Solicitors’ PII Quotations: Pre-Acceptance Checklist
03 September 2021
Renewing solicitors’ professional indemnity insurance (PII) is hard work, particularly in the current market.
Proposal forms take a great deal of time and effort to complete and you then wait nervously for the quotes to come in as the clock ticks towards your renewal date.
When, at last, you have a suitable quote on your desk, it can be tempting to just tick the relevant box to communicate your acceptance and get the job done for another year. But, having invested so much in the process to that point, we recommend you take just another few moments to reflect and review before finalising your decision. Whether you are a Top 100 firm or a sole practitioner, here is a checklist of issues to consider:
Have you provided a “fair presentation of the risk” to insurers?
Under the Insurance Act 2015 you owe a duty of disclosure to your insurer(s), which includes a duty to make a “fair presentation of the risk”. This is an ongoing duty and if any material circumstance has arisen since the submission of your proposal form, then you should discuss this with your broker so that insurers can be advised. Material information is any fact that senior management, including those responsible for managing insurance, know or ought to know following a reasonable search that “would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.”
When signing the Quote Acceptance section of Howden’s Quotation Form, you will note that it includes a declaration confirming that you have made a fair presentation of the risk, so it is important to reflect carefully on this issue.
Have you notified all claims and circumstances?
Consistent with the duty of fair presentation, is the requirement to ensure that all claims and circumstances are notified to insurers in advance of renewal. The responsibility to make prompt notification of claims and circumstances is also covered in your policy.
Many firms find it useful to send a reminder to fee earners at intervals throughout the year, prompting them to advise any matters that should be reported. It is particularly important that this is done when completing the PII proposal form, as questions relating to the reporting of claims and circumstances are usually prefaced with words such as “after full enquiry of all principals, solicitors and employees in the firm”.
You must also revisit this issue when accepting your PII quote and you will notice that our Quote Acceptance form includes a declaration requiring the signatory to further confirm that “all claims or circumstances, prosecutions, proceedings or investigations (successful or otherwise) or other incidents which could give rise to a claim under this insurance have been notified to Insurers”.
This issue is even more critical if you are changing insurers. If you are aware of a matter that amounts to a “circumstance” and you fail to notify it prior to the expiry of your current policy, then the matter will fall to your new insurer if there are developments that result in you making the notification. Not only will a new insurer be concerned about a firm’s lack of attention to such an important issue, they might also want to consider whether they can invoke the “reimbursement” provision in the policy.
If you are ever in doubt about whether a matter should be notified, discuss the issue with your broker. At Howden we have a very experienced team that deals exclusively with solicitors’ PII claims and can advise firms in this situation.
Is the limit of indemnity “adequate and appropriate” for your firm?
Have you undertaken a review of the limit of indemnity that your firm needs? Clause 3.1 of the SRA Indemnity Insurance Rules requires firms to “…take out and maintain professional indemnity insurance that provides adequate and appropriate cover in respect of current or past practice taking into account any alternative arrangements the [firm] or its clients may make.”
While the SRA sets compulsory cover at a minimum of £2m for sole practitioners and partnerships and £3m for LLPs and other incorporated practices, this does not mean that such cover is “adequate and appropriate” for a firm. It could be, but this will depend on a range of issues and some firms will need significantly more cover in order to discharge their regulatory obligations.
It is important that firms undertake an assessment of the cover required and we recommend that this is done prior to each renewal. You should also document your consideration of the issue and the decision-making process to ensure that you can evidence your assessment to the SRA if called upon to do so.
For a more in depth discussion of this issue we recommend an article we have previously published and available here.
Are there any changes to policy terms that you need to be aware of?
All solicitors’ PII policies must be consistent with the SRA’s Minimum Terms and Conditions (MTCs). It is easy to become complacent and adopt the view that you do not need to pay too much attention to the wording as the MTCs will always prevail in the event of any inconsistency. We urge caution with such an approach.
Some primary polices will include cover beyond that required by the MTCs. For example, some insurers allow a limited amount of cover to defend disciplinary proceedings. If you have discretionary cover such as this, then you should always check whether there have been any changes.
You also need to be alert to any amendments to the MTCs that might have occurred in the last year. While changes are infrequent, they do arise and on this point we refer you to our discussion below regarding the issue of silent cyber.
If you are purchasing excess layers above the primary £2m or £3m limit, then in addition to checking whether there has been any change to the wording, also make sure you understand the terms of that cover, as there is no requirement for it to follow the MTCs. There will be differences.
Finally, if you are changing either your primary or excess layer insurers, it is again important to undertake a contrast and compare exercise to identify any differences to your existing policy that could be an issue. Howden can assist you with that comparison.
What position is your insurer adopting on the issue of “silent cyber”?
Silent cyber refers to the scenario where cyber cover is neither explicitly excluded nor clearly included in the policy wording. This can result in ambiguous cover and an increased risk of disputes. The Prudential Regulation Authority (PRA) and Lloyd’s have required that insurers put plans into action to reduce “silent” exposures – by either excluding them, or providing affirmative cover.
Changes have already been made to excess layer policies and if you have any excess layer cover, then it is important to check and understand the scope of the clause that has been introduced.
As far as your primary cover is concerned, the SRA has now consulted on this issue. Their stated intention is that there should be no change in the existing scope of cover under the MTCs, which (broadly) provides cover for third-party losses or liability, but excludes first party losses.
The SRA aims to achieve their objective with an amendment to the MTCs that would permit an exclusion in relation to certain cyber exposures, but then “carve back” cover for third party losses. However, this amendment will not be in place for the 1 October 2021 renewal. It is still the subject of discussion and will need to be approved by the Legal Services Board. Any amendment is not expected to be effective until some point in 2022.
Some insurers providing solicitors’ primary PII cover have decided to introduce a “silent cyber” clause to their policy wording now. It is therefore important to check if this includes your insurer and if so, what the scope of the clause is. If an insurer introduces a clause that is inconsistent with the MTCs, then the latter will always prevail.
Policyholders also need to stay in touch with their brokers on this issue during the course of the policy year. We cannot be certain about what the form and scope of the MTC amendment will eventually be and whether it will ultimately result in some change to existing cover. Under the Participating Insurers Agreement, the SRA can require insurers to adopt and give effect to a variation of the MTCs on two months written notice to the insurer or insured firm. This means that your primary PII policy might change mid-term, or exclusions imposed by insurers at the inception of your renewal policy could become effective mid-term.
If you do not already have a separate cyber liability policy, this is also a good time to investigate and consider taking that cover to minimise any potential gaps in cover that might arise as a result of changes.
 Section 7(3) Insurance Act 2015
Written by Jenny Screech LLB (Hons)
Legal Consultant, Howden PII