Freelance Solicitors Insurance – What is adequate & appropriate Professional Indemnity Insurance?
Individual Solicitors who wish to take advantage of the new SRA Regulatory regime are faced with a significant question that needs to be addressed before their practice can start. That question is: What is ‘adequate & appropriate’ Freelance Solicitors Professional Indemnity Insurance?
The new SRA regulatory framework requires that Freelance Solicitors buy Professional Indemnity Insurance that provides ‘adequate and appropriate’ cover. However, there is no definition of that phrase that would help Freelance Solicitors to assess any policy cover arranged. To examine the question of ‘adequate and appropriate’ we need to first give consideration to how Professional Indemnity Insurance policies operate:
In very basic terms Professional Indemnity policies provide cover for legal liability of the Insured to Third Parties (normally customers) following a breach of Professional Duty of Care associated with the Services provided. There are two main heads of Insurance Coverage under the policy
- Legal Liability to the Plaintiff for Damages & Costs
- Authorised Costs incurred by the Insured in defending the claim.
Limits of Indemnity – What does Any One Claim mean?
Insurers will provide indemnity up to a fixed sum insured that is stated n the Policy Schedule. This sum will usually incorporate the aggregate of all legal liability including the Plaintiff’s legal costs in respect of a single claim circumstance (or series of claims arising from one common circumstance). The Insurer undertake to provide this limit of indemnity for unlimited numbers of individual claims arising from separate circumstances during the policy period.
Your own defence costs will normally be insured to an unlimited amount in addition to the Limit of Indemnity, referred to as ‘plus costs and expenses’ in your policy schedule.
The Claims Made Basis of Insurance
Professional Indemnity Insurance is provided on a ‘Claims Made’ basis of Insurance. That means the Insured is protected against an actual or intimated claim for financial redress made against them during the policy period. This is a different basis from Employers Liability or Public Liability Insurance which is normally insured on a ‘Losses Occurring’ basis, where a policy protects against an incident leading to legal liability which occurred during the policy period. This distinction is important because it means Insurance Coverage dies with the expiry of your policy, so it is absolutely essential that Insurance is renewed annually for the entire time you practise and for at least six years following the cessation of your legal services.
Your declared activities and Proposal Form
Professional Indemnity policies, in a similar way to all Legal Liability Insurance, provide cover for only the services you undertake that are declared to Insurers. The reason for this is one of equity. Insurers require different rates of premium for different types of work. Residential Conveyancing is seen as higher risk than Non-contentious Employment work. A basic principal of Insurance is that the Insurer charges a premium which is based on the material facts you have declared to them, in the absence of full disclosure then the premium may be inadequate for the risk.
Insurance Excess or Deductible – what does this mean?
An Insurance Excess is a sum that the Insurance claim must rise above for indemnity for further sums to be provided by Insurers. The policy excess is self insured by you, the policy holder. When an excess applies to the policy then the full policy limit of indemnity can be claimed in excess of your self insured sum.
An Insurance Deductible is a self insured amount that is deducted from the claim before the balance is indemnified by your insurers. The main difference to the way the policy operates is that the total available indemnity is the policy sum insured less the deductible. A large deductible can therefore significantly affect the level of cover actually provided under the policy.
How to use this information to assess what is ‘adequate & appropriate’ for your Freelance Solicitors Professional Indemnity Insurance:
How to decide what limit of indemnity to purchase – Currently Sole Practitioners and Partnership firms are obligated to purchase £ 2,000,000 indemnity cover. We can therefore deduce that this level of cover ought to be a good benchmark. However, if you are looking for a more competitive premium then you may wish to consider a lower limit of coverage. Factors that may assist your decision are:
- The type of work undertaken. For example if your work is exclusively low quantum Landlord / Tenant work then you may wish to buy a lower limit of insurance than if your work comprises large quantum commercial conveyancing.
- Plaintiff costs. Whatever your limit of insurance it should be sufficient to cover the likely maximum quantum for damages plus an amount for the plaintiff costs. Complex case work will give rise to the possibility of significant costs in addition to the damages awarded.
- Aggregation. You should give consideration to the fact that a series of claims may be aggregated together if a common circumstance is evident, so you may wish to consider buying a multiple of your assessed maximum quantum risk to cover this eventuality.
- If the current SRA rules allow, you may be able to limit your liability in contract with commercial clients to reduce your unknown risks thereby limiting the maximum quantum risk you carry.
- Retroactive risk. Considering the Claims Made Basis of Freelance Solicitors Professional Indemnity Insurance you should look back over the work undertaken for at least the past 6 years of insured practice and assess the maximum quantum of risk when considering your sum insured. If you have undertaken a one off piece of work with significant quantum of risk, you may need to buy a higher level of cover for the six years following completion of that file.
Policy Excess or Deductible considerations – A larger self-insured excess or deductible may well reduce premium cost, however this exposes you to financial risk. It may well not be appropriate for you to take too much risk, particularly if you do not have sufficient liquid assets to meet these obligations if you are hit by multiple claims in one period of insurance.
Choice of Insurer – Since the Minimum Terms of Insurance rules do not apply to Freelance Solicitors, you have the option to purchase a policy from any Insurer of your choice. However, it may not be deemed ‘appropriate’ to select an insurer who does not provide long-term security. We would recommend an insurer with a secure Credit Rating with an agency such as Standard & Poors and a proven track record in Professional Indemnity.
Alastair Brennan, Director Kelvin Group
How to get a quotation for Freelance Solicitors Professional Indemnity Insurance:-
At Butler Evans we have a great deal of experience working with Legal Practitioners to obtain Professional Indemnity, if you would like help getting a quotation please contact us using the below form and one of our specialist advisors with contact you.