The Law Society has issued a series of warnings ahead of the closure of the Solicitors Indemnity Fund (SIF) on 30 September 2021 – a move that could leave former owners of law firms that shut in the past two decades liable for losses for any new claims.
In the more than 20 years since solicitors in England and Wales voted to move from a mutual system of professional indemnity insurance (PII) to a market-based model, the Solicitors Indemnity Fund (SIF) has provided supplementary run-off cover for firms that have closed, ensuring ongoing protection for clients, partners and staff once their mandatory six year run-off period has come to an end.
SIF was originally due to close to new claims from 30 September 2020, but the Law Society successfully lobbied the Solicitors Regulation Authority (SRA) to delay for a year. There are now less than six months until the new closure date.
“As things currently stand, after the closure of SIF, if a firm ceased trading without a successor practice and its run-off cover has expired, and the former principals haven’t made alternative arrangements, then any new claims will be uninsured,”
Law Society of England and Wales president I. Stephanie Boyce said.
“Make no mistake, there is a significant risk of claims arising more than six years after firms cease operations, with data suggesting over 10% of claims are made outside the SRA’s mandatory run-off period.
“If you practised in areas such as conveyancing, wills and trusts, child personal injury settlements or matrimonial property, claims can occur decades after work was completed.
“Our current advice is that firms that closed without successor practices after 31 August 2000 should consider their exposure and – if warranted – investigate the possibility of alternative cover.
“You may want to contact your broker to see if they can arrange replacement cover. This would not have to be on the SRA’s minimum terms, and less comprehensive cover may meet your needs.
“However, given the adverse conditions that currently prevail in the insurance market, it is unfortunate that many firms will struggle to find an appropriate solution.
“Factors such as poor claims histories, having worked in areas with higher risk of late-arising claims, and especially not having paid your run-off premium, are all likely to preclude a realistic prospect of finding supplementary run-off cover on the open market.
“The Law Society is aware of these difficulties, and making every effort to find a workable alternative. However, the problems are serious, complicated, and difficult to overcome, especially because – as the representative body for the solicitor profession – we have no powers with regard to matters of indemnification.
“Members and former members should ready themselves for the possibility that no broad solution can be found.
“If you have retired, or intend to retire, or if you were employed by a firm that has closed without a successor practice, then there is a possibility that you could find yourself personally liable for claims arising once the firm’s run-off cover has lapsed, and should prepare accordingly.”
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