After 30 September 2022, the Solicitors Indemnity Fund (SIF) will no longer accept new claims. In order to protect yourself from possible future claims, you should understand what this means for your firm.
What happened
After both the SRA and SIF were assured that the extension was affordable, the Solicitors Regulation Authority (SRA) has confirmed its decision to extend SIF for a further 12 months.
In an attempt to find a more workable alternative to SIF, the SRA plans to conduct a consultation later this year. It is likely that the official consultation will begin in autumn and, ahead of that, the SRA is discussing options with wider stakeholders.
SIF explained
In England and Wales, solicitors were originally covered by SIF, which was a statutory fund.
Following the profession’s vote to move from its statutory fund system to purchasing PII on the open market, a portion of the SIF was retained to provide coverage to firms that had closed by that point. Later the fund was extended to include other closed firms once their mandatory six-year runoff cover had expired.
How the closure of SIF affects solicitors
For a law firm to be protected from any civil claims that may arise due to negligence after it closes, run-off coverage must be purchased. The run-off cover is included in the firm’s professional indemnity insurance (PII) and lasts for six years.
Supplementary run-off cover
The coverage provided by SIF after this six-year period is called supplementary run-off cover, and it is offered by indemnity, at no additional cost to the former principals of a closed firm. This cover will expire on 30 September 2022 for firms that have closed after 1 September 2000.
If no alternative arrangement is made, former principals of firms that closed since September 2000, their estates, and even individual employees, may be personally liable for any losses incurred.
Why it is necessary
Nearly 11% of claims are received after the mandatory runoff period has ended. The majority of late claims occur between six and fifteen years after a firm has closed.
There is a significantly increased risk for certain types of legal work after the six-year run-off period. These include, but are not limited to, conveyancing, wills and trusts, personal injury in Minors and matrimonial.
What should firms do
Depending on whether or when a practice where you were a principal or employee closed, SIF’s closure may impact you differently. Thus, there is no single solution that fits the whole profession and choosing what to do will involve taking into account your level of risk exposure.
Paying run-off premium
When closing a law firm in an orderly manner, solicitors have always been required to pay for their mandatory run-off coverage.
Even so, there is a significant minority of firms that close without finding a successor without paying the necessary amount. Because participating insurers are required to provide this cover regardless of whether firms pay for it or not, this has serious consequences for the industry. Therefore, the profession as a whole ends up paying higher premiums for their PII, and it strains the relationship between the Professional Insurers and the SRA.
For any firm seeking post-six-year runoff coverage (PSYROC), we anticipate that an orderly closure, along with payment of the run-off premium, will be essential in the future.
What should PSYROC include
Supplemental run-off cover is not required to meet the SRA’s minimum terms and conditions, so you may still be able to access less comprehensive coverage as long as it meets your needs.
In most cases, this coverage will be for a year, and its duration will depend on the type of work that your company is involved in.
If you add nine (or 10) more years to your six-year run-off period, most claims will be protected since you are beyond the 15-year secondary limitation period.
Nevertheless, some claims may still be valid over 15 years after the work was completed. This is especially true of claims involving residential properties, estates, trusts, and child personal injury.
There may be some low-risk areas of work that do not require additional coverage once the runoff period has ended. Tolerable risk should be determined by taking into account your liabilities.
Improve your chances of securing PSYROC
If you can demonstrate that you work in low risk areas and have a sound risk management system, you will have a better chance of obtaining ongoing coverage. Also being able to prove you have a good claims history and regulatory history is helpful.
It is advisable to request copies of your last three proposals from your former insurers if you do not have previous indemnity records and gather, as soon as possible, any pertinent papers that may still be available.
Here at Legal Ex Plus our team have vast experience in the field of business insurance and risk assessment. By applying our in-depth knowledge of professional services we are able to design innovative insurance programmes for each of our clients.
Don’t delay, call us today on 0800 180 4203 for expert advice and a free quote for cover tailored to your firm.