Solicitors

Market Position
The last year has seen radical changes in the governance by the Solicitors Regulatory Authority in liaison with London Market broker and insurer representatives. Much debate has focussed on problems invoked by unrated capacity in the market. There have been a number of failures of insurers emerging and collapsing to fail insured’s. The SRA has not changed its stance on this in considering the impending changes to Solicitors regulations. A major change is the reduction of the minimum terms conditions to maintain £500,000 any one claim cover rather than £2m, which may assist some smaller firms or sole practitioners. In reality there will be little change as existing insurers are set to continue with their offering on limits from 2012 and most of the premium charge will be stacked in the first £500,000 limit ground up. The significant adjustment is the dismantling of the assigned risk pool, which has deterred many insurers from the market as primary participants. This had previously left participating approved insurers with an ‘open cheque book’ to pay for firms failing to acquire minimum terms cover. This has contributed to a 20% approximate margin to an insurer’s loss ratio, which with other deductions leaves a slim margin for underwriting profit on such an attrition claims class.

Exposures

  • Property loss: A high proportion of loss derives from property related loss and lender claims in a drive to reclaim losses from market drop and repossessions. Fraud related claims on third party deposit funds have also been a source of spike large loss on a single event. Normally this involved embezzlement of third party funds by rogue Solicitors. State of the property market with regard to surges in values and market drop often lead to lenders recouping loss. Solicitors can be drawn into the over valuation of property as co- defendants along with Surveyors. Search failures on property pre purchases form a common level of loss where there are rights to light and access rights, or boundary disputes.
  • The larger loss events associate with large commercial contract drafts, or commercial tax work, due diligence on mergers and acquisitions. The values at stake are significant which defines the remediation cost and potential sizeable losses to third parties.
  • Administration of estate and probate can involve complex non registered land rights and inheritance rights in handling equitable rights of beneficiaries. Valuable estates and miss -handling of order of beneficiaries can mean high values lost.
  • Tax planning and advice on tax efficiency structures of finance for wealthy clients can invoke complex claims.
  • Failure to adhere to timorous requirements is often seen in personal injury and conveyancing transactions which give attrition losses.

 

Much of the lawyer losses are derived from omissions to act rather than direct advice for a fee within the scope of error or omission as proximate cause of loss. The above are just a few of many scenarios of potential causes of loss. Joint and several liabilities frequently bring the lawyer into contracts where numerous parties are involved and losses invoked by other parties to the contract make the lawyer easiest point of pursuing a claim, often to access insurers.

Coverage Issues
The SRA minimum terms cover is the most expansive cover in the professional indemnity market. The wording requires insurers to pay ground up and recoup excesses under the policy post payment rather than deduct from payment of a claim. There is a requirement to offer a 6 year run off cover regardless of whether the cessation practice pays for the full term of cover. Innocent non disclosure and tacit notification has left insurers picking up claims which should have been notified to prior period insurers. Notwithstanding that the claim maybe paid by the current insurer, it is difficult and expensive to pursue a claw back of these losses where there are clear cases of non disclosure that prejudice insurer rights.

Wimsure Underwriting offering
Wimsure Underwriting is not an approved market on the primary panel of SRA insurers but can offer excess of loss cover above £2m attachment up to £15m limits of indemnity supported by a number of Lloyds Syndicates. This can be single or several excess of loss layer placements which sit above rated Standard and Poor or AM Best rating agencies.

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