It has appeared until recently that the SRA was doggedly determined to press ahead with reductions in the limits and scope of compulsory PII for reasons which we believe were woefully misconceived and based on seriously flawed data, as we have explained previously (Risk Update, March 2018). However, we understand that proposals for change will now take a further two years.
In the meantime, insurers are increasingly focusing their attention on the aggregation clause, under which (broadly) multiple claims arising from similar causes may be subject to one policy limit. We expect there will be further recourse to the courts or arbitration over the impact of this, particularly in the case of investment scheme claims (including hotels and student lets) where we are advising many firms. Bank of Queensland Ltd v AIG Australia Ltd [2018] NSWSC 1689 is of some interest in this context, though not binding and perhaps not likely to be followed here.
Coverage issues are far more common when excess layer insurers are involved. But even where they are not, we are seeing more coverage issues in practice. Where insurers face significant claims, they are prepared to incur legal costs to scrutinise whether a firm failed to supervise (and thereby condoned fraud), misrepresented its systems and controls in its proposal form, or failed to disclose problems prior to renewal. If a firm looks good on paper, a run of claims begs the question whether it is as good as it looks.
We may see further contraction of the market in the UK: we have seen insurers exit both the primary and first excess layer market already, and note that Amtrust are withdrawing from the Irish Solicitors’ market. Some firms have faced steep premium increases on renewal.
SRA reforms allowing solicitors to work in unregulated firms are unlikely to achieve significant insurance savings, as the volume will not be there, but will significantly narrow the scope of cover, opening up more exclusions from cover, and insurers will be free from the shackles of their obligations to the SRA which currently exist under the Minimum Terms and Conditions. There will certainly be no automatic run-off, there will be more coverage issues over non-disclosure, and lower limits (potentially without any one claim cover). Unrated insurers may once again find space in the market.
So we predict that consumers (and lawyers) will lose out with no appreciable benefit.
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