Indemnity expert calls for rule change as Latvian insurer is suspended
Legal Risk partner Frank Maher has repeated his call for changes to the indemnity rules following the suspension of insurer Balva.
Balva, which insures 1,300 law firms, had its operating licences withdrawn by the Latvian regulator this week. It will now appoint a liquidator and begin winding-up, but is obliged to fulfil its contractual obligations to customers. This is not technically an “insolvency event” under Solicitors Regulation Authority (SRA) rules.
Maher said: “It’s a very real concern that one in seven firms has cover with an insurer that may not be there for the long term.
“How are claims going to be funded? It can take 15 or 20 years for claims to unravel. This is because a law firm may, for legitimate reasons, think they can resolve a commercial matter such as a title to property or a tax bill over time.”
“I think it adds more weight to my argument for an ‘imperfect solution’. The Consumer Panel compared cover and ours was by far the widest. We are driving around in a Rolls Royce when that is no longer sustainable. There needs to be a new way of thinking about indemnity. It would be better if firms were able to obtain waivers from the SRA when obtaining cover, a ‘less is more’ approach.”
Two other insurers, Lemma and Quinn, recently collapsed.
If Balva cannot meet claims then the areas of exposure would be “the British public, the firms themselves and the employees of those firms”, Maher said. “I am acting for one Lemma firm who has a £400,000 claim for which it is not insured.”
The former broker of Balva policies has approached several firms with offers to transfer policies to another unrated insurer, Berliner Versicherung Aktiengesellschaft.
Warning firms to think carefully, Law Society chief executive Des Hudson said: “Our position is buyer beware.
“Firms who elect to go with unrated cover should be under no illusions as to the potential risks that flow from that decision, both to the viability of that firm and in terms of the potential for personal liability falling on partners if the worst should happen.”
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