Professional indemnity claims: Surviving the frost

Professional indemnity claims: Surviving the frost

Mike Willis on insurable risks and chilly times for solicitors

Is it just me, or has the autumn season suddenly turned uncomfortably chilly?

Several recent law firm closures and distressed mergers are reminders of the knife-edge economic models operated by legal services businesses in some sectors.

Others meanwhile are having to fight hard to recover fees, especially interparty litigation costs which reflect the values of the services they deliver. Irwin Mitchell has emerged victorious from its multiple- clients’ Appeal Court costs recovery dispute against the losing Defendants in TUI UK Limited v. Tickell [2016], after winning damages awards for its many clients – victims of food poisoning on a cruise ship.
But its victory is hardly resounding. The firm has ultimately recovered a bit more than £1 million, but that is substantially less than the £1.76 million claimed for, and its bills were closely scrutinised.

One point of contention was whether the firm could recover for the time charged for discussions between fee earners, who were mainly paralegals under supervision from more senior colleagues, which “worked out at 40 minutes on average per claimant, per year”. The Court happily has held that to say there should have been no inter-fee earner discussions “was unrealistic”.

The pressures nevertheless, are telling. Replacements of legal practice experience with case management programmes gets you so far, but it’s risky business for any matters requiring technical or commercial savvy.

Perhaps in times past, before IT-systemised paralegal teams became commonplace, and the profession wasn’t as overpopulated as it is now, firms would be wary of undertaking volume or low-value caseloads, because the economics of doing so profitably were borderline at best. Maybe that is still the case.

At all events, there is still plenty that can go wrong to reduce or expunge profit, incur a loss, or sometimes produce a damaging claim or complaint exposure.

In October, the Solicitors Regulation Authority published analysis of ten years of claims data – from 2004 to 2014. The data was gathered from professional indemnity insurers currently active in the market, as prelude to a fresh consultation on proposals to reduce the minimum level of compulsory insurance for law firms from the current £2million (£3million for corporates) to £500,000. Statistics of course can be used and tailored to purpose, but the headline indications from the data are usefully consistent with the various anecdotal reports and opinions randomly published over recent years.

The biggest claims arise from commercial work. But the proportion of exposures arising from property related services is predominant. 26% of all claims stem from residential conveyancing and a further 33% from commercial property and landlord & tenant work. Root causes – and curses – are various, but the aspects arising most often are work done by under-qualified staff without adequate supervision; inadequate risk practices; and pressures of volumes and speed.

However, these figures may not be a sound reflection of more recent trends. The number of claims against solicitors is up by 170% since 2012, and although at least half have arisen from property work, there has been a significant increase in the number and value of cases involving testamentary arrangements and inheritance investment. There is a growing number of specialised claimant lawyers offering their services to an increasing proportion of the public prepared to run the risks of litigation.

Mike Willis handles professional indemnity claims on behalf of solicitors, brokers, accountants, surveyors, and other professions 

Categories: Legal, News