Howden champions changes to avoid additional PII costs for the legal profession

Since the introduction of the open market for PII, clause 3.3 of the Solicitors Regulation Authority’s (SRA) Minimum Terms and Conditions (MTCs) has prevented insurers from applying the self-insured excess to defence costs. When your firm has been faced with a vexatious or unmeritorious claim, you have at least had the comfort of knowing that it will be defended without cost to your firm. Likewise, the reporting and investigation of a circumstance have not resulted in you being asked to make a payment from your excess to meet the costs of any investigation work that follows. 

There was a rather large surprise when we reviewed the changes to the MTCs being introduced by the SRA on 25 November. Suddenly clause 3.3 had changed to provide that insurers would now be permitted to apply the excess to defence costs. 

Where had this come from? The idea was mooted in a 2018 consultation on changes to the MTCs, but we are all still waiting for that consultation to be completed. We understood that the latest changes to the MTCs were to respond to the introduction of the new practising styles, which permit “freelancers” and the delivery of non-reserved services by entities that are not authorised by the SRA. Our review of the SRA’s application to the Legal Services Board to approve the changes confirmed this understanding. The SRA had clearly stated in their application:

“This application does not seek approval of rules that would implement wider reforms of our PII arrangements….as that programme of work is continuing separately”.

Clearly something had gone very wrong. This was a fundamental change. In the current hard market, we considered it very likely that insurers would adopt the change without any corresponding reduction in premium. Payment would now need to be made in circumstances where defence costs only were incurred. The insurer could seek recovery up to the level of a firm’s excess. This outcome would not have assisted the SRA’s on-going objective - namely to reduce the cost of PII and thereby increase access to justice.

The status quo is restored

This change was buried in the detail and clearly “flying under the radar”. We immediately went into print to the SRA on this issue. We suggested that the inclusion of this amendment was perhaps “an error”. The SRA were very swift to confirm that they would consider the issue and later confirmed that the matter had been referred to their legal team. We continued to press the point and at the 11th hour, we were very pleased to receive confirmation from the SRA that the original wording of clause 3.3 has been restored. The status quo remains and excess payments cannot be applied to defence costs. 

Howden….always working in our clients’ interests.