Written by: Griffiths & Armour on: 31 May 2024
Why do Solicitors need Professional Indemnity Insurance?
Professional indemnity (PI) insurance is designed to protect solicitors, barristers, and legal executives from claims made against them arising from advice given or any actions taken in a professional capacity. The policy covers claims made against you by your client or a third party arising from your provided legal services.
These allegations could include negligence, breach of trust or defamation, among other (alleged) causes. Professional indemnity insurance is one of the most important policies that solicitors and law firms need and it is a regulated requirement to practice. It protects both the professional firm and its individual partners, members, directors, officers and employees regarding any claims made against them by a client or third party arising out of their legal services.
Why do Solicitors need Professional Indemnity Insurance?
Professional indemnity insurance is broadly available to most professional practices, including many emerging professions; it is essential for solicitors as it is a regulatory requirement. Every solicitor needs a policy covering their work on behalf of clients in order to practice as a Solicitor and comply with requirements of The Law Society / Solicitors Regulatory Authority (SRA). A solicitor may find themselves defending their position against allegations made by others, such as a dissatisfied client seeking damages due to negligence, breach of trust or defamation.
Professional indemnity insurance is therefore considered to be a necessary cost of doing business for any solicitors practice. Given the history of solicitors and the importance of clients’ assets, this type of insurance has been in place over many years.
How does Professional Indemnity Insurance work?
A Solicitors professional indemnity insurance policy provides cover for the policyholder and their employees. The policy includes cover for legal services in areas such as litigation, corporate, commercial, banking and finance, conveyancing, real estate, family, probate and employment.
Policies are underwritten on a “claims-made” basis, with the expectation that cover will apply to a claim (or more likely ‘circumstance’) first notified to insures within the policy coverage period. In many, if not most, situations a claim may arise some years after the legal services that gave rise to the claim were provided.
How can Griffiths & Armour help you?
As many as 90% of law firms buy their cover using brokers. Brokers, therefore, dominate the cover distribution in the marketplace. As a leading and highly reputable insurance broker, we have extensive market knowledge and insurer relationships that ensure value for money on premiums and we provide invaluable advice on claims and risk management.
In many cases, our clients choose Griffiths & Armour to help them purchase additional insurance products which dovetail and complement their solicitors’ professional indemnity insurance. As a truly independent insurance broker held in high regard by insurers, we can design and arrange other related solicitors’ insurance that meet your precise insurance requirements, consolidating your insurance protection into a coordinated programme, introducing efficiencies, and saving you time and costs.
Our solicitors’ professional indemnity cover helps give you the reassurance you need when acting on behalf of clients. If you are sued or threatened with legal action, we can help. PII cover is available for all types of law firms and alternative structures of legal practices (such as LLP or ABS) From smaller to medium sized practices operating as a partnership through to large international law firms, our team have a proven track record of securing the right type of PI insurance for our solicitor clients to meet their precise requirements.
How much will PI cover cost?
Professional indemnity insurance is essential for all solicitors and subject to the legal work undertaken, number of practitioners and claims history, premiums typically can vary between £1,000 – £15,000, per £100,000 of Fees earned.
We offer a range of insurance services at competitive rates to secure best value and protect your business. We will review your needs when you are ready to arrange cover and will tailor a package of insurance that is right for you.
Policies and insurers vary widely and availability depends on many different factors. We have a dedicated team of insurance specialists on hand who can discuss your requirements and deliver a specific policy and quotation based on your individual requirements.
Solicitors Professional Indemnity Insurance can be tailored to your exact requirements; as we specialise in PI insurance and have access to many Qualifying Insurers, we can find the right cover for you at the right price.
What is covered in a PI Insurance policy?
By having solicitors PII, it will meet all compensation costs to the claimant that you agree to pay and the legal costs you incur defending any matters. It will always be our aim and that of the insurers to act promptly and discretely, ensuring that each case is resolved quickly – before it reaches a court of law.
This insurance is designed to cover you against any losses you might suffer, such as legal costs or compensation payments if you breach the duty of care you owe to your clients. This may be because you missed a deadline or gave incorrect advice. The insurance covers the costs of indemnifying your clients and will pay your legal fees in defending the complaint.
In summary, it will meet compensation (by way of damages) you are required to pay to the claimant.
What are the usual exclusions in a PI Insurance policy?
When you secure a Professional Indemnity Insurance policy, the insurer will confirm which coverages and limits apply to your policy. It is important that you carefully read through all the exclusions on your policy as they limit the coverage provided (although the cover must remain compliant with the SRA Minimum Terms).
As with any contract, it is prudent to familiarise yourself with its wording. It will help you to understand what your policy does and does not cover fully.
Typically, the following will be excluded from most policies:
- Partnership disputes
- Personal debts and trading liabilities or guarantees
- Defence costs for disciplinary proceedings
- Dishonesty, a fraudulent act that has been commissioned or condoned by an insured individual
- Bodily injury including death and property damage
- Employment issues, wrongful dismissal etc
What level of cover do I need in my Professional Indemnity Insurance policy?
Professional indemnity insurance for Solicitors (referred to in the SRA Guidance as PI insurance) is required by the Solicitors Regulation Authority (SRA) for all firms. The professional indemnity cover level is based on the firm’s structure, size, and practice style.
- SRA has stated that firms operating as an Alternative Business Structure (ABS) are obliged to have PI insurance cover of at least £3 million for any one claim.
- If you are a sole practitioner or a partnership, the minimum requirement is £ 2 million for any one claim.
Cover can also be arranged on an excess layer basis if you require more protection. This is also known as a top-up policy, and the level of cover chosen will typically depend on your business size and occupational risk.
What are the minimum terms in a PI Insurance policy?
The SRA Professional Indemnity Insurance Policy Wording is a set of ‘minimum terms’ for solicitors professional indemnity insurance. It applies to all Qualifying Insurers who write such policies under a limited licence from the SRA.
Minimum Terms apply when you require to have an SRA PI Certificate. At Griffiths & Armour we are in regular dialogue with our clients and can provide this clarity however if you are not a client, we would advise you to check with your professional indemnity insurer on your policy covers and how it will operate in practice.
What about Extended Policy Periods?
Our advice to our clients ahead of any renewal is to start early. This gives us the best possible opportunity to negotiate with insurers on your behalf and ensures you are in full possession of the options available to make informed, fact based decisions. If in the unlikely event your firm has ever failed to complete its PII renewal by the renewal date, you will be covered under the Extended Policy Period (EPP) until renewal. The EPP can cover you to have protection in place while your firm moves forward with the normal renewal process.
What is the SRA Qualifying Insurers Agreement?
If you are thinking of buying solicitors professional indemnity, it is important to ensure that your insurer is signed up to the SRAs qualifying insurers agreement. You can only purchase solicitor’s professional indemnity cover from an insurer covered by the SRA qualifying insurers agreement.
Do I need Run-Off Insurance?
Since the Solicitors Indemnity Fund no longer provides cover for solicitors who have ceased trading, the SRA now requires that such solicitors carry run-off insurance. They have calculated that this is a multiple of your annual premium, and it will be currently around three times your annual premium.
Bear in mind that if your practice stops trading, you could lose all of the benefit of your PI insurance cover going forward if you do not have a run-off policy.
How does PI Insurance protect you if someone makes a claim against you?
This insurance offers indemnity protection for solicitors so that your personal assets and those of the firm are protected.
If you take out an insurance policy with Griffiths & Armour, we will see that you are properly protected against the risk of claims from corporate clients, private clients, members of the public and their representatives. Our Solicitors Professional Indemnity insurance policy protects you against the costs associated with any legal action in the event that someone makes a claim which triggers your policy.
What should I do if a Professional Negligence Claim is made against me?
If find yourself in a situation where a claim is made against you then take the following steps:
- Notify Without Delay!
You need to advise your contact at Griffiths & Armour as soon as possible of any claim or threat of a potential claim. Your policy requires you to notify a claim or circumstance upon your first awareness of any matter so do not delay getting in touch!
- Take Care Responding!
You should not respond in detail to any claim or threat of a claim before agreeing the response with Griffiths & Armour and your Insurers. Our dedicated claims handlers will guide you through the early stages of any potential claim however, it is important to remember not to make any admissions or provide a third party with any information until agreed with your Insurers.
- Provide All Information
When notifying Griffiths & Armour of a claim or circumstance you will need to provide copies of any correspondence received or details of any discussion seeking to make a claim or threatening action against you. You will also need to be prepared to gather further background information to assist with the investigation of the circumstances.
- Questions?
If you are at all unsure whether a letter or verbal complaint needs to be notified to your Insurers do not hesitate to contact Griffiths & Armour’s team. We have the experience to help when you receive a potential threat to your business and will work with you to seek a swift resolution.
What happens if you fail to renew your PI Insurance policy?
Our advice to our clients ahead of any renewal is to start early. This gives us the best possible opportunity to negotiate with insurers on your behalf and ensures you are in full possession of the options available to make informed, fact-based decisions. If, in the unlikely event your firm has ever failed to complete its PII renewal by the renewal date, you will enter the Extended Policy Period (EPP).
This extension gives your firm up to 30 days to complete your PII renewal with continued PII protection in place allowing you to continue trading as usual. This is something to be avoided if possible and you will have to inform the SRA within 5-days if you are forced to enter the EPP. If you are not a Griffiths & Armour client and find your firm in this position, you should take urgent steps to consider protecting yourself and your business immediately.
If the EPP has ended and you have still not managing to renewal your PII cover, your firm will then enter the Cessation Period (CP) which provides a further 60-day period in order to try to secure qualifying insurance. You will not be able to accept new work but are able to continue to work on existing instructions for clients while closing your business in an orderly manner. If you cannot get insurance by the end of the CP period, your firm will have to close.
Can I compare different Solicitor’s Professional Indemnity insurance options?
Choosing the right solicitor’s professional indemnity insurance is extremely important. Our team of specialist brokers understand the PI market and specifically, have a proven track record of securing PI insurance for Solicitors. Our team will look to secure options from a range of appropriate insurers and support your application every step of the way.
To ensure you can compare options and make informed decisions, we will provide a range of solicitor’s professional indemnity insurance products and each proposal we provide will be individually tailored to reflect the precise needs of your firm.
As an established law firm, you understand the importance of confidence and trust in your reputation by your clients. By choosing Griffiths & Armour you can be confident in dealing with an industry leading, experienced PII specialist broker. We work tirelessly to achieve value for money for each of our clients and through our independent broker status, you can also be confident the options you are presented are always with your best interests in mind.
What happens if I Practice Law Without Professional Indemnity Insurance?
Professional Indemnity is a compulsory requirement for every solicitor’s practice. To obtain and maintain that cover, a firm must apply to the SRA and satisfy the Authority: It would be a breach if it were to trade without cover.
The availability of cover should not be taken for granted; there are numerous instances of the SRA closing down firms in such circumstances.
Which other insurance classes should solicitors consider?
Given our established experience of working with the legal profession, we are often considered to be synonymous with Professional Indemnity insurance and particularly so for Solicitors. Whilst that is reflective of our position within the PI market, our knowledge and expertise extends across all classes of insurance.
We are well placed to support our legal profession clients with their general insurance requirements for their business or organisation, which includes Office Insurance arrangements, Motor fleet, Public Liability, Employers Liability, Directors & Officers or Cyber and many more.
Our WORKSPACEPLUS+ offering is designed specifically to provide you with everything a traditional office policy can plus a range of enhanced features that can be selected to shape your office policy around the precise requirements of your firm. Watch this short video to find out more about how WORKSPACEPLUS+ can help you.
Frequently Asked Questions (FAQs) about Solicitors’ Professional Indemnity Insurance
What is Professional Indemnity insurance?
Professional Indemnity insurance – also known as PI insurance or PII – is intended to protect professionals and their businesses in the event of claims made by a client (or third party) suggesting that they have suffered loss as a result of non-performance, breach of contract and/or professional negligence in the services provided.
In addition, the policy will cover legal and other costs and expenses incurred in the defence of any claim. Professional Indemnity insurance provides the ultimate safety net when all else fails. However, like any other safety net, its use should be avoided as much as possible.
Who needs Professional Indemnity insurance?
If your business sells knowledge or skill, such as providing advice, design, specifications, supervision etc., you have a responsibility and duty of care to your client, and third parties, through the services and expertise you provide.
Many professions are required to have Professional Indemnity insurance cover as a regulatory requirement or as part of their professional authorisation. This includes solicitors, accountants, architects, surveyors, mortgage intermediaries, insurance brokers, and financial advisers. Many consultants including consulting engineers, advertising and PR agencies, and designers also choose to have this type of insurance to meet client requirements and to benefit from financial protection in the event of a claim arising.
The duty of care owed is generally the exercise of ‘reasonable skill and care’, in the discharge of the services provided. If a professional fails to exercise this duty (i.e. is negligent) they may be liable for losses incurred by their client, and/or third parties. Taking into account the operation of the current legal system, even defending claims can be very costly.
PI cover is for the benefit of the professional and not the client, although, far too often, it is not viewed that way. Clients cannot generally claim directly against the Professional Indemnity insurance carried by professionals – they must prove liability first, a legal process which can be time-consuming, expensive and uncertain.
How does liability attach?
Personal liability attaches where a practice operates as either a sole proprietor or a partnership. In the case of a partnership, liability is joint and several. Even when a practice ceases to operate, these personal liabilities do not come to an end, but continue for the limitation periods in contract and tort. Corporate bodies assume liability in their own right although individuals within such organisations can attract personal liabilities in certain instances.
Are there any unusual features to a Professional Indemnity policy?
Professional Indemnity insurance operates on what is known as a ‘claims made’ basis. This means that it is the policy in force at the time the claim is notified which will operate, irrespective of when the work was actually undertaken or when the alleged act of professional negligence took place.
The ability of clients or third parties to bring claims many years after services are complete (subject to the relevant limitation periods) emphasises the importance of maintaining appropriate and effective cover not only when the project is being undertaken but also for a number of years into the future.
What can professionals be liable for?
Initially, any potential claimant must prove professional negligence on the professional’s behalf (i.e. a failure to exercise reasonable skill and care in the discharge of its services). A claim can be brought in contract or tort/idelict (i.e. common law). It is often more difficult to succeed in a claim in tort as the following tests must be satisfied:
- the plaintiff must prove that the professional owed him a duty of care.
- the plaintiff must prove that the professional has breached that duty.
- the plaintiff has suffered financial loss as a direct result of that breach.
If an allegation of professional negligence is upheld, the professional is likely to be liable for the losses incurred by the plaintiff which arise as a reasonably foreseeable consequence of their actions. The professional will often be responsible for the plaintiff’s legal costs and these can be substantial. Large sums of money are often spent simply trying to recover fairly minor losses.
Direct financial losses (economic and consequential loss) as opposed to the cost of rectifying a defect are implicit under contract unless specifically excluded. There is more of a grey area arising out of the question of liability for economic and consequential loss at common law although recent judgements have allowed such losses to be recovered.
What is the extent of cover?
Professional Indemnity insurance provides only limited cover against the consequences of claims for professional negligence. Unless contractual limitations have been agreed between the professional and his client, the professional’s liability:
- is unlimited in amount, and
- extends over a considerable period of time.
Professional Indemnity insurance, by contrast:
- will have a set limit on the amount that insurers will pay – the limit of indemnity.
- operates for a set period of time – the period of insurance.
- is subject to the policy terms, conditions, limitations and exclusions.
- operates on a claims made basis.
What limit of cover should I purchase?
The limit of indemnity is the maximum amount that can be claimed from insurers for the professional’s liability to pay claimant damages. Generally cover for defence costs payable in addition to the limit of indemnity can be secured. It is important to note that disclosing the limit of indemnity to a client does not lead to a limitation of liability, which can only be achieved by negotiating a specific financial cap as part of the professional’s appointment.
The limit of indemnity generally operates in one of two ways:
- Each and every claim cover – this means that the indemnity limit applies separately to each claim that is made under the policy. However, all claims arising from the same occurrence would be regarded by insurers as one claim.
- Aggregate cover – the limit of indemnity would apply as one single amount for all claims made in each period of insurance.
Policies operating on an each and every basis, would still normally apply in respect of:
- pollution/contamination claims
- claims brought in American or Canadian courts
For further information and support, please get in touch.
