What is Solicitors Professional Indemnity Insurance Cover?
Professional indemnity (PI) insurance is effectively a commercial insurance policy designed to protect the owners of a business if their clients claim against them. Any organisation involved in providing professional services or providing advice to clients could potentially face a claim against it by clients. An indemnity refers to compensation for loss or damages. A professional indemnity policy serves to ensure that if a claim is made against you in your professional capacity, you are covered for any loss or damages claimed.
While exact coverage can vary by policy, according to insurance experts NimbleFins solicitor professional indemnity insurance commonly covers:
- Protection from claims – financial losses incurred by clients claiming a law firm or solicitor can be crippling. Having an insurance policy in place means that the insurer can bear the costs of the defence and any damages.
- Legal shield – PI insurance policies ensure that the insured is protected against repercussions against claims relating to negligence, error, or omission.
- Reputational credibility – having an insurance policy in place enhances your goodwill and increases your brand reputation and image. Clients are more likely to feel comfortable coming to you for advice if they feel you have insurance in place if things go wrong.
- Protection – PI insurance policies protect the reputation of the profession and the individuals within it and offer protection to clients.
- Tenders and business development – for many organisations, including law firms, their regulatory body demands that PI insurance is in place. In addition, clients who offer work through a tendering system often also request that adequate insurance is in place.
Why Do Solicitors Need Professional Indemnity Insurance
As part of the profession’s regulatory requirements, solicitors need to have professional indemnity insurance in place. It is a mandatory requirement courtesy of the Solicitors Act 1974, requiring that all law firms have solicitors PI insurance.
In addition to the 1974 Act, the Solicitors Regulation Authority (the regulatory body for solicitors) has strict rules about solicitors and PI insurance. The rules require that adequate PI insurance must be in place before advice is given by solicitors and stipulates the level of cover that needs to be in place for its members. The Solicitors Regulation Authority also requires firms to self-assess and ensure that any level of PI cover obtained is commensurate with the level of risk exposure they expect.
One example of this is when a medium-sized firm has large corporate clients and complex transactions to deal with. The Solicitors Regulation Authority requires firms to assess their risk exposure and their potential liability for any losses incurred. Accordingly, law firms should consider the following when deciding on the level of indemnity they need:
- Level of fee income
- Risk management
- Potential risk exposure
- Size of firm
- Type of scope
- Client base
- Previous risk and claims history
A PI insurance policy should cover the following:
- Professional negligence
- Civil liability claims
- Defence costs
Solicitors working in organisations that are not law firms, including sole practitioners, law centres and charities, must also ensure they have adequate PI insurance in place.
According to the Law Society, law firms need to be proactive and ensure that PI insurance is in place at all times.
Not only is PI insurance a requirement of the Solicitors Regulation Authority, but solicitors also need to have an insurance policy in place to provide essential cover against civil liability claims. Having appropriate PI insurance in place also means that businesses can increase their financial viability by ensuring that they are financially protected in the event of a claim made against them.
PI insurance provides peace of mind. In firms where there are multiple solicitors, PI insurance means that if claims of negligence are made, the firm is in a position to defend itself and mitigate the financial losses incurred.
Do Solicitors Have Professional Indemnity Insurance
The Solicitors Regulation Authority Indemnity Insurance Rules require that solicitors have PI insurance in place at all times. For firms that are just starting out, they must have the PI insurance in place before they start seeing clients and practising.
PI insurance enables solicitors to practice knowing that if they do make a mistake or face exposure to risk arising from the advice they provide, then the risk is being effectively managed. Most commercial clients will expect solicitors to have adequate PI insurance in place, and those firms who do not have sufficient cover may find that they do not secure the type of work they want.