On the 9th October the Legal Services Board approved the proposal that SRA regulated firms can port their prior liabilities arising from conveyancing into a Council of Licensed Conveyancers compliant professional indemnity (PI) policy.
Managing the insurance arrangements for a firm that decides to switch regulator, either in its entirety or by hiving off its conveyancing activities under a CLC PI policy is not entirely straightforward but the CLC policy offers one significant benefit over the SRA PI policy; namely six years built in run-off cover.
• SRA regulated firm doing 100 per cent conveyancing – providing the firm hasn’t undertaken any other SRA regulated activity in the preceding 6 year’s they can move fairly effortlessly into the CLC insurance regime.
• SRA regulated firm undertaking, for example, 75 per cent conveyancing and 25 per cent other SRA regulated work. The conveyancing work can be insured under a CLC compliant policy but a separate SRA compliant policy would be required for the other work. Should the firm elect to put the side of the business undertaking SRA regulated activities into run-off, an SRA compliant run-off policy would be required. Typically this would be placed with the firm’s existing insurers.
The first scenario is fairly straightforward but insurers are likely to baulk at providing cover for a firm that appears, for whatever reason, to be looking to wind down and take advantage of the CLC policy’s built in run off cover.
The second scenario is more complex. Ideally both PI policies should be underwritten by the same insurer, as this will avoid a dispute between insurers should a claim arise where it is unclear which policy should respond. However, the range of insurers who are prepared to underwrite both CLC and SRA compliant policies is limited.
We are already working with several SRA regulated firms that are exploring the potential impact of changing regulator. The decision should not be taken lightly. We are happy to provide guidance to any firm that is contemplating the switch to ensure you can take a fully informed decision.