Firms seeking to switch regulator should exercise caution before ditching their six-year run-off cover, a prominent insurance specialist solicitor has advised.
The Solicitors Regulation Authority (SRA) has decided to relax a rule requiring firms to have six years’ professional indemnity insurance cover in place if they change their regulator. Instead, the firm’s new regulator will be solely responsible for ensuring adequate insurance is in place for any future claims.
The SRA is currently working with approved regulators to agree a protocol that sets this out. The approval of the Legal Services Board is still required for the plan to take effect. The SRA has said it hopes to have this by 1 October.
Crispin Passmore, SRA executive director, policy, said: ‘There was overall support for our proposals to remove the obligation for run-off cover if a firm switches regulator.’
However, Frank Maher, partner at Legal Risk solicitors, urged firms ‘to consider carefully before they take advantage of the proposals, because other regulators’ compulsory cover is not as comprehensive as the SRA’s Minimum Terms and Conditions.
‘So, for example, if a firm moves to the Council of Licensed Conveyancers and then hits on hard times and closes in the future, it will no longer have the SRA’s automatic six years’ run-off cover of £2m or £3m per claim plus defence costs, but a single, defence costs-inclusive limit of £2m’.
Maher said: ‘This is by no means academic, as my firm is currently advising partners in firms which have closed who face substantial property-related claims, and there are ex-partners who are having problems replacing run-off cover following the disclaimer of enterprise policies. So, I am not saying “don’t do it”, but they do need to understand the risks fully before making a move from which there may be no turning back.’
