Limitation of liability (Nov20)

Two issues arise –

•  Protecting the firm and partner assets in the face of resistance from clients and third party lenders and financiers who seek to rely on the firm’s advice;
• The prohibition on limiting liability below the compulsory £2m/£3m when firms’ and individuals’ insurance cover for that may not be available in the future.

The first is an issue primarily for larger firms and we have recently advised a major European firm on this.

The second arises from the prohibition on limiting liability below the compulsory limit contained in rule 3.2 of the SRA Indemnity Insurance Rules 2019 – a provision previously contained in the SRA Code of Conduct but which might now more readily escape notice.

However, there are several ways in which the insurance available to cover a claim may be less than the minimum which prevailed when the work was done. These include claims –

• After the six year compulsory run-off (subject to the continuance of Solicitors Indemnity Fund Ltd, which in any event offers only £1m cover), this can happen quite easily in conveyancing and trusts;
• Where firms have switched to a regulator with lower prescribed limits of cover (and substantially less run off protection);
• Where firms have been taken over by an Alternative Business Structure (ABS) which has a waiver from the insurance rules;
• Where claims aggregate with a single policy limit, because they arise (broadly) from similar causes.

Although the Solicitors Regulation Authority (SRA) has abandoned proposals for reform for the present, the recent insurance renewal for many firms has shown that there are dark clouds on the horizon, as noted below.

Section 28 of the Legal Services Act 2007 requires that regulatory provisions are proportionate. It has to be asked whether it is proportionate to prevent firms limiting their liability below the current minimum when such cover may not be in force at the time a claim is made. Is it in any event proportionate to impose such a provision when the value of the subject matter of the instruction in some cases may be a small fraction of that?