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Post 6-Year Run-Off Cover: An important opportunity to have your say
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On 23 November 2021 the SRA published its consultation (available here) on proposals to end post 6-year run-off cover provided by the Solicitors’ Indemnity Fund since 2007 (PSYROC).
This cover was originally supposed to end on 30 September 2017, but there have been successive extensions, mainly due to concerns about the lack of available replacement cover.
At Howden, we are currently reviewing the consultation document and associated annexures. We hope to share our response to the consultation later in January before it closes on 15 February 2022.
In the meantime we believe it is important that the profession is aware of the SRA’s potential “direction of travel” on this issue, which is quite apparent from the consultation document. It is shortly summarised in an opening section as follows:
….in the document below we have addressed the question of whether to maintain PSYROC through the SIF, chiefly in terms of proportionality, in light of its ongoing costs. We have also sought to explore alternative methods and models of providing PSYROC to consider whether a more proportionate option might be viable. In gathering detailed evidence in advance of the consultation, including independent expert analysis of historical claims data, it has become clear that the level of consumer protection that PSYROC would deliver going forward will be very small. Therefore we have come to the initial view that any alternative PSYROC model is likely to be disproportionate for us to deliver, through a regulatory scheme. You will see from the document below the reason for that view, and the questions we have posed to enable us to have the benefit of a wide range of views and any further relevant information before reaching a decision on the matter.[1]
We know that this is an issue of concern to the profession. We want to encourage as many solicitors as possible to respond to the consultation and ensure that their voice is heard. Numbers are important in this kind of exercise. We are concerned that people are sometimes dissuaded from responding due to time pressure. However, your response does not need to be lengthy and you do not need to address all the questions that have been asked.
Consider your position carefully before dismissing this issue on the basis it does not affect you. It will be relevant in the following scenarios:
Closed firms that have had run-off cover post 1 September 2000
If your 6-year run-off policy has already ended and you currently have PSYROC, then there will be no further cover for you from 30 September 2022. For those who are still within their 6-year run-off policy at that date, then there will be no PSYROC when your run-off policy ends. This includes firms that have taken elective run-off.
Closed firms that were succeeded to post 1 September 2000
If your firm was succeeded to upon closure and did not need to take run-off under the successor practice rules set out in the MTCs, then you are not affected. The successor practice will continue to be responsible for any new claims against your former practice. However, you will be affected if the successor practice closes and takes run-off (or has already done so), in which case you will be at risk at the end of their 6-year run-off period.
Sole practitioners and law firms currently in practice
While you might think that this issue is not relevant to you at the present time, consider the future. If you want to close your practice at some point and cannot find a successor to assume responsibility for future claims, then at the end of your 6-year run-off cover, you will not have the “sleep-easy” benefit of PSYROC.
Large firms?
There is a view that this is not a large firm issue. We urge caution with such a view. History tells us that large firms are not immune to failure and where a successor isn’t found, or a merger partner insists that elective run-off is purchased, then the absence of PSYROC will be relevant.
Another concern could arise from a commercial perspective where a principal from a ceased practice is now a principal in a large firm. There could be financial stress and reputation issues for the individual in the event that there is a significant claim for which they have no cover. That could in turn impact the reputation of their current firm.
We also regularly see solicitors and principals from large firms establishing smaller, niche SRA-regulated practices as a step on the route to retirement. Once again, there will be no cover for those who take this option and cannot find a successor willing to take responsibility for claims when they eventually close the practice to retire.
LLPs or other incorporated practices?
Finally, we also caution against dismissing this issue on the basis that your current or former practice was an LLP or limited company. While the entity has the benefit of limited liability, there remains the risk of a claim against an individual (principal or employee) based on negligence. It does not happen often – but it can happen.
While most claims will be brought within the 6-year period following the closure of a practice, there are scenarios where claims are successfully made beyond that period. The suggestion that it is disproportionate to continue to deliver PSYROC through a regulatory scheme when balanced against the level of public protection it delivers, is open to challenge. Do not miss your opportunity to have a say on this important issue.
1 Paragraph 20 SRA Consultation paper - Solicitors' Indemnity Fund
Written by Jenny Screech LLB (Hons)
Legal Consultant, Howden PII