Professional services firms’ minimum terms and conditions (MTCs) are vital in helping firms secure adequate professional indemnity insurance (PII). But not all MTCs are equal.
Although law firms receive more rigorous coverage as standard, providing such cover is onerous for insurers, and may be perceived as expensive by the firms themselves. While other professions face fewer obstacles, however, their comparatively lower standard of cover brings a considerably greater risk.
Rigorous cover
Most regulated professional services firms are required by their relevant regulating bodies to take out some form of professional indemnity insurance.
In the case of law firms, the SRA’s Indemnity Insurance Rules stipulate that such insurance must comply with the solicitors’ minimum terms and conditions (MTCs) (opens a new window). These conditions are more rigorous than those applicable to other professions, and cannot be restricted by the insurers themselves.
This ensures that:
Insurers cover “full civil liability” resulting from “private legal practice”, defined in broad terms
Insurers are not entitled to avoid or repudiate cover
Acquired firms are automatically covered as “successors practices”
Where an SRA-regulated firm is unable to renew its insurance, insurers must automatically provide an additional 90 days of cover
Insurers are bound to provide cover even where premiums aren’t paid, including run-off cover for ceased firms
Law firms are the exception
For law firms, the extra expense, and smaller pool of insures willing to offer cover that complies with the solicitors’ MTCs can be frustrating. However, the positive is the certainty that such cover provides.
This certainty is not automatically available, to the same extent, to any other profession.
Profession | Limit of Indemnity | Excess | Defence costs | Run off |
Solicitors (SRA) | £2 million for any one claim (£3 million for a Relevant Recognised Body) | Subject to individual policy wording. Insurer must pay claims if excess not settled by insured within 30 days | In addition to indemnity, not included in excess | 6 years; premium negotiated with policy, but insurer must provide cover even if not paid |
Accountants (ICAEW) | £1.5 million for any one claim and in total, or two and a half times the gross fee income, to a minimum of £100,000 (fees under £600,000) | Not specified, subject to individual wording | In addition to indemnity, not included in excess | 2 years; Assigned Risks Pool (ARP) available for those unable to source cover |
Accountants (ACCA) | Relative to turnover. £1 million, or 25 times the largest fee raised by the firm during the relevant accounting year (where relevant total income is above £700,000) for each and every claim | Lesser of £20,000 per principal, or 2% of the limit of indemnity for each and every claim | Not specified | 6 years |
Surveyors (RICS) | Relative to previous year’s turnover. £1 million (for turnover £200,001 and above) for each and every claim | For indemnity £500,000 and under, the greater of 2.5% of sum insured or £10,000; over £500,000, 2.5% of sum insured | Included in indemnity | 6 years; Assigned Risks Pool (ARP) available for those unable to source cover |
Architects (ARB) | £250,000 for each and every claim | Not specified, subject to individual policy wording | Not specified, subject to individual policy wording | 6-years (5 years in Scotland); firms advised to seek options for cover in the event of insolvency |
*The above table gives an illustration of the typical regulations in force for comparable firms across different professions. Exceptions apply. More extensive cover may be available.
For instance, solicitors’ MTCs carry a higher minimum limit of indemnity than any of those which apply to accountants, surveyors, or architects. Insurers are also obligated to pay any excess or run-off cover if an insured defaults on payment.
Unlike law firms, all other professions face cancellation for non-payment, and have no guarantee of run off cover should the business fail, potentially leaving partners and directors exposed to claims.
Other professions also face much tighter definitions of their professional practice. In some cases, cover may be limited to only negligent acts or omissions, rather than full civil liability.
Broader policies are available
Despite the minimums stated above, it is important to note that some law firms can get even broader cover.
Lockton-negotiated policy wordings may include a definition of “professional business” encompassing any activities the insured firm wish it to, and extend that cover to any entity associated with the firm.
The same is true for firms across other professions. For such firms, it may be useful to consider the MTCs contingent upon solicitors’ PII when seeking cover, particularly where a firm’s needs exceed the stipulations set out by their relevant regulatory body.
For further information, please contact:
James Tuohy, Account Executive
T: +44 785 472 9898
