Since the legal profession voted to demutualise – and to abolish the Solicitors Indemnity Fund (SIF) – there has been frantic activity in the insurance industry to secure part of the rumoured £250m worth of new premiums.

Law firms have been inundated with marketing information, free seminars and direct mail, all advertising the services of both insurers and brokers. Likewise, qualifying insurers have been pestered by law firms eager to handle their claims when they arrive.

In fact, the huge volume of information has led to confusion; precisely what it was designed to avoid. Many practitioners are working under the misapprehension that the new regime will automatically lead to lower premiums – this is not necessarily the case.

The next few weeks will see even more frantic activity, as quotes are sent out by insurers and they fight to entice the best risks with attractive premiums. Brokers will be looking for the best terms and conditions for their new clients.


Frenetic activity

The good news is that come September 1 all will be calm for 11 months, until the first round of renewals. Unfortunately, as anyone at SIF will tell you, the intervening months will be far from peaceful because of the large number of claims brought against the legal profession.

The way in which these claims are handled is an important factor in determining the level of profit for the new insurers – if claims can be settled cheaply and quickly, profits can be increased.

Many insurers and brokers have increased the size of their claims teams, with staff from SIF recruited to cope with the new skills required to deal with claims.

While the insurers have been gearing up for the new market, law firms have seen this as an opportunity to break into the legal work that flows from the claims. Until now that has been restricted to the few firms used by SIF.

No doubt there will be law firms entering the solicitors' claims arena for the first time, some of whom have excellent professional indemnity credentials. Nevertheless, they should pay attention to the following warnings as these will apply as much as to first-time insurers.

Claims against solicitors are different to those against other professionals and there are several reasons for this.

The first problem faced by the new entrants to the marketplace is that the insured solicitors, knowing the legal process as they do, are often difficult to persuade that there has been negligence. It is essential that, when dealing with these claims, you are fully aware of the law peculiar to the legal profession.

Over the past ten years, SIF has been the second largest supplier of legal services, spending more than any other organisation on legal fees save for the Legal Aid Board. In that time it has built up a large body of case law relating to the claims against the profession. Some law firms have been involved in the development of this area of the law, some haven't. As recently as July 20 this year, the House of Lords revolutionised the law relating to solicitors' and barristers' immunity from suit.

The main reason why there has been such a lot of money spent on claims against the legal profession is that solicitors undertake a wide range of activities, all of which can lead to claims.

These claims come from every area of practice, ranging from conveyancing to matrimonial, and from company commercial to criminal matters. Along the way, all types of claims have arisen.

Furthermore, solicitors often have multiple clients and, consequently, diverse obligations that must be reconciled. For example, acting in a civil case involves obligations to the client and to the court. In a conveyancing transaction, the solicitor usually acts for both the lender and borrower, which has in the past led to an abundance of claims. There are also certain areas, such as wasted costs and lenders' claims, that have built up a significant body of case law around them. Taking wasted costs as an example, the claim can be notified by a solicitor the day before the hearing to determine the level of costs. It is therefore imperative that correct advice is available immediately, without the need to research the case law or take a counsel's advice. A prompt response can save many thousands of pounds.


Reaping what you sow

It is not only the errors arising from the traditional legal services that give rise to claims, mistakes from financial services might also be covered and must be considered.

In all these areas in dealing with claims it is not possible to rely simply upon the appropriate expert on the question of liability. In say, a surveyor's case, the claims' handler can rely upon an expert to draw a conclusion on liability.

In a solicitor's case there is no need for expert evidence in the majority of cases. As a result the person dealing with the claim must make a decision on liability. That must then be “sold” to the negligent solicitor in a way that is palatable. This is not easy and the firms that have traditionally represented the profession have the trust of the insured in these matters.

The message then is clear – for all insurers looking to harvest part of this new crop of insureds (solicitors), be careful that some of it is not lost paying your lawyers to learn how to deal with claims.


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