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Research suggests less than half of law firms have insurance cover for regulatory defence costs

Research commissioned by Leigh Day’s Regulatory & Disciplinary team has found that less than 50% of participating law firms have insurance cover to give them the potential for financial equality of arms with their regulator if faced with an investigation or disciplinary proceedings.

13 January 2020

The research, conducted by IRN Research on behalf of Leigh Day, consisted of an online survey of legal professionals from firms of different sizes and in different locations across the UK, which gained 200 responses. Follow-up telephone interviews were then conducted with 30 of the online respondents to gain a better understanding of how risk and compliance is managed in those practices.
 
The results of the research showed that many firms have either no cover or inadequate cover to provide the financial resources to fund the costs of seeking expert assistance to deal with an investigation or prosecution by their regulator, in almost all cases, the Solicitors Regulation Authority (SRA). The research showed that relatively few firms take out sufficient and appropriate Management Liability Insurance (MLI) cover to provide them with the financial security needed to offer them the best chance of protecting their practice and their reputation.
 
According to the research, less than 50% of firms had MLI that would cover these costs and fewer still had policies that would trigger at the appropriate time to allow them the sort of help that would potentially afford equality of arms with the SRA in an investigation.
 
Leigh Day has more direct experience than most of dealing with the SRA, having spent four years between 2014 and 2018 successfully defending a complex and wide-ranging SRA investigation and prosecution of the firm and three of its solicitors.  This resulted in all allegations being dismissed by the Solicitors Disciplinary Tribunal and the High Court dismissing the SRA’s appeal of that outcome in its entirety.
 
Following the end of the disciplinary case Leigh Day set up its own Regulatory & Disciplinary team to help other solicitors and firms to handle SRA investigations and prosecutions and to navigate their regulatory landscape more broadly. Through this work the team found that many firms assume that their Professional Indemnity Insurance (PII) would cover them if they are investigated or prosecuted, but that is no longer the case. In 2010, the SRA successfully applied to change the minimum terms and conditions for solicitors’ indemnity insurance. One of the changes it sought resulted in regulatory defence costs falling outside of the mandatory scope in policies.
 
According to the SRA’s data from 2017-18, it received over 11,500 reports about conduct in that period. Out of those 11,500 reports, the SRA opened over disciplinary 6,000 investigations.
 
Gideon Habel, solicitor in the Regulatory & Disciplinary team at Leigh Day, said:
 
“The recent changes to reporting requirements in the SRA’s new Standards and Regulations mean there will surely be an increase in the number of reports to the SRA. At the same time, the SDT has just lowered the standard of proof it applies when deciding cases before it to the civil standard.
 
“It seems something of a perfect storm for firms and solicitors at the moment, particularly given the findings of this research which show that uptake of insurance for defence cover is still low, despite the risks. We would urge all firms to check their insurance provision with the findings of our research in mind. In particular, we would encourage law firm decision-makers to consider carefully whether, if your firm had to respond to an SRA investigation tomorrow, your insurance would allow you to build the team of experts you need to help you to respond as decisively and comprehensively as such a situation demands.”
 
Emma Walker, solicitor in the Regulatory & Disciplinary team at Leigh Day, added:
 
“The questions that practitioners everywhere should be asking are: whether they are covered, when that cover triggers and how much it is worth. Those managing firms should also consider the question of cover for staff who are not managers or partners from an ethical perspective; all those who are regulated should be appropriately equipped to respond to regulatory scrutiny.”

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