Closure of the Solicitors Indemnity Fund Limited (SIF) to new claims

ARTICLE

Closure of the Solicitors Indemnity Fund Limited (SIF) to new claims

The protection for claims against solicitors after expiry of the 6-year run off period which is part of the SRA minimum terms of cover is coming to an end. Whilst limitation is primarily based upon six years in contract and tort, the accrual of a cause of action and a Claimant’s date of knowledge can stretch those time limits making another 15-20 years protection desirable.

The end date for SIF to accept new claims has been extended from September 2021 to 30 September 2022 principally in response to opposition from the profession. The Law Society has been aware of the imminent closure for many years and succeeded in pushing back the original planned closure date from 2017 giving time to investigate whether alternative insurance protection might be available from the market. Insurers have not shown any interest or offered any scheme that might be viable and could be made widely available.

The SRA now plan to consult the profession and may well argue for closure on the basis that there are few claims and that the cost of defending and administering the fund is disproportionate to the public benefit. They may argue that the fund is principally a protection for solicitors rather than necessary to fill any real gap in public protection. That position is not rejected and deploys the same argument as was made when the SRA attempted unsuccessfully to reduce the amount of cover provided by the minimum terms and conditions from £2m to £1m or £0.5m in 2014 and again in 2018.

The number of claims to SIF each year is relatively small, and claims are often administered and if appropriate paid in cases where solicitors are elderly, infirm or they or their estate do not have the means to investigate or defend the claim. Many claims are filed for protection and then fall away some years later and those that are paid inevitably settle at less than the initial amount notified for which funds are reserved.

For the Law Society to provide a viable scheme in place of SIF it would need to be permitted to levy the profession and, in that case, the annual cost is believed to be small. Less than £50 per solicitor would probably raise enough to maintain the fund sufficient to pay out claims and costs running at less than £2m pa. A cushion of reserve capital would also be needed but if permitted to levy by the LSB this might be easily provided over a period of years.

It is conceivable that the LSB would not approve a levy and then it would given experience to date take time before any voluntary scheme could be offered with affordable premium and suitable cover. Discussion with brokers and insurers around market appetite, what a replacement might look like, and the challenges that might inhibit a product coming to market, such as lack of data and the current hard market with limited capacity have suggested that a “one size fits all” approach may not be workable, for a voluntary scheme.

The position for those who have retired since 2000 is worrying. Partners and employees may be liable to receive claims, and this would extend to the former partners and employees of firms that have merged or transferred their business to a successor practice -in the event of that successor firm failing.

The situation is unsatisfactory and in need of urgent resolution as SIF has been running down the balance of its capital such that the directors and SRA are advised that a further extension is not feasible.

It is however interesting to note that the post 2000 surplus in the Fund has been successfully invested such that the return on that capital balance has been sufficient to maintain the fund over the 20-year period during which no new funds have been injected. ■