Law firm insurance may well be something you and your practice take for granted. However, it’s worth taking a closer look.
A recent piece of research by law firm Leigh Day opened up a Pandora’s box of issues when it comes to law firm insurance. The firm commissioned IRN Research to survey and report on how law firms deal with regulatory and compliance matters.
Responses from 200 law firms to the survey yielded some eye-watering statistics. Less than 50% of firms had sufficient cover to give them a fighting chance when up against the SRA.
Management Liability Insurance.
The report states that many firms are walking a knife-edge. Their lack of management liability insurance (MLI) is at the core of this. Faced with investigation or prosecution by the regulator, this shortfall leaves many firms dangerously exposed.
MLI insurance covers the costs of expert assistance should intervention or prosecution by the SRA surface. That assistance can be very expensive.
Leigh Day’s experience.
It’s no coincidence that Leigh Day commissioned this report. Between 2014 and 2018, the firm successfully defended itself against an SRA investigation.
The case ended with the Solicitors Disciplinary Tribunal dismissing all allegations of professional misconduct. The High Court followed this up by throwing out the subsequent SRA appeal. However, the bottom line is not so much about justice being served as about costs incurred. The case cost millions of pounds to defend. Fortunately, Leigh Day had sufficient MLI cover in place to meet the costs.
Professional Indemnity Insurance is not enough!
Many believe PII covers all aspects of law firm insurance. The rules changed in 2010 and that is no longer the case. In spite of that change coming almost ten years ago, many in the profession remain blissfully unaware of it.
Whether you are a sole trader or a much larger firm, this shortfall in insurance cover leaves you dangerously exposed. The upshot is you could end up in a situation where you have to accept a sanction from the regulator. And, whether there is misconduct or not, you have to do so because you cannot afford the costs of defending yourself.
If you believe you have a shortfall in your insurance cover, check now.
Learn the lesson.
In a Q and A session with the Law Society Gazette, Leigh Day’s Managing Partner, Martyn Day commented:
“We took out directors’ and officers’ insurance. So, the big message I would pass out to the profession is check your insurance. If you are not insured for cover in relation to the regulator, then for god’s sake go out and get it tomorrow.”
“For me I feel that the human rights world in particular, and lawyers across the land, should go and check their insurance because normal PII does not cover this sort of work. If we had not taken out this other policy, we would have been knackered.”
The message is clear. When it comes to managing risk and compliance, most firms believe they are covered. Shame the regulator doesn’t insist that firms have MLI!