Changing the law may not make the slightest bit of difference to the availability of insurance.
This is a week in which a large number of law firms may eventually be forced out of business because of inability to find professional indemnity insurance (PII). It is strange that, although we are jealous of our independence, and will not allow governments or anyone else to decide who should be a lawyer, we have handed over to the insurance market the ability in certain circumstances to decide which lawyers should be allowed to practise. This is a necessary consequence of the decision that, while PII is compulsory, its award does not take place in England and Wales through a fund run by our professional body, but is handled by the private market.
Insurance is in any case on my mind because of a conference in Brussels on Monday 28 October, devoted to evaluating the free movement legislation for lawyers across the EU, at which the problems of cross-border PII are also on the agenda. The cross-border variety raises similar issues to the domestic type, but other questions also arise: principally, is there anything lawyers can do about the alleged difficulties? Or are they caused by the fact that the insurance sector does not provide adequate cross-border cover, through fear of risk, or ignorance of what is involved?
The European Commission published a report about the working of the lawyers’ cross-border legislation some months ago. It found that around a third of lawyers establishing themselves permanently abroad experienced difficulties related to PII, often resulting in the need to take out multiple insurance. (However, the report’s data and methodology have been subject to some criticism.) It also found that, whereas the directive dealing with permanent establishment in another member state covered the insurance question, the directive for the regime of temporary services in another member state did not – and it recommended, accordingly, that a requirement be introduced in the Lawyers Services’ Directive (77/249/EEC) that when a lawyer renders temporary cross-border services this must be covered by home country insurance.
Without expressing an opinion at this stage on the principle behind the recommendation, does changing the law make the slightest bit of difference to the availability of insurance? If insurers cannot assess the risk of lawyers practising outside their own jurisdiction, or are unwilling to assume the risk, they will not provide cover. Once again, the private insurance market will be in charge of saying who can and cannot practise, this time in another jurisdiction.
In any case, there are various questions which need to be looked at before any such solution can even be considered. The amount of obligatory cover that a lawyer must take out varies from country to country (as does the cost of that cover, too). This could raise problems if the home insurance is low and becomes mandatory abroad, for instance in the City of London where claims can amount to many millions. The basis of the insurance might be different, too: some member states opt for the ‘claims made’ basis, others for the ‘acts occurred’. Small bars especially have difficulty assessing what kind of insurance an incoming lawyer might possess – the language can be different, the basis for the insurance might be unfamiliar – and do not have the resources to investigate deeply. Tailor-made top-up cover is difficult to find, as a result of which lawyers might take out double insurance. Some bars run mandatory PII schemes, where the premium is already covered in the registration fee, regardless of whether the incoming lawyer has existing insurance.
The principal task is to disentangle within these complex issues the role of the bar, and the role of the insurance industry. Whatever difficulties may exist cannot even begin to be dealt with without the willing participation of the insurance industry, since it has to be ready for its members to offer EU-wide insurance cover (for temporary services) to all lawyers in Europe. After that, it needs to discuss the terms on which such cover would be provided.
My organisation, the Council of Bars and Law Societies of Europe, has already undertaken much work in the PII field: ‘Minimum Standards for European Lawyers’ Professional Indemnity Insurance’, for instance, and a possible coverage where different terms of insurance apply (‘Terms of Difference in Conditions Cover’), plus a translation of various insurance terms in English, French and Dutch.
The order of events from now on should be this: first, an examination on whether there are real cross-border problems at stake at all, since that is not yet clear; next, a dialogue with the insurance industry over its role. It is only at that stage that solutions can be contemplated. I hope that they will not result in the insurance industry deciding who can or cannot practise cross-border in the future.