Research undertaken by IRN and commissioned by national firm Leigh Day has found that less than half of solicitors firms have insurance cover that would enable them to be able to cover the costs of any potential investigation against them by the Solicitors Regulation Authority (SRA).
The findings, which were compiled from the responses of 200 law firms, showed that many firms were “walking a knife-edge with inadequate insurance cover to protect themselves against an investigation or a prosecution by their regulator, usually the SRA.
The costs of an investigation used to be covered by a firm’s Professional Indemnity Insurance. This, however, changed in 2010 and many in the legal profession have yet to catch on to that change. The consequence could well be that firms and solicitors are being sanctioned by (or accepting a sanction from) the SRA or at the Solicitors Disciplinary Tribunal (SDT), whether or not there has actually been misconduct, simply because they cannot afford to contest the allegations.
The research suggests that “a worryingly low proportion of firms” take out Management Liability Insurance (MLI) sufficient to enable them to protecting their business and reputation and not even all of those who do “have policies that trigger at the appropriate time to afford financial assistance at all stages of an SRA investigation or prosecution and enable the regulated to have equality of arms with their regulator”.
Given the increased likelihood that the SRA will pursue investigations of and claims against many firms over the coming years, it would seem sensible for more firms to give thought to MLI.
MLI which is also known as Directors & Officers Liability Insurance (“D&O”) is intended to protect senior managers in firms and is becoming increasingly popular in the legal profession to cover potential liabilities faced by COLPs and COFAs – although in many cases the coverage provided extends beyond just disciplinary proceedings.
Essentially, D&O cover protects directors, officers, managers, partners, etc. from losses arising as a result of claims or proceedings for ‘wrongful acts’ occurring during their management roles and can even provide protection to the firm for its ‘wrongful acts’. This might include libel, misstatement, breach of statutory or fiduciary duty or breach of regulatory requirements. Not having D&O cover could leave partners and directors in law firms unable to defend themselves resulting in fines and other sanctions.