President’s Address

PRESIDENT’S LETTER

CLOSURE OF THE SOLICITORS INDEMNITY FUND

The profession is facing a significant challenge in the closure of the Solicitors Indemnity Fund (SIF).

Historically, the Statutory Indemnity (SIF) has provided indemnity cover to solicitors of England and Wales. The profession voted to move from a statutory fund system to purchasing professional indemnity insurance (PII) on the open market and a portion of SIF was retained to provide ongoing run-off cover for firms that had already closed. However, its scope was later extended to cover other closed firms once their mandatory six-year run-off had expired.

In 2020, The Solicitors Regulation Authority (SRA) reported that they would stop accepting new claims in 2021. However, they have since agreed to extend the scheme for a further 12 months after they were reassured that the extension was affordable.

The Law Society of England and Wales has lobbied on behalf of solicitors and clients urging the SRA and insurance industry to open a consultation to identify potential options.

The real question is how will closure of SIF will affect law firms? Well once a law firm closes, run-off cover must be purchased to protect both solicitors and their clients from a civil claim that may arise out of negligence. This run-off cover is usually purchased as part of the firm’s professional indemnity insurance (PII) for a duration of six year.

Cover outside of the six-year period is called supplementary run-off cover that has been provided by SIF by way of indemnity. This supplementary cover was provided at no additional cost to the former principals of a closed firm.

However, closure of SIF, means that cover will end on 30 September 2022 for firms that closed on or after 1 September 2000.

Unless alternative arrangements are made the following could be personally liable for losses from any claims arising out of negligence:

• former principals of firms that closed from September 2000 onwards • their estates and • individual employees

Of greater concern is that historically approximately 11% of claims are made after the mandatory run-off period has expired i.e. these late claims occur between six to fifteen years after a firm has closed.

Typically, the following types of legal work are at substantially greater risk of being made after the six-year runoff period:

• matrimonial • wills and trusts • child personal injury • conveyancing Closure of SIF is of great concern to former principals who took out appropriate PII cover prior to retiring or sold their practice within six years but are now under the threat of being personally liable for losses from any claims that are made. It is unlikely that any further extensions will be made by the SRA.

The Law Society of England and Wales has helpfully identified four groups that need to prepare for the closure of SIF:

Group A: firms that closed on or before 31 August 2000.

This group is currently covered by SIF and will continue to receive funds because they closed their firm before the profession moved to purchasing insurance on the open market.

Group B: firms that closed between 1 September 2000 and 30 September 2016

This group is currently in SIF or will be in SIF by 30 September 2022. However, they face the greatest difficulty due to SIF’s closure:

• Former principals of a closed firm should notify SIF of any matter that could give rise to a claim by midnight on 30 September 2022 as SIF will provide indemnity, irrespective of whether proceedings are commenced after this date.

• Retain the relevant paperwork relating to your practice and indemnity insurance records together with previous applications and claims.

• Depending on whether you had a good claims history you should consider approaching your former broker or underwriter to check whether they are willing to provide you with supplementary run-off cover.

• Check with your former partners whether they will indemnify you and/or how you would pay for any supplementary cover.

• Former employers should contact former principals of firms that you worked at which closed without a successor practice during this period and ensure that they are aware of the closure of SIF.

• Discuss how they might indemnify you in the event of a claim against you as their employee.

Group C: firms that have closed since 1 October 2016.

Under the current arrangements, these firms will be left without protection once their run-off cover expires:

• Former principals should preserve any records that may be of assistance in dealing with future claims.

• Retain the relevant paperwork relating to your practice and indemnity insurance records together with previous applications and claims.

• Depending on whether you had a good claims history you should consider approaching your former broker or underwriter to check whether they are willing to provide you with supplementary run-off cover.

• Former employers should contact former principals of firms that you worked at which closed without a successor practice during this period and ensure that they are aware of the closure of SIF.

• Discuss how they might indemnify you in the event of a claim against you as their employee.

Group D: existing or new firms.

Firms that may close at some point in the future need to take steps to minimise their future liability as they will no longer benefit from the cover of SIF. If alternative arrangements are not made, these firms will be left without protection once their run-off cover expires. However, firms can still take precautionary measures to reduce any long-term exposure:

• Traditional sole practices/partnerships should seek independent advice on whether to incorporate as a limited liability company. This measure will reduce any personal exposure to claims arising out of work carried out prior to incorporation.

• Improve risk management systems.

• Consider whether to stop taking on new instructions in areas with a high risk of long-term claims and retain a list of historic high-risk areas of work.

• Consider whether supplementary run-off cover is needed for future work and how this cover will be paid for.

• Consider setting aside funds to help to pay for future mandatory and supplementary run-off cover.

• Principles of new firms should consider the above but also take sensible steps for an orderly closure of the firm and prepare for the provision of supplementary run-off cover once the mandatory run-off has expired.

• Former employees should contact the principals of any firm still currently trading for which you used work and ensure that they are taking appropriate precautions to protect themselves and their former employees.

Finally, these are worrying times for many former principals. I would suggest that you continue to visit the website of the Law Society of England & Wales. In addition, Birmingham Law Society will continue to provide you with regular updates but please, please implement the above suggested proposals.

Inez Brown President, Birmingham Law Society.

FORRESTERS ANNOUNCED AS PATRON OF THE TECHNOLOGY SUPPLY CHAIN

A leading firm of patent and trade mark attorneys has become one of the latest patrons of the Technology Supply Chain.

Dr Jagvir Purewal Forresters is backing the Birmingham-based Community Interest Company, which supports manufacturing, engineering, technology and services companies. The Technology Supply Chain works with a range of organisations, including universities and trade bodies, to help businesses find grants, fully funded support and new opportunities.

Dr Jagvir Purewal and Greg Smith from Forresters said it is fantastic to see the firm become a patron of the network, which is helping so many innovative companies in the Midlands. Jagvir said: “Forresters has a history of supporting innovative businesses and entrepreneurs, and so we are excited to be patrons of the Technology Supply Chain which helps these creative businesses and people achieve their objectives. As part of our involvement with the Technology Supply Chain we are offering members free intellectual property (IP) clinics where we explore how IP, e.g. patents, designs and trade marks, may assist these businesses in achieving their commercial objectives.”

Greg Smith

Greg added: “Every year UK businesses invest significantly in research and development. It is this investment that helps these businesses stay at the forefront of innovation. Protecting this investment through the use of IP is something that helps these companies to flourish even further in our experience and to maintain their competitive edge. For many businesses, their IP is one of their most valuable assets, and so is well worth protecting.”

Richard Fallon, CEO at The Technology Supply Chain, said: “We are thrilled that Forresters has joined us as patrons, as the input they have provided us with over the last few years has been invaluable. Our no-cost membership provides support and opportunities for a range of manufacturing, engineering, tech and services firms. It is the generous support of our Patrons which allows us to do this. We launched in 2018 with the vision of creating a golden age for manufacturing, engineering and tech firms in the West Midlands.

Jagvir and Greg have worked with us since then, and it is wonderful to have them officially involved now through our patron scheme. It is surprising how many of our members are innovating, and yet don’t know about intellectual property, or money saving initiatives such as the patent box.

“Also, it is fantastic to have Forresters as a finalist and on the judging panel of our Innovation Awards and see them recognised for the work they do with innovative and creative companies.”