Clients expect their solicitor to have professional indemnity insurance (PII) cover against potential negligence claims. But what amount of cover should solicitors be required to have?
This question has sparked a lively debate after the Solicitors Regulation Authority (SRA) decided to reduce the required minimum from £2 million to £500,000 for any one claim.
The SRA says that the majority of professional negligence claims are currently below £500,000 so most clients would not be affected. But such a minimum amount of PII cover would surely be quite inadequate for the clients of any solicitor handling property conveyancing, especially in conveyancing in London and the South-East.
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As representatives of both consumer groups and the solicitors profession voice their opposition it must be questioned whether the planned rule-change is needed at all and whether it will produce any benefits.
The reasoning behind the proposal is that many smaller firms of solicitors do not handle conveyancing or other high-value work and therefore do not need to pay high premiums for an unnecessary level of cover. If they were able to save money on insurance premiums the benefits could be passed on to clients.
It could also enable smaller firms to remain in business – at present many solicitors provide an invaluable service giving advice to disadvantaged people on such legal areas as immigration, consumer law and landlord & tenant. If such firms cease to exist then fewer people will have access to legal services.
Reduced professional indemnity is cover intended to benefit consumers – but will it?
The SRA's decision was therefore intended to benefit consumers as much as solicitors. But it is doubtful whether consumers will really benefit in the long term.
At present the new rules still await approval from the Legal Services Board (LSB), which is responsible for the regulation of all legal professions. The LSB has received strong representations against the proposals from groups representing consumers as well as lawyers.
Elisabeth Davies, chair of the Legal Services Consumer Panel (LSCP) described the proposed rule change as ‘disappointing’. “We are not convinced this course of action will lower prices for consumers” she said. “In fact it might mean consumers will lose the current level of protection without gaining anything in return.”
The LSCP had previously suggested that solicitors should be required to inform prospective clients of the amount of their PII cover. However the SRA did not incorporate that proposal in their rule changes.
Commenting on this the LSCP said “The SRA is right to say that consumers currently do not make choices based on levels of cover, or that they don’t check such cover, but this is the very reason why we consider solicitors should be required to inform clients when they are not protected. The SRA’s proposals as they stand would transfer risk to the consumer, but without helping the consumer to mitigate such risk.”
Under the new SRA rules there will be a mandatory requirement for all solicitors to take out minimum PII cover of £500,000. But there is also a requirement on all firms to ensure they have an “appropriate” level of indemnity insurance cover, so firms dealing with higher-value work would have to have more cover.
Even the Law Society opposes the planned reduction
The Law Society, which represents the views of solicitors, has come out against the rule change. The Society thinks that it would not only present difficulties to firms in deciding what level of cover they should have but will also undermine public confidence in the profession as a whole.
Many individual solicitors have also written to the Legal Services Board expressing their concerns. Typical of the views is the following comment “As a firm that carries out conveyancing, we are very concerned that the suggested reduction in cover will impact negatively, on us, thousands of firms like ours and the general public.”
Lenders and Insurers say the change won't achieve its objective
Both the Council of Mortgage Lenders and the Building Societies Association, which represent most mortgage lenders, have opposed the changes.
They point out that lenders are unlikely to be willing to instruct solicitors who only have the minimum level of cover. That will lead to lenders reducing the size of their solicitors panels, and consequently to a reduction in choice for consumers – the very opposite of what the SRA is trying to achieve.
The insurance industry has indicated that even if the rule change is approved any reductions in premiums may not be that much. Insurers will continue to look at a solicitor's claims history and risk exposure when deciding on insurance premiums. So firms which are seen as a high risk would continue to pay higher premiums even if they opted for lower cover.
It is a pity that the SRA ever decided to try and introduce this rule change. There does not seem to have been any great demand for it from solicitors and it has stirred up a lot of adverse comment from consumers.
Final decision on rule change now postponed to October
Originally the LSB should have decided whether or not to agree the proposed change by mid-August. That would have enabled the changes to take effect from the beginning of October.
However the LSB have just announced that the period in which it will announce its decision is to be extended to mid-October, due to the complexity of issues raised in the application and the additional time required to assess it.
Given the extent of the opposition there must now be a strong likelihood that the rule change will be rejected. Until a decision has been announced the debate will go on, and the time extension will give more time for other organisations and individuals to put forward their views.