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Professional indemnity insurance is an essential element of professional practice for law firms, providing protection against claims for errors, omissions, or negligent acts. Cover is mandatory and the required terms of the cover are clearly set out in the SRA’s Solicitors Professional Indemnity Insurance Minimum Terms and Conditions.
For new law firms, an offer of Solicitors Professional Indemnity Insurance is a pre-requisite before Solicitors can apply to the SRA for authorisation of their new firm. To maximise the chances of success (i.e receiving preferential terms from the insurance market), it is important that the application for solicitors professional indemnity insurance is completed accurately and thoroughly.
This guide aims to provide a comprehensive overview of what solicitors need to consider when completing an application for solicitor’s professional indemnity insurance for a new law firm.
Estimated Fee Income and Areas of Practice
Solicitors must provide an accurate estimate of the fee income expected for the coming year and a breakdown of the expected areas of practice from where income will be derived. This is to enable the insurer to assess the risk exposure of the firm, determine premium and may also impact the level of cover required and excesses applicable.
The areas of practice should be detailed, including the nature of the work involved and the experience of the solicitors in that area. This will help the insurer to assess the ability of the firm to manage the risks associated with the work being carried out and determine the appropriate premium and applicable policy excesses.
Adverse/Claims History
It is essential that solicitors provide full details of any adverse/claims history in their application for solicitor’s professional indemnity insurance. This includes details of any claims made against previous firms where the solicitor was a principal or employee, claims made directly against the solicitor, or any regulatory complaints or investigations.
Solicitors need to ensure that they disclose all relevant details of adverse history, including the nature of the claim or complaint, the parties involved, and the outcomes of any investigations or court proceedings.
It is also crucial to provide any supporting documents, such as confirmed claims experience, court judgments or regulatory reports, to ensure the insurer has a complete understanding of the adverse history.
Successor practices
If the firm is a successor practice, solicitors must provide full details of the prior practice, including full claims and regulatory history and where relevant, details of run-off cover. This information is necessary for the insurer to assess the risk exposure of the firm, as well as to ensure that the new practice is not inheriting any potential prior practice liabilities from the previous practice.
Additional Supporting Documents
Additional supporting documents to supplement the application for solicitor’s professional indemnity insurance should be included pre-emptively. These should include:
– Business Plan (see our separate guide)
– Three year cash flow projections (see our separate guide)
– Detailed CV’s for all lawyers and key personnel (including details of prior relevant experience for those who will hold management/compliance/regulatory functions)
– Risk management policies and procedures inc details of Cyber risk management (and what on-going training is provided to staff on cyber risk)
– Client care letters and terms of business– Anti-money laundering policy and procedures
– Details of any anticipated significant changes to the firm or its personnel
AND, where relevant:
Full details of any adverse history / claims history
Full details of any prior practices inc 6 years claims experience
Full details of any financial services undertakenCompleting an application for professional indemnity insurance can be a complex and time consuming process, but it is essential to provide a thorough application to present the firm accurately and to maximise the likelihood of Insurers providing (good) terms.
Full details must be provided, of adverse/claims history, estimated fee income, areas of practice, and any prior practices – as well as any necessary supporting documents.
By following these guidelines, new law firms can ensure that their application for solicitor’s professional indemnity insurance is successful.
The Regulated Risks team will provide full support with completion of your Solicitors Professional Indemnity proposal and will review and provide feedback, before any submissions are made to potential insurers.
Written 18th January 2024
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