The Law Society is going to call on insurers to share liability for claims in the coming year on a fifty fifty basis rather than continue the scheme which is in place currently, which appears to penalise law firms unfairly.
The Law Society’s proposals were outlined in a draft response to a consultation initiated by the Solicitors Regulation Authority on changes to professional indemnity insurance which they are contemplating.
At present the scheme allows for law firms to pay the first ten million pounds in an indemnity claim with the insurers paying the next ten million pounds and so on until the claim reaches sixty million. After that point the insurers are liable for any further amounts. The scheme had been established when the majority of law firms were part of the ARP (assigned risk pool). Last year many fewer firms were in the pool and this drop is likely to be sustained in 2012 and going forward into 2013. At the same time the majority of claims do not exceed ten million pounds which would result in the law firms having to pay up all of the amount due.
The Law Society’s proposals would see any amount of liability up to sixty million pounds being shared on an equal basis between law firms and insurers with insurers picking up the tab past that threshold amount. This would still mean that with a particularly big indemnity insurance claim of say sixty million pounds law firms would be paying thirty million as their share but as the majority of cases are less than ten million would only be paying half of the amount rather than all of it as under the present arrangement.
After 2013 the ARP will no longer exist and the SRA is proposing that insurance firms will need to allow a thirty day extended indemnity period or EIP if the law firm that has had insurance up to that point cannot find insurance for the following indemnity period. The EIP would be extended by an additional sixty day period if the lack of insurance cover persists.