The decision not to extend post-six-year run-off protection after 2020 despite a recent surge in such claims presents a “real concern” for partners, Legal Risk partner Frank Maher has warned.
Currently, any firm that has closed since September 2000 without a successor can resort to the old Solicitors Indemnity Fund (SIF) for any claim made after the six-year run-off period. This arrangement is due to end in 2020. SIF closed in 2000.
The SIF says it has recently “noted a significant increase in post six year run-off claims in both frequency and value requiring adjustment to its ultimate expected liability positions".
“This means that although SIF has sufficient financial resources to meet all expected claims up to 30 September 2020, its surplus is unlikely to be sufficient to fund any further extension beyond that date. This has been taken into account by the SRA in reaching its decision.”
Frank Maher, partner at Legal Risk, says: “The statement from SIF serves as an important reminder for law firms, and particularly those retiring or selling their practices, to take a strategic approach to managing the long-tail liabilities to which they are exposed.
“It is also a real concern for partners in the ever-increasing numbers of insolvent law firms. As SIF’s comment illustrates, liability may be way beyond six years. It emphasises the need for incorporation and great care in effectively limiting liability and the scope of their duties.
“But even that cannot prevent claims being made. There are particular risks for private client lawyers who may have taken personal appointments as executors or trustees.”
Despite calls from the Law Society to extend SIF cover by a further three years to 2023, The Solicitors Regulation Authority (SRA) Board decided to stick with its 2020 deadline.
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