy requires the insurer to be informed in such a case, and take great care not to take further steps in cases where the solicitor's personal interest in avoiding a claim may be seen to affect the duty to act in the best interests of the client.

Although there is no general duty for a solicitor to keep under review work which has been concluded, if he discovers an act or omission which could give rise to a claim relating to a former client, the solicitor should notify the qualifying insurer (or, if appropriate, the SIF) and seek advice on what steps to take.

A solicitors' firm is required by the Solicitors Indemnity Insurance Rules (rule 46) to provide details of its insurer to a person who asserts a claim against the firm.

Also, it is good practice for the firm to provide these details to a potential claimant if the firm discovers an act or omission which could give rise to a claim.

The details which the firm must supply are: the name and address of the qualifying insurer; and the policy number.

Note that the Society, if it considers it appropriate to do so, may reveal the identity of a firm's qualifying insurer to any person asserting a claim against that firm (Solicitors Indemnity Insurance Rules (rule 41)).

Conduct of claims

Claims handling is generally undertaken by the insurer, not by the solicitor, even if the claim is within the policy excess.

Therefore, solicitors should liaise with the insurer throughout any claim and, in particular, before making any admission of liability.

Quite apart from a solicitor's professional duty to behave fairly and the duty to comply with Society rules of conduct, solicitors and their insurers are also bound by the terms of the professional negligence pre-action protocol (details of which are available on the Internet at: www.lcd.gov.uk/ civil/procrules_fin/cprotfr.htm).

The aim of this protocol is to establish a framework in which there is an early exchange of information between parties, so that a claim can be fully investigated and, if possible, resolved without the need for litigation.

The framework includes the following points:

l Ensuring that the parties are on an equal footing;

l Saving expense;

l Dealing with dispute in ways which are proportionate to the amount of money involved, to the importance of the case, to the complexity of the issues, and to the financial position of each party, and;

l Ensuring that the claim is dealt with expeditiously and fairly.

The court can make an order for costs against a party for failure to comply with the protocol.

While normally it would be a matter for the insurer to ensure that the protocol is complied with, solicitors should be aware of it when they are asked to provide information to the insurer, and in the occasional circumstances where an insurer may agree to the solicitor handling the claim.

For further information on this guidance, contact the Professional Indemnity Section, The Law Society, Ipsley Court, Berrington Close, Redditch, Worcestershire B98 OTD; DX 19114 Redditch; tel: 01527 504487.