Law firms exposed as liquidators appointed at large insurer
A large Gibraltar-based insurer which provides professional indemnity to solicitors is going into liquidation, leaving hundreds of law firms potentially exposed.
Lemma Europe Insurance Company is understood to have frozen claims payments, on the order of the Gibraltar regulator, the Financial Services Commission. A spokesperson at Lemma said Freddie White, managing director of Grant Thornton Gibraltar, has been appointed as provisional liquidator by the Gibraltar Supreme Court.
A Solicitors Regulation Authority (SRA) spokesperson said only one law firm was insured with Lemma and had been given SRA advice about finding a new insurer. He said he understood any claims would be covered, but was unable to confirm by whom.
However, Frank Maher, partner at Legal Risk, who advises law firms on risk management, said: “That was one firm for the current year.
“But the problem is those firms who were insured with it in 2010—it’s a few hundred firms. If £6.24m premiums were paid in 2010, and if each firm paid £40,000, then that would be 156. If each firm paid £20,000, then it’s 312.
“If Lemma is insolvent, then there will be problems with claims that are not settled, any that arise, and any that date back. It’s very serious.
“The SRA are being extraordinarily complacent to say it is just one firm.
“The Financial Services Compensation Scheme is there for these situations, but it only pays 90%, and you have to be an individual or a small firm, so one or two of these law firms may be outwith the limit. Also, the scheme will fix a quantification date for the compensation, and firms might be far from closing the claim when that applies.
“It’s quite unpleasant. There will be people putting their hands into their own pockets over this.”
The Insurance Times has reported that Lemma had written £6.24m worth of solicitors’ professional indemnity premiums.
According to a report in the Gibraltar Chronicle, the company’s problems date back to 2010 when “substantial claims” worth several million pounds were made against some solicitors’ professional indemnity policies.
The provisional liquidator is required to report to the Gibraltar Supreme Court on or before 28 February 2013.
