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The law is a great profession to be in - until things go wrong!

Like members of other professions charging fees for acting on behalf of third parties, those practising law as solicitors must consider what level of Professional Indemnity cover they require.
The Law Society and The Solicitors" Regulatory Authority
In the UK, the Law Society promotes high professional standards and provides support to and advice to its members. The Solicitors" Regulatory Authority (SRA), based in Birmingham, is an Independent Regulatory Body of the Law Society which:
The SRA is monitored by the Legal Service Board and also acts as an independent regulator;
The SRA produces a handbook which contains its code of conduct.
Paragraph 7:13 of the code expects:
“assessment and purchase of the level of professional indemnity cover appropriate for current and past practice, taking into account potential levels of claim by your clients and others and any alternative arrangements your client may make”.

The handbook offers further guidance on Professional Indemnity Insurance (PII) and the need to make sure clients are covered for negligence, dishonesty and fraud carried out by a solicitor, by having in place cover which:
These obligations can be met through PII.
Minimum level of cover.
In order to operate in the UK, solicitors in private practice must comply with minimum levels of cover set out by the SRA. The SRA recognises a number of insurers providing professional indemnity insurance to the legal profession and a Participating Insurers Agreement (PIA), is set up between the SRA and the insurer. These insurers are required to offer a level of cover in line with the minimum terms set out by the SRA. As insurers are regulated by the Financial Conduct Authority, and providing they sign the PIA, the SRA does not undertake further vetting or look for a certain level of financial security; although all insurers are expected to disclose their financial security rating.

The minimum level of cover for firms operating on the basis of limited liability is £3M; for other, smaller firms, £2M. The limits do not apply to defence costs which have no monetary limit (some insurers will provide this as additional cover).

Firms must properly assess whether this level of cover is sufficient and where necessary take out additional insurance.
Top Up Cover.
Cover in excess of the minimum level required by the SRA is also termed excess layer insurance. There are no SRA requirements on this and parties can purchase insurance from other than SRA participating insurers.
The expectations of the SRA when assessing the level of PII cover.
The SRA monitors the profession for compliance. Solicitors are required to properly assess their PII requirements by taking account of:
The last bullet point is important because it provides assurance about the financial security of the company and its ability to cover public liability claims. The SRA Indemnity Insurance Rules and the Provisions of Service Legislation 2009 place an obligation of solicitors to disclose details of their minimum terms of cover.
Compensation Fund.
The SRA runs a compensation fund, a safety net for those who have incurred loss from a solicitor or solicitors firm as a result of negligence, dishonesty, misappropriation or fraud, and where PPI should have been in place but wasn't; it does not act as a top up fund. The decision on whether to make a grant lies solely with the SRA and it will not provide cover where the firm involved has a turn over in excess of £2M.
The terms of PII for solicitors will not allow an insurer to avoid paying out if the solicitor has failed to disclose, misrepresented or acted dishonestly. However, under clause 7.2 of the SRA Minimum Terms Contract, insurers are entitled to seek reimbursement from the party responsible for non-disclosure, misrepresentation or dishonesty. Reimbursement will usual come from an individual solicitor or a number of solicitors. It will only come from a body corporate when all directors of the company were complicit.
State of the Market.
The PII market covering legal services goes through periods of soft and hard conditions. Consequently, insurers consider proposals very seriously, particularly during hard cycles when premiums are likely to be high. It can be very difficult for some small firms to secure PII and the ability of a firm to demonstrate that it has properly assessed risk and taken steps to mitigate it is crucial. Insurers will take account of:
The insured party must keep insurers notified of claims and circumstances, mindful of course of the rules governing client confidentiality. Circumstances are any occurrence which suggests that a claim is likely to follow.
Failure to obtain renewal.
If for some reason a firm does not renew its PII it can only continue to take in new work for 30 days. Its previous insurer will provide cover after this for a further 90 days during which new work should not be taken on. If cover is not in place by the end of this Extended Policy Period, the firm must close. If closure occurs there is a legal obligation for run-off cover to be in place for 6 years.
Obtaining Cover.
The process to obtain PII should begin about six months prior to the date it is need. Many insurers will only provide cover for particular types of firm and those seeking insurance should find one that covers firms operating on a similar basis to theirs. Much of the information required by an insurer will be on the previous year's proposal form. Renewal is an opportunity to work with your broker to ensure that all due considerations have been made and the level of cover meets both SRA minimum requirement and those of the business. Claims statement provided by THE previous insurer should be checked for errors or other incorrect entries as this will be used to decide whether to provide cover and if so what the premium will be set at.
Proposal form.
As much information as possible should be provided on the proposal form, including details of experience and expertise. The information should be set out and be free of grammatical errors and spelling mistakes which may be seen as sloppiness and an indication of how the firm operates in its daily business. Risk management practices should be explained, particularly if the firm follows Lexcel, the Law Society's Practice Management Standard, or the Conveyancing Quality Scheme, as is likely to be viewed favourably by an insurer.
Solicitors practising overseas.
Solicitors practising overseas must make sure that they are covered by appropriate PII or other indemnity provision required by the country in which they are working.
In-house solicitors.
Solicitors working in house for an employer should be covered by that employer's professional indemnity cover. The minimum standards laid down by the SRA only apply to solicitors in private practice.
In-house solicitors providing work for other clients.
The SRA only allows solicitors working in-house to undertake work for other clients in certain circumstances covered by rule 4 of the Practice Framework Rules.This includes:
There are some types of work where solicitors do not have to comply with the mandatory provisions of the SRA, although must have a suitable level of indemnity cover in place. These include working for the Crown, public bodies or the Legal Services Commission. The Law Society can provide further information.

Being a legal practitioner - what is the worst that could go wrong??

harrased female solicitorworried solicitorsharassed male solicitor

Great Legal Disasters

As solicitors are responsible for the safe conveyancing of the most expensive purchases people make in their lives, when things go wrong the potential for loss can be enormous. This is most certainly true of the first disaster we shall look at here, which involved the legal team from London based solicitors Hill Dickinson, specialists in the purchase and sale of marine vessels.

A Very Expensive Misunderstanding

In 2010, when Christian Candy agreed to the sale of his 200 foot yacht to telecoms tycoon Michael Hurtenstein, they settled on a price of £3.5 million. This deal seemed to be heavily in favour of the purchaser, until Mr. Hurtenstein was just one hour into his first voyage when the engines failed completely. Once the vessel had been towed back to the dock and expert opinion sought, the repair bill was estimated to be a staggering £1.5 million pounds.

Although obviously upset, Hurtenstein could at least console himself that the repairs would be covered by a warranty supplied with the vessel. His solicitors, Hill Dickinson, had advised him that Candy himself had agreed to personally back this. However, it was revealed that Hill Dickinson had not obtained this personal guarantee from him after all.

Mr Hurtenstein pursued a negligence claim against his solicitors, arguing that he would never have purchased the vessel without the personal guarantee of Candy himself. In the High Court, although the solicitors admitted negligence, it was decided that Hurtenstein had not suffered significant loss because of this. The court ruled that MrCandy would never have submitted to such a guarantee; that the low price agreed was subject to a sale "as seen"; that Mr Hurtenstein had decided to buy the yacht before there was mention of a warranty; that he would still therefore have purchased the yacht, even without a personal guarantee my Mr Candy; and that spending such a huge sum on new engines was not necessary and constituted betterment. He was awarded just nominal damages of £2, leaving him to face a substantial legal bill from Hill Dickinson.

Cybercriminals Target House Conveyance

The large sums of money that move between bank accounts after the sale of a house have begun to catch the attention of internet fraudsters, with potentially devastating results. When Paul and Ann Lupton's daughter, Tracey, moved out of the flat they had bought for her in Waterloo they were delighted when a buyer offered them £340,000 for the property. A couple of days before they were due to complete on the sale the Lupton's solicitor, Perry Hall and Company, contacted them by email requesting details of their bank account. The Luptons replied, supplying them with the relevant bank details.

What Perry Hall and the Luptons failed to realise however, is that email is not a secure enough form of communication for such sensitive information. Fraudsters managed to intercept their communications, almost certainly using software randomly scanning internet traffic for messages containing financial information. The scammers immediately sent the solicitor another message, using the Lupton's email account, requesting that they ignore the previous missive and instead use a new set of bank details which they enclosed.

On completion of the sale, Perry Hall deposited just over £330,000 into the bank account the criminals had specified. It was not until the Luptons enquired after the missing money a few days later that the fraud was revealed, and the police contacted. The vendor, the solicitors and the fraudsters all banked with Barclays who instantly froze the latter's account, recovering just over £270,000. Although an additional £13,500 pounds were later recovered neither Perry Hall, nor Barclays Bank, were prepared to accepted any liability for the loss. This left the Luptons over £48,000 out of pocket. It was not until eight months later, that the solicitor's insurers finally agreed to compensate the Luptons for the remaining sum.

Solicitor Faces Ruin After Vishing Phone Call

Karen Mackie, a sole practitioner was left facing ruin after fraudsters persuaded her to transfer £750,000 of clients" money to their account. The technique the criminals used is referred to as vishing, short for voice phishing, where the scammer speaks directly to the victim over the phone. In this case, the criminals pretended to be security experts from the victim's bank and were sufficiently plausible, and persistent, that they managed to pursued Mrs. Mackie to move a large sum of money into their accounts in tranches of up to almost £100,000.

The scam began with Mrs. Mackie receiving a phone call, purportedly from her bank, informing her that some of her clients" accounts were at risk of being compromised. The caller requested that she call them back on the number on her banking card, instructions which she immediately followed using the same phone.

Unfortunately the scammers used a quirk of the phone system which allowed them to dupe Mrs. Mackie that she was now talking to her bank, when in fact she was still on the line to them. When a phone call is received on a land-line, it does not end the moment the recipient disconnects. Instead, it requires the caller to also replace their handset to terminate the connection. Thus, by playing Mrs. Mackie the sounds she expected to hear, the criminals duped her into believing she was beginning a new phone call to her bank.

The criminals convinced her that the money in the clients" accounts was indeed at risk and that they would call the following day to move the money to a safe account. The next day, a distressed Mrs. Mackie took the call, and moved the money as instructed by the criminals. Later, reflecting on the earlier events, she began to feel suspicious of what had transpired and contacted her bank and the police. Natwest managed to recover just over £220,000; the thieves had already made off with the rest.

Mrs. Mackie was subsequently suspended by the Solicitor's Regulation Authority. This step did at least allow her clients to successfully receive compensation through the Solicitor's Compensation Scheme. Prior to this, Mrs. Mackie's insurers had refused to compensate her clients, stating that they were not under any obligation to do so as she had effectively condoned the dishonest activities of the criminals.

Although the clients were able to put the matter behind them, Mrs. Mackie has not been so fortunate. Suspended from work, she has since been declared bankrupt, is receiving counselling and treatment for anxiety and depression, and may yet lose her home.

Matrimonial woes

In 2000, a woman was left with her wedding plans in ruins after her solicitor, Alan Craig, failed to complete the divorce proceedings from her previous marriage. When contacted by his client in February of that year, Mr. Craig assured her that the procedure would take no more than a few weeks. The woman began planning for her forthcoming nuptials, setting a date in August. She believed that by this would allow plenty of time to deal with the legal formalities. She paid a £500 deposit on a venue, money which she subsequently forfeited when Mr. Craig failed to progress her divorce in time.

Mr. Craig, who traded in Motherwell under the name Alan A Craig & Co, also told another woman in October of the same year that her divorce would take around 4 months. At the end of this period the woman contacted him to be told that the decree would be ready in 3 weeks time. In June of 2001, the woman discovered that no writ in connection with her divorce had ever been presented at her local court.

In 2001, Mr. Craig also assured a third client that he was working on his case, when he had in fact done nothing to institute proceedings. Mr. Craig had been instructed by the man, who was divorcing his wife, to sell the matrimonial home. He later admitted to his client that he had not made any progress in the matter, despite giving the impression that the sale of the property was underway.

Mr. Craig ceased practising as a solicitor in 2001. In June of 2003, Mr. Craig was found guilty of professional misconduct. The tribunal suspended him for a period of two years.

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We do not give financial advice on this website. If in doubt get professional advice and always read the policy information before purchasing an insurance contract.