News of a one-year delay of the closure of the Solicitors Indemnity Fund (SIF) was today welcomed by the Law Society of England and Wales.
In the two decades since solicitors in England and Wales voted to move from a mutual system of professional indemnity insurance (PII) to a market-based model, SIF has provided supplementary run-off cover for firms that have closed, ensuring ongoing protection for their clients, partners and staff once their mandatory six year run-off period has come to an end.*
We told our members in February that the SIF would close to new claims from 30 September 2020, with the effect that firms that closed after 31 August 2000 would be left unprotected.**
Without cover, former principals of firms, their estates and even individual employees may be personally liable for losses from any claims that are made.
The Law Society advised firms considering closure, or currently in the mandatory six-year run-off period, to ask their broker to arrange an extension to their run-off beyond the mandatory six years, and if this is not possible, to contact other brokers as soon as possible. Firms that have closed since September 2000, and which are now covered by SIF, should contact brokers to see if alternative arrangements can be made to provide an appropriate level of ongoing protection.
Simon Davis, president of the Law Society said: “While we welcome the one-year delay, it does not solve the problem and our previous advice remains valid; firms that are currently covered by SIF, in run-off or contemplating closure, should be talking to their brokers and trying to come to an arrangement that will provide them with the ongoing cover they require when SIF does close to new claims next year.
“We had all hoped that a market would develop for reasonably priced post six-year run-off cover (PSYROC), but a hardening market has meant that the industry has been reticent to take on new risks.
“That means that there was a real danger that the closure of SIF at the end of September could leave former principals personally exposed to claims relating to work that their firm had done, perhaps decades in the past.
“Meanwhile, the additional uncertainty created by the Covid-19 pandemic and lockdown has only compounded the problems for former principals who may have been seeking affordable PSYROC products.
“Solicitors will be relieved, because with the breathing space this pause provides, the Law Society and the Solicitors Regulation Authority (SRA) can work together with insurers to try to find a practical solution that will protect former principals and their clients once SIF finally does close to new claims.”