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The Insurance Blues

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As I write this entry, there are only six days left for the c270 law firms who have failed to secure professional indemnity insurance cover at their renewal on 30 September. If they fail to secure insurance within the next six days, those firms will have to shut their doors to new work at the end of this month and after a further two months will have to cease to trade entirely.

How have we arrived at a situation where such a large number of firms face closure in these circumstances and don’t forget that these are not firms which face imminent closure because of their financial circumstances? There are a number of reasons: having a single date for renewal for all firms makes these kinds of bottlenecks more severe; an insurer has left the market entirely (indeed the market seems to shrink every year) and there has been a reduction in appetite for those firms which have one to four partners and which are exposed particularly to residential conveyancing.

Observers may say that this is simply the market operating as it should; if law firms were a good risk, then insurers would not hesitate to offer terms.  I have a degree of sympathy with that. In my view one of the reasons that residential conveyancing is so unattractive to insurers is because lawyers have allowed the price of this work to be driven down so far that many choose to use unqualified staff handling significant volumes of transactions leading to a proliferation of negligence claims. 

My concern is what will happen to the staff (and clients) of those of the 270 firms who do not secure insurance. The real problem here is the “successor practice” rule which means that if another law firm wished to take on one or more of these practices, they would have to bear all of the professional negligence claims for those firms (other than those which had already been notified to insurers). Given that insurers have already indicated this is a risk which is unattractive to them, the costs of doing so is likely to be prohibitive and the profession faces losing a significant number of firms, lawyers and their staff. I appreciate that clients need to be protected and if their lawyer has been negligent, they should be compensated, but requiring firms to take on the risk for matters which were beyond their control seems to me to go too far.

Posted: 28/10/2013 09:11:00
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Great post, thank for publishing.
08/11/2013 12:37:21
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