NOTICE TO ALL PRACTISING SOLICITORS:
PROFESSIONAL INDEMNITY INSURANCE REGULATIONS

The new regulations governing the minimum terms and conditions of professional indemnity insurance for solicitors came into operation on 1st November 2007.

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

• Cover must be renewed with effect from 1st December each year. This date is not negotiable. New practices should obtain cover from the date of commencement of practice to expire on 30th November. All existing cover expires on 30th November 2008.

• Confirmation of cover in designated form must be furnished to the Law Society within 10 working days after the due date for renewal each year. All firms must confirm cover by 15th December 2008. Normally the broker provides confirmation of cover, but the obligation is on each firm to ensure that this is done.

• Any firm that is unable to obtain cover in the market should, before expiry of its cover on 30th November 2008, apply to be admitted to the Assigned Risks Pool*. A proposal form can 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 10 working day period and which 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 will 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.

• The Law Society will seek a High Court order compelling any defaulting firm, which does not regularise its position very 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. Such firms 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 come into force.

• The exemption for in-house solicitors providing legal services only to their employer continues to apply.

What firms should do with regard to the renewal of professional indemnity 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 by 15th December 2008.

• If a firm is deemed to be a defaulting firm, such a firm should use its best endeavours to regularise its position very swiftly and should seek to ensure that its cover, when renewed, is effective from the date of expiry of its previous cover, with a view to mitigating the adverse consequences of defaulting firm status.

• Firms, and in particular all sole principals intending to cease practice, 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 SIX-YEAR 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.

By way of reminder, the main changes introduced by the new regulations are:

1. Firms rather than individual solicitors are covered.
2. Firms can agree any level of self-insured excess with their 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 is a uniform renewal date of 1st December.
4. The defence costs of the solicitors for the insurer for dealing with a claim are not limited. Such costs had been limited to €130,000 but now simply form part of the overall cover provided without any limit.
5. Run-off cover is for a six-year period rather than two years as previously 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.
6. Insurers cannot repudiate a policy on any grounds, including fraudulent 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, is covered.
8. Any firm that, for whatever reason, fails to have insurance is covered by the Assigned Risks Pool for €2,500,000 each and every claim (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.
9. Insurers who were formerly members of the Professional Indemnity Insurance Committee are 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 are prevented.
2. Clients are automatically covered for a six-year period after a solicitor ceases practice rather than two years as previously.
3. Statutory compensation or restitution to clients is covered.
4. Where the Assigned Risks Pool covers a firm, each claim has its own limit of €2,500,000.

The benefits for solicitors are:

1. The insurance of firms rather than individual solicitors simplifies renewal particularly for those who move firm.
2. Firms can negotiate the level of their own self-insured excess.
3. There is no limit on defence costs.
4. Firms are assured that their clients will be covered by insurance in situations where previously there was a risk of no cover.

For further information

Please refer to the Society Committees - Professional Indemnity Insurance web page for links to 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

*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.

**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.