Solicitors need professional indemnity (PI) insurance to comply with the law and the Solicitors Regulation Authority (the regulatory body for solicitors). According to insurance experts, NimbleFins, solicitor PI insurance is a mandatory requirement for solicitors. This is courtesy of the Solicitors Act 1974, which requires that all law firms must buy solicitors PI insurance.
In accordance with this act, the Solicitors Regulation Authority (SRA) has strict rules requiring solicitors are covered by adequate PI insurance before they give advice. The rules also stipulate the level of cover that needs to be in place for its members. As part of this, the Solicitors Regulation Authority requires firms to self-assess and ensure that any level of PI cover obtained is commensurate with the level of risk exposure they expect.
For example, firm advising on complex transactions for large corporate clients might need a higher level of cover. The Solicitors Regulation Authority requires firms to assess their risk exposure and potential liability for any losses incurred. Law firms should consider the following when deciding on the level of indemnity they need:
- Level of fee income
- Risk management
- Potential risk exposure
- Size of firm
- Type of scope
- Client base
- Previous risk and claims history
In fact, most of these items will need to be discussed with and declared to potential insurance underwriters in order to secure a quote. These factors are important when deciding upon the level of cover required. Still, insurance underwriters also use them to assess risk on their end and determine a suitable premium for cover. For example, law firms that work on riskier projects for larger companies will probably want higher levels of cover and will need to pay a higher premium to secure this.
Solicitors working in not law firms organisations must also ensure they have adequate PI insurance in place. This can include sole practitioners, law centres and charities, for example.
According to the Law Society, law firms need to be proactive and ensure that there is PI insurance in place at all times. This means taking steps early to line up the correct, adequate coverage. Not only is PI insurance a requirement of the SRA, but solicitors also need to have insurance to protect against civil liability claims.
Another benefit of having appropriate PI insurance in place is peace of mind. Covered by an adequate policy, law firms can grow and take on new business knowing they are financially protected in the event of a claim made against them.
Do solicitors need indemnity insurance by law?
The Solicitors Act 1974 requires that law firms are covered by solicitors professional indemnity insurance. PI insurance is necessary to ensure that law firm clients are protected in the event of poor or negligent legal advice or service and ensure the firm and solicitors are protected in the event of a claim by a client.
Solicitors need to have PI insurance in place in order to provide legal advice and services to their clients. A PI insurance policy covers the firm in the event of a claim being made and will meet the costs of any costs, damages and compensation awarded, and also the costs of defending any claim.
PI insurance for solicitors will normally cover the following:
- Civil liability claims
- Defence costs
- Professional negligence
PI insurance is not only mandatory for solicitors working in law firms and sole practitioners but is also required to be in place for solicitors working in:
- Law centres
- Foreign law firms
The Law Society advises that law firms start the process of buying or renewing PI insurance early so that there are no periods where there is a gap in cover. It is particularly important to begin the process of buying or renewing insurance early when buying the PI cover, as it can easily take many weeks to complete the process. In addition, underwriters typically require quite a bit of information before assessing the risk and returning a quote.
PI insurance policies typically last 12 months and must be renewed annually. However, until 2014, law firms had to renew their PI policies each year on 1 October. As a result, many law firms renew at this time of year because historically they were required to, and their renewal date is still locked into this time frame.
Firms with a 1 October renewal date will want to take extra care to start the renewal process early, as insurance companies and brokers can be flooded with enquiries at this time. In fact, the Law Society advises that firms lock in PI renewal early ahead of time. Start the process well prepared by organising the necessary information and contacting their provider well in advance.