The Council of the Law Society established a Professional Indemnity Insurance Task Force in November 2005 to conduct a fundamental review of the Society’s professional indemnity insurance regime. The task force proposed new regulations governing the minimum terms and conditions of professional indemnity insurance for solicitors, which have been approved by the Council and come into operation on 1 November 2007.

The task force has taken expert insurance advice to ensure that the new regulations accommodate the commercial reality and workings of the insurance market. Over the last year, insurers competed vigorously for business with advance knowledge of the proposed changes, and this is not expected to change.

The Main Changes Are:

1) Firms rather than individual solicitors will be covered;

2) Firms can agree any level of self-insured excess with the insurer. In the event of a claim, where the firm does not pay the amount of the excess to the client, it is paid by the insurer and then recovered from the firm;

3) There will be a uniform renewal date of 1 December from 2008 onwards;

4) The defence costs of the solicitors for the insurer for dealing with a claim will no longer be limited. Such costs had been limited to €130,000, but will now simply form part of the overall cover provided without any limit;

5) Run-off cover will be for a sixyear period, rather than two years as at present, and must be provided automatically by the last insurer, with the run-off cover premium terms for each year being set out in quotations and renewal notices for the normal cover. (Run-off cover is coverage that includes the minimum terms and conditions for a firm that has ceased to carry on practice where there is no succeeding practice.);

6) Insurers cannot repudiate a policy on any grounds, including fraud or misrepresentation. They must cover claims but may pursue the firm subsequently;

7) Statutory compensation or restitution to clients, such as may be ordered by the Solicitors Disciplinary Tribunal, will be covered;

8) Any firm that, for whatever reason, fails to have insurance will be covered by the assigned risks pool for €2,500,000 (the current minimum level of cover) for each and every claim rather than that amount in aggregate for all claims. If a firm enters the assigned risks pool by default (having failed to arrange insurance), the firm can be pursued directly by the assigned risks pool if any claims are made. (The assigned risks pool is the pooling arrangement participated in by each qualified insurer through which firms not covered by the market may be granted coverage that incorporates the minimum terms and conditions.);

9) Insurers are currently members of the Professional Indemnity Insurance Committee. They will now be represented on a separate Qualified Insurers Liaison Committee to avoid a conflict of interest.

The Benefits for Clients Are:

1) Situations whereby clients do not have access to professional indemnity insurance cover will be prevented;

2) Clients will be automatically covered for a six-year period after a solicitor ceases practice, rather than two years as at present;

3) Statutory compensation or restitution to clients will be covered;

4) Where the assigned risks pool covers a firm, each claim will have its own limit of €2,500,000.

The Benefits for Solicitors Are:

1) The insurance of firms rather than individual solicitors will simplify renewal particularly for those who might be moving firm;

2) Firms can negotiate the level of their own self-insured excess;

3) There will be no limit on defence costs; and

4) Firms are assured that their clients will be covered by insurance in situations where previously there was a risk of no cover.

The attention of all practising solicitors is particularly drawn to the following practical considerations:

• Cover must be renewed with effect from 1 December each year from 2008, and this date will not be negotiable. New practices should obtain cover from the date of commencement to 30 November. During the transitional period, firms due to renew cover on 1 November 2007 should renew cover for a 13-month period to 30 November 2008, and firms due to renew cover on 1 January 2008 should renew cover for an 11-month period to 30 November 2008;
• Confirmation of cover in designated form must be furnished to the Law Society within ten working days after the due date for renewal each year. During the transitional period, firms due to renew cover on 1 November 2007 must confirm cover by 14 November 2007 and firms due to renew cover on 1 January 2008 must confirm cover by 15 January 2008, in both cases earlier than the previous deadline of 1 February. Normally, the broker provides confirmation of cover, but the obligation is on each firm to procure that this is done;
• Any firm that is unable to obtain cover in the market should, before the renewal date, apply to be admitted to the assigned risks pool. A proposal form should be obtained from the Law Society. The manager of the assigned risks pool will set an appropriate premium.;
• Any firm for which confirmation of cover is not received within the ten-working-day period and that has not applied, and been admitted, to the assigned risks pool will be classified as a ‘defaulting firm’. The assigned risks pool will automatically provide such firms with professional indemnity insurance cover as a defaulting firm. The manager of the assigned risks pool will set an appropriate premium, which is expected to be much higher than that available in the market. If claims should arise while a defaulting firm is being provided with cover by the assigned risks pool, such claims will be met by the assigned risks pool, but the assigned risks pool will then have recourse against the firm for recovery of the amount of the claim;
• It is expected that the Law Society will seek a High Court order compelling any defaulting firm, which does not regularise its position swiftly, to cease practice. Obviously, it is in the interests of all firms to avoid becoming a defaulting firm;
• Firms providing legal services relating to the laws of any other jurisdiction should note that the minimum terms and conditions do not cover legal services relating to the laws of other jurisdictions. They should therefore arrange to put additional cover in place if they consider it appropriate;
• Solicitors providing legal services solely outside the jurisdiction will not be required by the Law Society to have professional indemnity insurance cover in place
• Where a firm ceases practice and there is no succeeding practice, run-off cover for six years from the end of the then-current indemnity period must be provided by the last insurer. Sole principals are strongly recommended to consider and plan for the cost of run-off cover should it be triggered;
• The existing exemption for inhouse solicitors providing legal services only to their employer will continue to apply.

What Firms Should Do With Regard to the Renewal of Professional Indemnity Cover or Run-Off Cover:

• Firms should endeavour to renew their cover as early as possible for the coming year in order to ensure that the Law Society is provided with confirmation of cover within the required ten-working-day period;
• If a firm is deemed to be a defaulting firm, such a firm should endeavour to ensure that their cover, when renewed, is effective from the date of expiry of their previous cover, with a view to mitigating the adverse consequences of defaulting firm status;
• Firms, and in particular all sole principals intending to cease practise, should pay particular attention to the information relating to premium terms for run-off cover contained in quotations or renewal notices. All quotations and renewal notices are required to contain the following notice: Notice to proposers for insurance: you should be aware that by accepting a quotation and taking out a policy, this insurer becomes obliged, should your practice cease during this policy year without a successor practice, to provide run-off cover for a sixyear period at the premium rates calculated in accordance with the provisions of this policy. Consequently, you should ensure that the run-off premium terms are satisfactory to you before entering into a policy.

For further information, please refer to the Law Society’s website, www.lawsociety.ie, under ‘Society committees’, ‘Professional indemnity insurance’, for the designated form for confirmation of cover and 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.

John Elliot, Registrar of Solicitors and Director of Regulation