What Does Solicitors Professional Indemnity Insurance Cover?

What Does Solicitors Professional Indemnity Insurance Cover?

Professional indemnity (PI) insurance for solicitors covers solicitors for claims made against them by third parties or clients arising from the advice given in the course of providing legal services. For example, the claim could be made in relation to alleged negligence, breaches of confidentiality or trust, defamation, or omissions. However, the basis of most PI claims arises from what the client or third party perceives to be a failure by the solicitor or the firm to perform their duty of care to a reasonable standard.

According to insurance experts NimbleFins, the basic rule is that if you are involved in providing professional advice to clients, you need to have PI insurance.


What Indemnity Insurance Do Solicitors Have To Have By Law

Whilst some professions do not legally have to have PI insurance in place, legally, the Solicitors Act 1974 requires that all law firms must have solicitors PI insurance in place.  It is compulsory to have the PI insurance in place to ensure the public is protected and ensure the firm itself is protected in the event of a claim by a client. Therefore, Solicitors PI insurance is deemed to be mandatory and cannot be overlooked.

Solicitors need to have PI insurance in place in order to provide legal advice and services to their clients.  The PI insurance policy will provide coverage for the firm in the event of a claim being made and will meet the costs of any costs, damages and compensation awarded, and also the costs of defending any claim.

PI insurance for solicitors will normally cover the following:

Policies typically last 12 months and need to be renewed annually.

PI insurance is not only mandatory for solicitors working in law firms and sole practitioners but is also required to be in place for solicitors working in:

  • Partnerships
  • Law centres
  • Charities
  • Foreign law firms

The Law Society’s advice is to ensure that law firms start the process of ensuring they have PI insurance early so that there are no periods before starting practising or during renewals where there is a gap in cover. For example, until 2014, law firms had to renew their PI policies on the 1st of October annually.  The Law Society advises that firms start looking to have their renewal in place before this date. Firms should prepare by gathering all the information they need and meeting with their brokers to provide all the information they need to provide a policy quote.

Why Solicitors Need To Have Professional Indemnity Insurance In Place

Whether a firm provides professional legal advice to individuals or large companies, they must ensure that PI insurance is in place.  In addition to the requirements of The Solicitors Act 1974, the main reasons solicitors need PI insurance in place is due to the following:

  1. Risk-management: a PI policy protects the firm in the event that a claim for damages or compensation is made.
  2. Regulation and compliance: the Solicitors Regulation Authority Indemnity Insurance Rules require that solicitors are obliged to have PI insurance in place at all times. Additionally, any new firm must have their PI insurance in place before they start seeing clients and practising.
  3. Clients: irrespective of the regulatory regime in place, most clients will want to know that the firm or solicitor they use has PI insurance in place. Not only is it a good commercial decision to have PI insurance, but it also lends to the credibility and reputation of the firm.

How Much Is Professional Indemnity Insurance For Solicitors

Ensuring they have the right PI insurance is a critical decision for law firms.

The Solicitors Regulation Authority has minimum limits of what it requires firms to have in place in terms of PI insurance:

  • Partnerships and sole practitioner solicitors are required to have a £2 million level of cover
  • Limited companies and limited liability partnerships are required to have a £3 million level of cover

The Solicitors Regulation Authority will require respective law firms to purchase the ‘appropriate’ level of PI insurance depending on their practice.  Therefore, law firms should evaluate and assess the level of cover they need depending on their size and scope of advice.  Law firms should ask themselves the following questions when deciding the level of cover they need from a PI insurance policy:

  • What is the appetite for risk the firm has?
  • What is the minimum level of cover the firm would be comfortable with?
  • What type of work does the practice offer?
  • What is the worst-case scenario in the event of a claim being made?
  • What level of PI insurance is the firm required to have by the Solicitors Regulation Authority?

Most PI insurance companies will base your PI limits and premiums by looking at the type of firm the law firm does, the level of income they generate, previous claims history and the level of risk management in place.

Another thing for law firms and solicitors to be aware of is that PI policies should provide cover for claims that are made against them for up to 6 years after they have closed or retired.  This is known as run-off cover and means that even when solicitors retire, they are covered by their PI policy for any claims made against them.


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