Des Hudson of the Law Society updates practitioners on the PII run-off scheme.
Earlier this year, the Law Society called on the Solicitors Regulation Authority to extend the current post six-year run-off cover scheme for professional indemnity insurance to 2020 so that retiring solicitors could have peace of mind from any claims arising after they have left the profession.
The current scheme was established in 2000 when the Solicitors Indemnity Fund (SIF) was closed and runs until 2017. However, this meant that post-six-years claims arising after 31 December 2011 are not covered by the scheme.
I am glad to say that our arguments were strong and the SRA has agreed to extend the run-off scheme to 2020. However, it is not all good news and we will continue to lobby on a key part of the SRA’s plans.
It may be helpful if I explain why we felt it important to press the SRA to extend cover and highlight what this means to the profession.
Run off cover under solicitors’ compulsory PII policy is provided by their insurer and lasts six years from the end of the indemnity period in which a firm ceases to practise. After that contractual cover expires, any further claims are currently dealt with by a scheme managed by SIF, and funded collectively by the entire profession. The SIF scheme was due to expire in 2017, but the Society, with the Law Society Council’s backing, urged the SRA to extend it for another three years, until 2020.
A three year extension might appear a random period. Why didn’t we call for a longer extension?
We felt that three years was advisable to give us time to work further on the details of any extension with the SRA and SIF regarding the extent of any future cover and how it will be funded. A limited extension gives breathing space to allow us to assess the availability of SIF reserves and in terms of predicting claims development. The SRA may also need to consult on any future levy that may be required from the profession in order to support an extension of cover.
The SRA saw the common-sense in our arguments and now the extension we called for on the profession’s behalf will give retiring solicitors some peace of mind in what are for many, uncertain times.
It means that those considering leaving private practice in the current climate can now make an informed decision over potential costs emerging from the risk of future claims. The availability of the SIF run off cover will be a key factor to consider in making that decision.
However, the SRA Board was not asked to even consider our proposal to cap the profession’s total liability at £10 million and introduce individual limits.
There is a risk to the profession in that a possible future levy could be imposed if there are insufficient SIF reserves to meet post six-year run-off claims. The Law Society sought to ensure that the profession was not unduly exposed and suggested a cap that would limit cover only in the event of abnormally high level of claims within the three year period. This was not put to the SRA Board.
This is a major concern for solicitors, which is why I am contacting the SRA further on this particular matter.
Other changes made by the SRA that we support include changes to the authorisation rules to withdraw authorisation at the end of 90 day EIP/cessation period, as well as the SRA’s decision to not introduce a notice period prior to the EIP. We considered the latter proposal impracticable. We have long lobbied for and supported the removal of the single renewal date. The SRA has announced it will introduce variable renewal from 1 October 2013, which we consider will result in greater flexibility in policy length, which may allow insurers and solicitors to work through issues without necessarily triggering the provisions of the EIP.
We also support the introduction of a requirement that insurers are transparent about their credit ratings (or lack of rating) for the 2012 renewal.
There remain some areas of the SRA’s decision that we oppose. All of our concerns, as well as changes we support are available on website
All of the SRA’s proposals are subject to approval by the Legal Services Board (LSB) of course.
I will update further on what our, the profession’s, next steps will be.