The Compensation Fund and the SIF: An Update

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The Compensation Fund and the SIF: An Update

Published 14 December 2020

We revisit two earlier pieces about forthcoming changes relevant to professional indemnity insurance and claims against solicitors: (i) reforms to the Compensation Fund; and (ii) the closure of the SIF to claims made after the expiry of compulsory six year run off cover.

The Compensation Fund

The SRA has been consulting on measures to reduce the regulatory burden on the profession. We have previously looked at the options being considered for the Compensation Fund, the discretionary fund of last resort for those owed money by regulated firms, but which fall outside mandatory PII cover.

In July the SRA announced the results, with the key changes that have survived including:

  • The removal of the ‘hardship’ test, with an applicant no longer having to demonstrate the impact of the loss.
  • Reducing the maximum grant on a single claim from £2m to just £500,000.
  • Capping the liability on ‘connected’ claims, thus where multiple applications stem from the same underlying matter (such as an investment scheme).
  • Restricting the eligibility to claim, excluding large charities and trusts, and not covering unpaid professional fees.

Whilst measures had also been proposed to restrict applications to just the direct clients or beneficiaries of the legal services, these have been abandoned. It will therefore still be possible to claim where it can be shown that the solicitor for the other party failed to use the applicant’s funds for the purpose intended to complete a transaction for their benefit.

The revised proposals are awaiting final approval from the Legal Services Board.

Closure of the SIF to new claims

We have previously covered the potential exposure to negligence claims faced by former partners of firms that closed without a successor practice, once the compulsory six-year run-off period expired. Whilst limitation is primarily based upon six years in contract and tort, the accrual of a cause of action and a Claimant’s date of knowledge can stretch those time limits, making the 15 year long-stop date seem a long way away.

For years the SIF has provided a safety net, but it is a finite resource, and had been scheduled to close to new claims in September 2020. We previously stressed the need for post-six year run-off cover, to avoid individuals being held personally liable for historical claims.

Progress to find a solution has been slow. In June, the SRA announced that the closure date was to be moved, with the SIF shutting to new notifications after 30 September 2021. Following that announcement there have been a number of conversations between key stakeholders, brokers and insurers around market appetite, what a replacement might look like, and the challenges that might inhibit a product coming to market, such as lack of data and the current hard market with limited capacity. A “one size fits all” approach may not be workable, but this remains to be seen.

We were recently approached to advise a former partner of a closed firm, who was personally named as a defendant in proceedings concerning a transaction that completed a decade ago. Thankfully, the SIF should still respond to the claim. However, that same conversation in 12 months’ time could be very different. Without alternative cover in place, there could be significant financial repercussions for an individual in that situation. It is therefore clear that solicitors at firms that closed without a successor practice need to carefully consider their future needs and engagement with their broker should be the first step.


James Hazlett

James Hazlett


+44 (0)113 251 4733

Suzanne Wharton

Suzanne Wharton


+44 (0)113 251 4775

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