Taymouth Castle: Property at the heart of the Discovery Lane case
Solicitors may face a more restricted professional indemnity insurance (PII) market this year amid growing concern over limitations on insurers aggregating claims.
A survey found that some insurers were considering whether to pull out of the solicitors’ market entirely in the wake of the Court of Appeal’s decision in Discovery Land v Axis earlier this year.
A professional indemnity expert lawyer argued that the Solicitors Regulation Authority (SRA) needed to make a “small” change to its minimum terms and conditions (MTC) of insurance to counter this.
Under the MTC, an insurer can aggregate multiple claims where they arise from the same act or omission; without that, each claim is treated separately and the compulsory primary layer of cover, and potentially any excess layers, are engaged each time, rather than once.
Axis Specialty Europe was the insurer of London law firm Jirehouse – whose founder is in jail for fraud relating to a Scottish castle – and has fought through the courts, unsuccessfully, to exclude or limit its liability for the multi-million-pound loss suffered by a client.
In January, the Court of Appeal agreed with the High Court that the two elements of the fraud should not be aggregated and treated as one claim.
Although the same property was involved and the victims of the frauds were clients who were closely related entities, “those factors are insufficient to provide the necessary link between the two transactions”, it said.
“As the judge also observed, the fact that the purchase of the castle provided the opportunity for Mr Jones to steal the money on both occasions does not answer the question whether the transactions fitted together.”
The law firm Browne Jacobson said this and earlier decisions – such as that involving jailed solicitor Linda Box – meant that, because fewer claims were being aggregated than expected, primary layer insurers were paying much more for claims, with the excess layers not being engaged as much as they should.
The firm and the International Underwriting Association commissioned Qualtrics to survey the 28 participating insurers approved by the SRA, half of whom responded.
Five of the 13 that responded to the question said the decision had made them consider pulling out of the market, while most would ‘definitely change’ their underwriting strategy this year. More than half said their pricing would increase and a third that they would write less primary layer business.
The MTC were amended in 2005, supposedly to make the aggregation of multiple claims easier. However, recent court decisions “have confirmed this is not happening in practice”, Browne Jacobson said, as it still contained the ‘act or omission’ type of aggregation wording.
An alternative would be to aggregate all claims arising out of one “originating cause”, which PII partner Ed Anderson told Legal Futures would give insurers more scope.
The survey said three-quarters of insurers would have a greater appetite for writing solicitors’ business if the wording was changed this way.
“The results of the survey are very concerning for the profession and for clients,” said Mr Anderson.
“Solicitors already pay far too much for their PII compared to other professionals – more than double in most cases – and ultimately it is the clients who bear the cost of that. The difference is now going to get even greater.
“The dominant reason for the additional cost is that the MTC are unnecessarily restrictive for insurers and, when compared to the minimum requirements, if any, of other comparable professions.”
This “one small change” to the MTC would have “a marked effect on pricing and with little impact on client protection”, given that many firms buy excess layer insurance cover in any event.
He described this as “the single most effective change” the SRA could introduce to reduce the cost of legal services to consumers.
The survey asked insurers to provide some data on the typical PII premiums paid by both chartered accountants and licensed conveyancers.
The results suggest chartered accountants typically pay a median premium that is 2% or less of their annual turnover and that for licensed conveyancers the figure is closer to 3%; SRA research has shown solicitors pay 5% on average.
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