What can I do if I cannot secure professional indemnity insurance cover due to practical difficulties caused by coronavirus (COVID-19)?

What can I do if I cannot secure professional indemnity insurance cover due to practical difficulties caused by coronavirus (COVID-19)?

Professional indemnity insurance (PII) is a vital part of protecting the financial interests of clients. The SRA is aware that some firms have not been able to secure PII because of practical difficulties due to the impact of the coronavirus (COVID-19). This Q&A sets out the requirement to have adequate PII in place and contains details on the SRA’s guidance on failure to secure PII during the coronavirus pandemic.

Regulatory requirements

The main PII obligations can be found in the SRA Indemnity Insurance Rules, which apply to law firms regulated by the SRA and their principals.

Law firms regulated by the SRA must have:

• qualifying insurance with a participating insurer, and

• adequate and appropriate cover

Qualifying insurance with a participating insurer

Qualifying insurance means a policy that provides PII cover satisfying the minimum terms and conditions set out by the SRA (often referred to as the MTC). The MTC are set out in Annex 1 of the SRA Indemnity Insurance Rules.

Qualifying insurance must be taken out with a participating insurer. A list of participating insurers is available on the SRA’s website. Most participating insurers prefer to be contacted by broker only—the SRA’s list of participating insurers indicates where this is the case.

Adequate and appropriate insurance

Law firms regulated by the SRA must take out and maintain PII that provides adequate and appropriate cover in respect of current or past practice taking into account any alternative arrangements the firm or its clients may make.

The SRA has published adequate and appropriate indemnity insurance guidance. The SRA makes it clear that obtaining PII meeting the MTC does not necessarily mean the PII is adequate and appropriate in all cases. You should always consider what is the right insurance cover for your firm having regard to the SRA’s guidance.

See further Practice Note: Professional indemnity insurance 2019—law firms—Adequate and appropriate insurance which sets out factors to consider when assessing your insurance requirements.

Inability to obtain qualifying insurance

A law firm that cannot obtain qualifying insurance must:

• cease to practice promptly—specific timescales for ceasing to practice are set out in rule 2

• undertake no activities in connection with private legal practice and accept no instructions during the cessation, save to the extent necessary to discharge its obligations within the scope of its existing instructions

• comply with reporting requirements set out in rule 8

SRA guidance

The SRA is aware that some firms have not been able to secure PII because of practical difficulties due to the impact of the coronavirus, and has published guidance for firms.

Some difficulties experienced by firms include:

• firms that need a new insurer may face delays because of operational issues in the insurance market (eg not being able to contact their broker because their operations have been suspended) and need more time

• key personnel in a firm are unable to complete the renewal process due to illness/being hospitalised/caring responsibilities and therefore, need more time to get insurance

• firms need time to get finance in place to pay for premiums, including potentially access to government coronavirus support

Some brokers might be experiencing delays in their operations because of the coronavirus too.

If you are not able to secure PII because of practical difficulties due to the coronavirus outbreak, you will be able to go into the Extended Policy Period (EPP), which effectively gives you an extra 90 days under your current policy of qualifying insurance to either obtain alternative cover, or to close (note there are strict reporting requirements). The firm can use this period to secure insurance, however, after 30 days it cannot take on any new business. You must draw up parallel plans to make sure that, should you not gain cover, you can close your firm in an orderly manner at the end of the EPP—see subtopic: Firm closure plan, particularly Precedent: Firm closure plan. Any firms still in the EPP after 30 days enter the Cessation Period (CP) for the remaining 60 days. The SRA says you may be able to agree with your insurer to an extension of the 30 days under EPP, the 60 days CP, or both.

If your insurer agrees to an extension then you will need to apply to the SRA for a waiver (from rules 2.3, 2.4 and 4.2 of the SRA Indemnity Insurance Rules) using the SRA’s application for a waiver form.

Insurers can require as a condition of any extension to the EPP or CP that you pay any premium due up front. You will need to confirm any payment arrangements with them and confirm in your waiver application that you have or will make payment to the insurer for any additional premium for the extension.

If you cannot agree an extension with your insurer you will only have the prescribed periods set out above in which to secure PII. If you cannot secure PII within that period you must notify the SRA and close your practice.

For more on prescribed periods, see Practice Note: Professional indemnity insurance 2019—law firms.

Further help and guidance

The PII market is hardening, which may mean premium increases, so the SRA advises firms should engage with brokers/insurers early to look at renewal terms. Insurers have said that their primary focus is on renewing existing business rather than taking on new business.

You may wish to consider shopping around and using more than one broker to help you. The quality and completeness of firms’ PII proposal forms are also important.

See Practice Note: PII—renewal tips, which explains some practical examples of how best to tackle your PII renewal, and Practice Note: Dealing with brokers and insurers, which explains how you can deal with your PII brokers and underwriters, including questions to ask your broker, meeting insurers, what insurers like to see in firms they are insuring and other steps you can take to impress the insurers. Precedent: PII renewal risk management submission, produced in partnership with Lockton Companies insurance brokers, can be used to present your risk management submission for your PII renewal. It follows a content plan suggested by Lockton.

We understand the Law Society is taking steps to help firms, eg it is:

• looking to sign-post firms to brokers who may be able to help secure cover, and

• advising firms on government support

To access this help, contact: coronavirus@lawsociety.org.uk.

The Law Society has also published guidance on renewing your firm’s PII during the coronavirus pandemic, in which it suggests some factors insurers are likely to be focussed on, including:

• what advice, if any, are firms giving clients on coronavirus?

• has the firm given any undertakings, the discharge of which are now beyond their control?

• are there any expected major changes to the split of work and revenue of the firm?

• how is the firm planning for or managing any potential solvency issues?

• when was the business continuity plan last reviewed, and how is it being implemented?

• does the firm have adequate processes in place for any such period, such as on peer review, conflict checking, or to adequately action specific guidance and requests from the regulator?

• does the firm have adequate systems in place, which are accessible remotely, to make sure no missed deadlines occur, and risks are monitored?

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