This practice note repeats and confirms information already circulated to the managing partner or principal of each solicitor’s firm.

This practice note should be read in conjunction with the practice note published in the August/September 2007 issue of the Gazette (p57) regarding the new regulations governing the minimum terms and conditions of professional indemnity insurance for solicitors (SI 617 of 2007), which came into operation on 1 November 2007.

This practice note explains the professional indemnity insurance arrangements that apply to sole principals who cease practise on their own behalf, whether during the current transitional period when the old regulations remain in force in relation to run-off cover, or in the future when only the new regulations will be in force.

In this practice note, the expression ‘sole principal’ is used to describe both solicitors practising on their own and sole principals who employ one or more solicitors, and the expression ‘firm’ includes all sole principals.

‘Run-off cover’ is cover that includes the minimum terms and conditions for a firm that has ceased to carry on practise where there is no succeeding practice.

Why Run-Off Cover is Important

Professional indemnity insurance cover for solicitors is provided on a ‘claims made basis’ rather than an ‘occurrence basis’. This means that, if a claim is made, the relevant cover is that which is in place when a solicitor first becomes aware of a potential claim, and not the cover in place when the legal services in respect of which the claim arises were provided. Accordingly, it is necessary for a solicitor to have cover in place should claims be notified after the solicitor has ceased practise on his or her own behalf. This is in order to protect the solicitor, the solicitor’s estate and the solicitor’s former clients in the event of a claim arising.

The Old Regulations

The effect of the old professional indemnity insurance regulations (SI 312 of 1995, as amended) is that run-off cover must be obtained for a period of two years by all sole principals who cease private practise on their own behalf, for whatever reason, if their practice is not taken over by, or amalgamated with, another practice or, even if their practice is taken over, the practice taking over does not take over past liabilities in relation to any claims that might arise.

What Happens Now?

With regard to those sole principals ceasing practise on their own behalf prior to the end of the current practice year 2007, who are required by the old professional indemnity insurance regulations to obtain run-off cover, the following is the position.

1 November Renewal Date

A sole principal whose professional indemnity insurance cover was due for renewal on 1 November 2007, and who ceased practise on his or her own behalf on or before 31 October 2007, should have obtained run-off cover from a qualified insurer for at least a one-year period and, in due course, must obtain run-off cover for a further one-year period thereafter in order to comply with the old regulations. If a sole principal whose cover was due for renewal on 1 November 2007 ceases practise on his or her own behalf on or after 1 November 2007, such a solicitor should have renewed cover under the new professional indemnity insurance regulations. Therefore, where there is no succeeding practice, run-off cover for a six-year period will be included in the terms for renewal of their cover, at the premium for run-off cover calculated and payable (when run-off cover is triggered) in accordance with the provisions of the policy.

1 January Renewal Date

A sole principal whose professional indemnity insurance cover is due for renewal on 1 January 2008, and who ceases practise on his or her own behalf on or before 31 December 2007, must obtain run-off cover from a qualified insurer for two years in total in order to comply with the old regulations. If a sole principal whose cover is due for renewal on 1 January 2008 ceases practise on his or her own behalf on or after 1 January 2008, such a solicitor should have renewed cover under the new professional indemnity insurance regulations. Therefore, where there is no succeeding practice, run-off cover for a six-year period will be included in the terms for renewal of their cover, at the premium for run-off cover calculated and payable (when run-off cover is triggered) in accordance with the provisions of the policy.

Run-Off Cover Premiums Under the New Regulations

Under the new professional indemnity insurance regulations, premium terms for runoff cover will be set out in quotations and renewal notices for professional indemnity insurance cover each year. All quotations and renewal notices are required to contain a notice to advise firms that, by accepting a quotation and taking out a policy, the insurer becomes obliged, should the practice cease during the policy year without a successor practice, to provide run-off cover for a six-year period at the premium rates calculated in accordance with the provisions of the policy and, conse quently, firms should ensure that the run-off premium terms are satisfactory before entering into a policy. Sole principals are strongly recommended to consider and plan for the cost of run-off cover should it be required. All sole principals intending to cease practise on their own behalf should pay particular attention to the information relating to premium terms for run-off cover contained in quotations or renewal notices.

Recommendation to Obtain Six-Year Run-Off Cover

The Law Society recommends that solicitors who are required to obtain run-off cover for only a two-year period should seek run-off cover for a six-year period rather than a two-year period, as claims can arise after a two-year period, which could leave them and their former clients with an exposure, as there would be no cover in place to cover any such claims.

Further Information

Please refer to the Law Society’s website, under ‘Society committees’, ‘Professional indemnity insurance’, for the full text of the new professional indemnity insurance regulations. Any queries relating to the professional indemnity insurance regulations should be addressed to the Law Society executive responsible for professional indemnity insurance, Rosemary Fallon, at 01 672 4856 or r.fallon@lawsociety.ie.