What Does Solicitors’ Professional Indemnity Insurance Cover?
To work as a solicitor in the UK, and protect yourself against claims of negligence, you will likely need to purchase professional indemnity insurance. Find out about what it covers, and how much it will cost, with our guide.
If you work as a solicitor in any capacity, from running your own firm to operating as a freelancer to doing pro bono work, the chances are that you will need to take out a specific solicitors’ professional indemnity insurance policy.
Below, we look into what professional indemnity insurance for solicitors is, whether all solicitors need it, and what exactly it covers.
What is professional indemnity insurance for solicitors?
Like professional indemnity insurance for other jobs, professional indemnity insurance for solicitors can cover legal fees and compensation costs if a claim is made against you relating to accusations of:
- professional negligence
- breach of trust or confidentiality
What is not covered by solicitors’ professional indemnity insurance?
There are a number of situations where you won’t be covered by your professional indemnity policy as a solicitor. These can include, but are not limited to:
- defence costs for disciplinary proceedings
- penalties and fines relating to an investigation into professional conduct
- dishonesty, or fraudulent behaviours, commissioned or condoned by an insured individual
- liability for death, bodily injury or property damage
- partnership disputes
- employment breaches, such as discrimination or wrongful dismissal
- personal debts
- directors’ or officers’ liability
Do all solicitors need professional indemnity insurance?
Whether you need your own solicitors’ professional indemnity policy is determined by the regulation body where your business is based. If this is the case, the level of cover will likely be stipulated as well.
England and Wales
Most solicitors operating in England and Wales must be authorised by the Solicitors Regulation Authority (SRA), which is the regulatory arm of governing and representative body The Law Society.
The SRA states that all firms and solicitors that fall under its regulation must have ‘adequate and appropriate’ professional indemnity insurance. The definition of ‘adequate and appropriate’ is determined on an individual basis and is informed by the specifics of your business.
However, the SRA does require you to take out a minimum level of cover. That minimum is £3 million for corporate entities (including limited liability partnerships), and £2 million for partnerships and sole practitioners.
Your policy must also include run-off cover lasting at least six years. This protects clients who make claims after a law firm has closed and also offers peace of mind to solicitors that they won’t have to take personal responsibility for claims made against the firm once they have retired.
There are exemptions to these rules. You are not required to have professional indemnity insurance if you are a freelance solicitor or non-commercial body, such as a charity, that does not provide reserved legal services. For example, you carry out unreserved legal activities, such as will-writing or mediation, that are unregulated. However, those working for a non-commercial body should still make sure that the organisation itself has arranged adequate professional indemnity cover.
If you work as a solicitor in Scotland, you are represented and regulated by The Law Society of Scotland. Unlike in England and Wales, where individual law firms secure their own professional indemnity insurance, The Law Society of Scotland appoints brokers to arrange the compulsory ‘Master Policy’ for each private practice. This Master Policy provides cover of up to £2 million for any one claim.
If you require more than £2 million in cover, then you can arrange a top-up cover, called an ‘Excess Layer’, with The Law Society of Scotland’s appointed brokers.
If you are based in Northern Ireland, then you are represented and regulated by The Law Society of Northern Ireland. It requires practising solicitors to maintain professional indemnity insurance, created through its compulsory ‘Master Policy’.
What is the average cost of solicitors’ professional indemnity insurance?
The cost of your solicitors’ professional indemnity insurance is typically a percentage of your fee income, normally ranging between 1% and 6%. Your specific cost will be informed by the risk of the work you take on and how competitive the provider is.
If you are based in England and Wales, you will also need to make sure you satisfy the SRA’s ‘adequate and appropriate’ requirement, which may affect the overall cost of your premium. The regulatory body encourages solicitors to consider:
- the number, and types, of client you typically deal with, and their associated risk
- the value of the cases you take on
- the estimated maximum loss associated with each case were a claim to be made against you
- your claims history
- how much more cover you may need above the minimum requirement
What other types of business insurance should a solicitor consider?
Alongside professional indemnity insurance, there are various other types of business insurance that may be worth considering as a solicitor. These include:
- Employers’ liability insurance: It is a legal requirement to have this form of insurance if you employ anyone based in the UK that isn’t a family member.
- Public liability insurance: This covers you if you are liable for the death of, or personal injury to, a third party, or have lost or damaged their property.
- Directors and officers insurance: This covers directors, officers and other key managers if a claim is made against them relating to a ‘wrongful act’, such as breach of trust or negligence.
- Cyber insurance: This covers the cost of business losses related to the damage arising from cyber threats, such as phishing and ransomware attacks.
- Business equipment insurance: This can cover the costs of replacing your equipment, such as laptops and computers, if it is lost, stolen or accidentally damaged.
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Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more