Coverage after this six-year period is called supplementary run-off cover and is currently provided by SIF by way of indemnity, at no additional cost to the former principals of a closed firm. However, for firms that closed on or after 1 September 2000, this cover will end in September 2023.
Without alternative arrangements , the former principals of firms that closed from September 2000 onwards, their estates, and even individual employees, may be personally liable for losses from any claims that are made.
The Law Society has made the following suggestions on its resource page on SIF :
Principals of existing firms
- If you’re a traditional sole practice or partnership, consider incorporating as a limited liability company, as this will reduce your personal exposure to claims arising from work carried out subsequent to incorporation; however, we recommend you take independent advice on this as it may have other consequences for your practice
- Work to improve risk management systems
- Carefully consider whether you should stop taking on any new work in areas with a higher risk of long-tail claims and retain records of any such work you’ve done previously, or do in the future in order to defend any claims that may arise subsequently
- Principals should consider their likely need for supplementary run-off cover, and how they’ll pay for it
- Consider setting aside funds now, or start to implement a plan to help you to pay for your mandatory and supplementary run-off cover in the future
Former principals of existing firms
- Contact the current principals of the firms and encourage them to consider their likely need for supplementary run-off cover, and how it would be paid for
Principals of new firms
- Consider incorporating as a limited liability company, as this will reduce your personal exposure to future claims
- Implement good risk management systems
- Carefully consider the potential consequences of taking on any work in areas with a higher risk of long-tail claims
- Ensure you keep good records
- Take sensible preparatory steps for an orderly closure of the firm and prepare for the provision of supplementary run-off cover once your mandatory run-off has expired
Former employees
- Contact the principals of any firm still currently trading for which you used to work
- Make sure that they’re aware of the closure of SIF and encourage them to take appropriate precautions to protect themselves (and their former employees) if they close without a successor practice
New employees
- Ask prospective employers if they’re aware of the closure of SIF and – if the firm closes without a successor practice – what steps they’re taking to make sure that you will not be exposed to unnecessary risk once their mandatory run-off period comes to an end
Pay your run-off premium
Paying for your mandatory run-off cover has always been an obligation for solicitors when closing their firm in an orderly fashion.
Despite this, a significant minority of firms that close without a successor practice do so without making the necessary payment. This has serious negative effects because the SRA requires participating insurers to provide this cover regardless of whether firms have paid for it or not. This means that the profession as a whole has to pay higher premiums for their PII, and it strains the relationship between the SRA and participating insurers.
In the future, we expect that an orderly closure, and paying your run-off premium is likely to be essential for any firm which hopes to secure post six-year run-off cover (PSYROC).
What your PSYROC should look like
Supplementary run-off cover does not have to comply with the SRA’s minimum terms and conditions (see Annex 1 of the SRA Indemnity Insurance Rules), so you may be able to purchase less comprehensive cover which would still meet your needs.
The policy term is likely to be limited to a year, and the duration of such cover would depend on the type of work in which your firm was involved.
An additional nine (or 10) years of cover, on top of your mandatory six-year run-off period, will protect you from most claims as it puts you beyond the 15-year secondary limitation period.
However, some claims may still be valid more than 15 years after the work was completed. Claims relating to residential property, wills and trusts, and child personal injury are areas that are particularly problematic in this regard.
Some low risk areas of work may not require further cover once the mandatory six-year run-off period has ended. You will need to consider your liabilities and determine what represents a tolerable level of risk.
How to improve your chances of getting PSYROC
You can improve your chance of obtaining ongoing cover if you can provide evidence that you:
- work in low risk areas
- have a good risk management system in place
- have a good claims history
- have a good regulatory history
If you do not have previous indemnity insurance records, you should ask your former insurer(s) for copies of your last three proposal forms and retain these. You should also gather any relevant papers that may still be available as soon as possible.
In August 2022, the SRA published a discussion paper about the future of SIF and PSYROC. The paper sought opinions on policy options, including:
- retaining SIF, but making changes to reduce its operating costs
- replacing SIF with a new consumer protection fund which would be run by the SRA
The Law Society View
The society believes that PSYROC provides necessary protections for consumers of legal services and solicitors alike.
SIF has the confidence of the profession and could, with appropriate changes, offer a good vehicle for the ongoing delivery of PSYROC.
However, if SIF were to be replaced, the key concerns are that any new scheme must:
- provide indemnity as permitted by section 37 of the Solicitors Act 1974 and be an indemnification arrangement as defined in section 21(2) of the Legal Services Act 2007
- be ringfenced for the specific purpose of giving indemnity protection and dealing effectively with PSYROC claims against former principals or employees of ceased SRA-regulated entities, and
- provide the same access to, and scope of, indemnity as SIF
The final day for responses to the paper was 31 August.
The SRA will consider responses and feed these into the policy discussion that will take place at its board meeting in September.
It is expected that a formal consultation on a new PSYROC policy will follow shortly after.