Partners risk assets in face of premium hikes
Small legal firms are going without excess layers of professional indemnity (PI) cover, potentially risking their partners' personal assets.
Brokers and insurers have warned that some firms, unwilling or unable to pay for excess cover in the face of the hardest PI market in 15 years, are choosing to buy only the primary layer of cover.
It is compulsory for Law Society members to purchase £1m worth of principal cover, but many firms choose to buy more cover on top of that, with some large firms seeking hundreds of millions of pounds extra.
If damages over £1m were awarded against a firm without excess cover, partners would be personally liable for the excess.
Four Counties Insurance Brokers partner Mark George said he expected the last few days of August to be frantic, with brokers rushing to close terms with insurers before the 1 September deadline for solicitors' PI renewals.
"We're a little worried that some solicitors are either reducing their indemnity levels or not taking cover over the principal level," he said.
"They're used to dealing with other peoples' financial affairs, but when it comes to their own they can be a bit blasé. It's because they literally don't have the time."
George said small firms should start investigating finance options now, in case they find their premiums have risen too much to be paid in a lump sum.
St Paul spokesman Richard Gerrard said firms advising on mergers and acquisitions, banking activity and other complex financial arrangements should definitely buy excess cover. But he said many firms did not buy more than £1m because their areas of expertise were unlikely to incur large damages.
St Paul's biggest UK product is solicitor's PI.
The Law Society said a "small number of solicitors are either unable to obtain insurance on reasonable terms or fail to effect any insurance".
These solicitors, usually those who are in the middle of being taken over or who have a bad claims record, can access the society's assigned risks pool for a maximum of two years.