21.02.24

PI Insurance for law firms – some welcome news

welcome news for solicitors

In our last communication to law firms earlier this month in which we discussed our expectations for the current 1st April 2024 ‘mini’ PI renewal season, we highlighted the recent arrival of new primary layer insurance capacity and its likely impact on premiums. Well, there is encouraging news to report for those law firms that buy additional cover, in excess of their mandatory £2m/£3m of insurance. Historically, excess layers were once very commoditised in terms of pricing with each additional £1m of cover costing as little at £1,000 + IPT, depending on the profile of the practice. But over the past five years, there has been a sharp contraction in available capacity, as many participating insurers either restricted their participation to attach above £5m or even £10m, or withdrew from writing Solicitors’ excess layers altogether. The result was a very significant increase in the cost of carrying additional cover, with some firms ceasing to buy excess layer cover altogether, a move that can have serious consequences which we consider in more detail below. The encouraging news is that an A-rated insurer has indicated its intention to enter the excess layer market, which can only be good for law firms. Access will be via a small number of approved specialist PI brokers, of which Cox Mahon is one. The new entrant’s underwriting criteria; i.e. the number of partners a firm needs to have, its required work split, particularly Conveyancing work, and the insurer’s preferred attachment point, will be announced shortly, but this is further welcome news for the profession. More news to follow in due course…

Reducing the Limit of Cover

Whilst it might be tempting to a law firm to save money by reducing its limit of insurance, the adverse implications of doing so are often overlooked. There is the obvious danger of a claim arising that would have been covered in full but which now exceeds the practice’s reduced level of protection, potentially affecting many years of higher value work undertaken since that additional cover was first incepted. But a consequence that is often overlooked only arises after a firm has resumed buying additional cover, after a period of time without it. The retroactive date on the new excess layer will very likely be the inception date of that additional protection; it does not pick up the retroactive date of the additional cover that was discontinued previously for the purpose of saving money. As a result, the reassurance associated with having restored a law firm’s level of protection could prove to be illusory. Before taking any decision to reduce your limit of cover, we strongly recommend that you take expert advice, and we would be pleased to hear from you if you need assistance.

SRA Investigations

It is not always recognised that a Solicitors PI insurance policy does not cover 1st party losses such as those arising from wrongful managerial acts, including COLP/COFA liabilities. As well as claims from disgruntled partners, or from employees alleging discrimination, wrongful dismissal, sexual harassment or breach of contract, another potential headache for practice managers or managing partners, is an SRA investigation. Aside from the considerable drain on management time, loss of billable hours and concerns for a firm’s reputation, the actual costs incurred – in lawyer’s fees, accounts’ costs and other professional charges – complying with a regulator investigation can be very significant. The good news is that these first party losses can be covered, with a Management Liability Policy (MLP) insurance policy. A quality MLP policy covers claims made against the firm’s directors/LLP members personally, it covers the practice’s corporate legal liability, and it protects against Employment claims.

Article provided by Andrew Kenyon, Director, Cox Mahon

About Cox Mahon

Cox Mahon Ltd is an independent, specialist insurance broker for the legal profession. From offices in London and Shrewsbury, we have more than 20 years of experience placing PI insurance for law firms of all shapes and sizes, from sole practitioners to multi-partner firms, including advising on the PI implications of mergers, acquisitions, and closures. Through long-term relationships with underwriters, we maintain the widest possible market access. If you’d value a fresh look at your firm’s arrangements, please call or email us; we’d be delighted to have a no obligation conversation.