Extended Indemnity Period

Extended Indemnity Period

Where partners believe their firms can trade through the recession and pay the cost of the PII cover they need -and remember it must be ‘adequate and appropriate’ to the claims exposure of the firm over its history - it is important to keep a close control of all aspects of their finances and at all times to be realistic about assessing the point at which it is prudent to close so that they can ensure an orderly wind-down.

Bear in mind that the test for wrongful trading by directors (suspended for just 6 months from March 2020) is whether you knew or ought to have concluded (based on both the general knowledge, skill and experience that may reasonably be expected of directors and the actual knowledge skill and experience of those directors) that there was no reasonable prospect that the company would avoid going into insolvent winding up or administration.

If managers cannot save their firms it is important that they do not risk disciplinary action that could prevent them continuing to earn a living as solicitors.

For firms that are not able to obtain PII at a price they can afford or at all then if at 1 October, they do not have cover, they have 5 days to notify the SRA. www.sra.org.uk/solicitors/ resources/indemnity.

Once firms notify the SRA, they will go into the extended indmenity period under their existing policy. This is made up of a 30-day extended policy period (EPP) and then a 60-day cessation period (CP) and during these periods indemnity cover is provided by the last-named insurer for the firm. The firm can use this time to secure insurance, however, after 30 days it cannot take on any new business.

As a result of the pandemic, the SRA has announced that it may be possible to continue to take on new business beyond the 30 day period and to extend the CP beyond 60 days, with the agreement of insurers and if firms apply for and are granted a waiver by the SRA (www.sra.org.uk/solicitors/waivers/ apply-waiver).

Once a firm enters into the CP it must be taking steps to close down. The SRA carries out a reconciliation process once the October renewal date for Practice Certificates has passed and will discover if anyone has failed to notify them. If firms cannot obtain PII or an extension of their current cover, the firm will either have to close, or merge with another firm and in either case it is likely that the payment of the run off premium will be unavoidable. Although the run-off premium under current policies is commonly between two and three and a half times the last premium (for basic level of cover), it may be possible where partners genuinely have difficulty in meeting the payment to negotiate instalment terms with insurers.

Some partners in firms (and solicitors finding themselves redundant) are looking at the new structures available to see if there are viable alternatives enabling them to continue to practise and offer services having where relevant put their existing firm into run-off. One option is to become employed as a solicitor in a limited company not regulated by the SRA. This may be attractive where they are not carrying out reserved work, as they are not required to hold PII at the minimum level of the minimum terms and conditions. Alternative cover with policy premiums may be lower.

Other partners are considering putting their firms into run-off, thus taking advantage of lower premiums paid in 2019, and then continuing their career as freelancers. In that case there remains an obligation where freelance solicitors or employed solicitors undertake reserved activity work to hold an adequate and appropriate level of cover.

From a regulatory perspective options that involve putting the firm into run-off trigger a number of important considerations. For example, client consent to transfer work to a new entity, closing off client account and dealing with residual balances, the return of deeds and storage of the records of former clients. The SRA must be given notice and have prepared guidance www.sra.org.uk/closing-down-your-practice. You can also obtain help by contacting Professional Ethics on 0370 606 2577 or email professional.ethics@sra.org.uk.

www.sra.org.uk/solicitors/guidance/professional-indemnityinsurance-extended-policy-cessation-period/

On a similar theme members will be aware that the protection of SIF (Solicitors Indemnity Fund that was closed in 2000) for claims after the initial six year run-off period has been extended by SRA and now extends until September 2021.

Beyond that firms who have ceased post 2000 and close from now on have no protection for claims made in years subsequent to the 6 year run off period. Neither the market nor the regulators have come up with a ready solution. Theoretically, it may be possible to negotiate with your last insurer for yearly extensions of run-off cover, but that is a less than satisfactory solution as senior solicitors move into retirement.

Behind the scenes

Although it is never a topic of much active interest to practitioners until the point of actual change the regulatory framework has been shifting considerably in the last year. The government has strongly signalled that it is not does not regard reform of the Legal Services Act as a priority, and accordingly the Legal Services Board are setting about making changes in the regulated sector within its current powers. It will be looking with CMA towards the outcome of a review by December this year of the measures introduced by the CMA following its Market Study in 2016. On that occasion it said regulation was not working well for consumers and set out its requirement for cost information to be more widely available and that has led to the SRA Transparency Rules. It was recently observed by the LSB that there are regional price variations and how much cheaper work can be carried out in some parts of the country than others, thus encouraging consumers to shop online and obtain services remotely. All solicitors providing their services solely online and without maintaining offices are understandably able to offer lower prices especially in areas where other costs of living costs are lower. Recommendations are likely to be made and taken up that will require further information to be provided as to the nature and quality of the service that firms are providing. The regulators were very keen on price comparison websites, but so far they have not had gained any real traction.

The CMA will also be pursuing its interest in so-called "unmet legal need’. This minimises the shortfall caused by withdrawal of funding for legal aid and looks to the larger question of why do consumers not utilise solicitors more. The answer most popular for regulators is that legal costs are too high and with more competition they would be lower. That ignores the high cost of regulation and there are of course a variety of answers to this question, not least being that clients may have the relevant knowledge or prefer to sort out their own problems without paying someone else to do it for them. However, there are many who do not know where to go for the right information and cannot afford regulated firms. That has in theory at least encouraged the growth of providers who are not regulated. It now appears to be the ambition of the Legal Services Board to extend the scope of regulation to include unregulated providers at least to the extent of requiring a register of them and a complaints scheme to provide redress for complaints. This is heavily argued as a short-term recommendations made by in the final report of Dr Stephen Mayson. https://stephenmayson. files.wordpress.com/2020/06/irlsr-final-report-final-1.pdf

He argues for regulation of specified activities to a basic standard enabling conveyancing or a litigation service. This does of course mean dismantling the current system of ‘reserved activities’ and the Legal Services Board has indicated that it will be looking into them initially with a view to modernising but potentially also with one eye on the Mayson recommendations. Mayson argues that by opening the field of legal services to piecemeal regulation of standards the regulatory tools can be better targeted. Certain activities would require the provider to be accredited by more limited training than the current ‘title’ qualifications and subject to a system for redress complaints, but not necessarily to the current minimum insurance requirements. Professional titles such a solicitor would cease to be as important and whilst the qualification could allow access for providing various services it is not according to Mayson a necessary prerequisite. Professional ethics and the system of training and education as we know it would be optional; there would be other players in the field who could gain access by other routes.

This brings me finally to the subject of the SQE. The SRA has laboured long and hard with bringing the new qualification examination to finality and their application is currently before the Legal Services Board for approval. The Law Society is supportive in broad terms but has pointed what needs to be done to meet the need for diversity.

Here are the improvements suggested:

General

1. All SQE2 assessors to be fully trained in EDI, including unconscious bias.

2. Produce and disseminate information about the SQE in a way that is timely, accessible and reaches diverse candidates.

3. Set out scenarios for how Covid-19 may impact the assumptions made about how the system will work and any implications for EDI.

Monitoring and evaluation

1. Monitor and publish data on the profile of candidates and performance in the SQE1 and SQE2, separately and together, by protected characteristic and socioeconomic background.

2. Break down and aggregate data in the Black, Asian and Minority Ethnic category to assess differential impacts within the group as well as in comparison to White candidates.

3. Analyse issues where the intersection of different protected characteristics (e.g. ethnicity and gender), or different protected characteristics and socio-economic background, might lead to particular disadvantage.

4. Collect and analyse data on prior academic performance to help assess the particular impact of the SQE in widening or narrowing attainment gaps.

Analyse:

1. The relationship between performance in the SQE and the type/form of Qualifying Work Experience.

2. The relationship between performance in the SQE and graduate careers destinations.

3. The relationship between performance in the SQE and longitudinal performance and progression in the profession.

4. Qualitative research to understand better the factors contributing to potential differences in performance in the SQE.

5. The SRA should make an initial evaluation after the first set of assessments, so that any issues can be immediately addressed. Then there should be an independent interim review of the SQE after 2 years, with an independent full evaluation after 5 years.

6. Ensure that if any negative impacts are identified through the monitoring and evaluation that action is planned and taken to address them.

7. Stakeholders to be kept up to date on the details of research planned by the SRA in a transparent and collaborative way and to be consulted on any action to address any concerns about impacts on equality, diversity and inclusion of the SQE.

Disability

1. Kaplan to appoint Disability Officers to advise and support disabled candidates and ensure reasonable adjustments are identified and made in a timely way.

2. Publication of a full reasonable adjustments policy, including procedures, criteria for assessment, evidence required and appeals process, including who at the SRA is designated to deal with appeals against Kaplan’s decisions regarding reasonable adjustments. Stakeholders (including the Law Society’s Lawyers with Disabilities Division to be consulted.

3. Confirm that extra time for the completion of Multiple-Choice Tests has been trialled and any issues dealt with (as this can cause the systems to crash due to software and hardware clashes linked to vital accessible software on disabled students’ computers).

4. Demonstrate how the needs of those requiring extra time between assessments will be addressed (more than the standard two days).

5. Demonstrate how Kaplan’s assumption of 25% of candidates requiring reasonable adjustments have been accommodated, including the availability of separate rooms at all centres or suitable alternative arrangements for candidates sitting an exam in another pre-arranged location.

6. Clearly demonstrate that each region has sufficient number of accessible centres (physically, by public transport and with parking) for the first year of SQE assessments and details on how this will be increased over the following three years as demand increases. Consideration must be given to evidence from law schools and LPC providers on the volume and travel distances of disabled students when determining how many assessment centres are sufficient.

7. Details of how the concerns raised about PearsonVue Centres, during 2020’s Bar exam have been considered and addressed where necessary.

8. Evaluate the support for disabled candidates on an ongoing basis, including their satisfaction with the process for securing reasonable adjustments and the accessibility of assessment centres.

However legal scholars and academics have filed their objections, focusing on the lack of requirement for a GDL or LPC where there is no law degree requirement. They argue this creates a fundamental lack of knowledge and understanding and that the proposed form of multiple choice testing with automated scoring will not be able to examine to the extent necessary.

In summary, the grounds why they say approval should not be given:

1. (1) that the SQE in itself, in the absence of a Qualifying Law Degree or Graduate Diploma in Law on the current pattern, is inadequate to provide sufficient protection for consumers and assurance to employers (Quality); (2) that, while there may be some cost saving arising from the reduction in the scope of the assessments required by the SQE by comparison with the LPC, this is more than offset by the fact that no public funding is currently available for SQE preparation outside an undergraduate (UG) or postgraduate (PG) LLM course (Cost);

2. that the increased uncertainty as to employability that arises from the abolition of recognised training routes, when combined with the likelihood of additional real costs, will tend to reduce rather than enhance diversity in the legal profession (Diversity).

3. A major deficiency in the proposed arrangements is that they are wholly inadequate to ensure that candidates demonstrate the understanding and skills needed to advise clients in those many and complex situations where the law is uncertain. This may be because of gaps or inconsistencies in case law or because statutes require interpretation. These are matters that require the deployment of considerable legal skills in analysing case law and interpreting legislation that go way beyond anything that can be tested in a Multiple Choice Question (MCQ). The necessary understanding and skills would be provided by an English law degree that complied with the Quality Assurance Agency Law Benchmark (as recognised by the Bar 1 Standards Board for purposes of qualification as a barrister) or a Postgraduate Diploma in Law covering the foundation subjects (similarly recognised). But the SRA has steadfastly refused to countenance such a requirement, on grounds that do not stand up to scrutiny. It is 2 now clear from developments since the LSB gave initial approval for matters to proceed that the SQE wholly fails to provide any equivalent assurance. The published model SQE1 questions are in practice entirely focussed on issues where the law is clear (and, in the case of questions on the foundation subjects), very basic. The skills element originally proposed by 3 the SRA for SQE1 has been dropped. The only element involving uncertainty in SQE2 is an exercise where the candidate has to peruse legal materials provided by the examiners and advise a client, an exercise labelled “research” but in truth very limited. This is clearly insufficient to protect the interests of consumers.

The profession may well pay the ultimate price for the abolition of the training contract and its replacement with qualifying work experience. It requires a leap of faith to believe that candidates who emerge with the badge of solicitor under the new scheme will have the understanding and usefulness that training under the present system, however flawed, does provide. A qualifying work experience will not prove to be adequate without the addition of more post qualification training. It means that many who qualify will not have worked closely under supervision and with the help of an experienced practitioner and many will not have confronted the practical realities and quandaries that challenge new solicitors early in their careers. They will simply not have seen the questions which present every day to practitioners and need to be resolved. The problems of trainees working in isolation in the current coronavirus crisis amply demonstrate the issues

The underlying imperative is the intrinsic belief of regulators that technology provides the key to the future. Digital working and tools employing artificial intelligence may enable services to be streamlined and delivered on a more uniform basis greater volume and at lower cost but whether that will truly satisfy the unmet need is far form certain.

LSB

In recent publications the LSB has pointed out that the price of legal service varies across the country. The limited advice is that consumer in the south might buy services cheaper in the north. The question is whether they will be buying the same end result. For some things it may be true but for others not.

The publication of the work of the Public Panel surveyed in June makes interesting reading. www.legalservicesboard. org.uk/wp-content/uploads/2020/09/Public-Panel-Report- August-2020_FINAL.pdf

Surprisingly high up is the pretty fundamental finding that the law is complicated and consumers do not have a good understanding of it. That does not in fairness seem to be a fault to place at the door of solicitors who interpret the law but rather a problem for law makers in parliament. The cost of legal services is noted as high and a deterrent.

It is disturbing to read the view that the purchase of legal services is seen as a ‘high risk investment’. However that view is readily understandable by anyone who has faced difficult crises in their lives and perhaps embarked upon long and unsuccessful litigation through the court system. Solicitors costs are high but the question is ‘why would that be the case’ – after all the profession does not enjoy a notably high mean wage.

The cost of regulation including not just practising fees and insurance but the systems for training monitoring supervising and record keeping along with the research of constantly changing law adds up to a long list of immoveable costs that take up the most precious and costly commodity of all – the time of skilled and experienced solicitors who are accountable for themselves and all that is done with their authority.

Although only small sample of 41 was taken these findings are likely to provide a great deal more comment in coming months. ■

Michael Garson

Middlesex Law Society