The Compensation Fund and the SIF: As You Were

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The Compensation Fund and the SIF: As You Were

Published 29 October 2021

We have previously detailed potential changes to two aspects of compensation claims: (i) amendments to the rules of the SRA’s Compensation Fund; and (ii) the closure of the Solicitors Indemnity Fund to new claims. There have been recent developments in both respects, but nothing has really changed.

The Compensation Fund

This is the discretionary fund of last resort.

The SRA has for some time been considering wide-ranging reforms. The bulk of those reforms about PII cover have been abandoned (for now), but the SRA has pressed ahead with changes to the Compensation Fund, to make it more sustainable. However, those efforts have met with resistance.

One of the most controversial changes was the reduction of the maximum payment limit from £2m to just £500,000, save in exceptional circumstances ‘in the public interest’. The proposal survived a consultation period, but has fallen foul of the Legal Services Board, concerned about the significant detriment it would have to the admittedly limited number of clients to whom it would apply (0.2% of payments over 15 years), undermining confidence in the profession and the protection to its customers. It has accordingly been removed from the reforms, ensuring that where entitled to claim against the fund for substantial losses, it will not be subject to a more restricted cap.

In the meantime, the SRA has revealed that whilst the number of claims on the Compensation Fund has fallen (both applications and then those which were successful), the payments have increased, averaging £28,000 in 2019/20, and so nearly double the figure in 2018/19. The actions of a dishonest minority continue to be a substantial drain upon the profession.

Closure of SIF

It is a hard PII market at present, restricting the availability and affordability of renewals or new policies. Those difficulties are not only being felt by those still practising; they are also of concern to solicitors who have long since retired, whose firms ceased operating without a successor practice.

All firms which close down are subject to six years’ compulsory run-off cover, either by the last Insurer on risk or under a specific policy. Negligence claims do not comply with predictable timetables. The primary six-year limitation period can often be extended, including based upon when a loss was first suffered and/or date of knowledge. In claims involving Wills and Trusts, conveyancing or injury settlements, this can be many years later.

The SIF has therefore offered a safety net for claims made after expiry of run-off cover. However, it is a finite resource which the SRA wants to close, shifting the burden for arranging longer term insurance to the individuals who want or need that protection. It is continuing to prove difficult. Despite knowing for some time that the SIF is scheduled to close, there are still no viable products available, undeniably exacerbated by market conditions. This has already resulted in the planned closure in September 2020 being pushed back, and to the considerable relief of many former practitioners it has recently been announced that this will be extended to 2022.

The onus now, though, must be on finally formulating the alternatives, so that the same situation is not repeated next year. There are a considerable number of retired solicitors anxiously awaiting the outcome, reliant on the key stakeholders and wider insurance market to help engineer the solutions. They need to deliver over the next twelve months, to protect the profession (retired and current) and the consumers.

Authors

James Hazlett

James Hazlett

Leeds

+44 (0)113 251 4733

Suzanne Wharton

Suzanne Wharton

Leeds

+44 (0)113 251 4775