Last week, the Law Gazette printed an article on the action taken by the Solicitors Regulation Authority (SRA) to help solicitors maintain their Professional Indemnity Insurance (PII), which may be under threat due to problems arising from the Covid-19 pandemic. This was hailed as ‘an extra 90-day survival window’ to help those legal practices which failed to arrange fresh cover before the expiry of their current PII programme. It has been described as a “doubling” of the existing 90 days available under the provisions of the SRA’s current Minimum Terms and Conditions, which is made up of a 30-day Extended Policy Period (EPP) and a 60-day Cessation Period (CP).
Whilst all help to deal with this catastrophe and its effects on lives and businesses should be applauded, how much help will this actually be? My immediate concerns are:
- The extension is subject to insurers’ consent - Will any insurer agree to this? Will their reinsurance allow it?
- How is the additional 90 days allocated? Is it all EPP, during which firms can continue to operate as 'business as usual', or is some of the time to be additional CP?
- How much would an insurer charge and how would this affect the run-off premium if the insured firm subsequently failed?
- The insurer can make it a condition that premium is paid upfront, but what about the provision in the Participating Insurance Agreement, that requires any new insurer to provide cover as from the date the previous policy expired, thereby reversing any use of the extended period?
Perhaps more importantly, entering the extended period, whether for 90 days or 180 days, is not somewhere a prudent client with an independent future wants to end up in any circumstances. The EPP and CP should be seen as very much a last resort, as being in it could cause problems in getting future PII cover elsewhere and affect the firm’s chances of survival.
I can see an argument for the extension working where the insured firm needs more time to agree its sale to another practice, but only where the acquiring firm and its insurers are happy to become a successor practice for PII purposes. Beyond that, I would advise caution.
If insurers really want to be helpful to those solicitors who are struggling to deal with their PII renewal in these difficult times, an extension to the expiry date of their current policy or a new short period policy may be the way forward. If the SRA managed to get insurers to be more flexible in agreeing to such alternatives then this would be a worthwhile achievement.
As with most problems, prevention is better than a cure. Our advice is as follows:
- Maintain regular contact with your broker/insurer so you are not caught out with any breakdown in communications when you need them most.
- If you have lost contact (or faith) with your current PII provider, find a new one as a matter of urgency.
- Getting ready for renewal at least two months in advance of your PII policy expiring should help avoid any unpleasant last-minute surprises. This should include completion of your renewal submission and arranging sufficient finances for premium payment.
- If possible, make sure that renewal of your PII is overseen by at least two members of your staff so that there is someone to take-over in the event of illness of the other.
Howden has already been in touch with the Law Society and we will let you know if any further clarity is achieved.
M 07967 099508