Professional indemnity insurance: the cover every law firm must carry

Every firm regulated by the Solicitors Regulation Authority has to carry professional indemnity insurance before it can open its doors, and it is one of the harder conditions the regulator imposes. The insurance exists to protect clients rather than the firm: if a solicitor’s negligence causes a client to lose money, the client should be able to recover it even if the firm itself could not pay. In a profession where a single mistake in a conveyance, a will or a piece of litigation can cost a client a great deal, that protection is treated as fundamental to public confidence in legal services.

What makes solicitors’ cover distinctive is that its terms are not left to the market. Under the SRA Indemnity Insurance Rules, a firm must hold a policy that meets the SRA’s Minimum Terms and Conditions, placed with an insurer that has agreed to participate in the scheme. Those minimum terms are deliberately generous to the client and restrictive on the insurer: they set out a wide scope of mandatory cover, allow only limited exclusions, and cannot be watered down by the insurer’s own wording. The effect is that clients dealing with any regulated firm can assume a broadly consistent baseline of protection.

The rules also set a floor for the amount of cover. The minimum level of indemnity for any one claim is currently higher for firms that operate as limited companies or limited liability partnerships than for traditional partnerships and sole practitioners, reflecting the different way liability falls in each structure. The precise figures, and the detail of what the minimum terms require, are set by the SRA and change from time to time, so the authoritative source is the SRA’s own rules rather than any restatement of them. Many firms carry cover well above the minimum, sized to the value of the work they handle.

A feature that catches people out is the long tail of liability. Solicitors’ policies are written on a claims-made basis, meaning it is the policy in force when a claim is made that responds, not the one in force when the work was done. Because a negligence claim can surface years after the advice was given, a firm that simply closed would leave former clients exposed. The minimum terms deal with this by requiring run-off cover, which continues to protect against claims for a set number of years after a firm ceases to practise, so that clients are not left without recourse when a firm winds down.

For clients, the practical reassurance is that they rarely need to think about any of this. The obligation sits on the firm, the regulator polices it, and the minimum terms do the work of making the cover meaningful. But it is worth knowing that a regulated firm’s insurance is not an optional extra or a matter of the firm’s own commercial judgement. It is a condition of being allowed to practise at all, designed so that when something goes wrong the people who suffer are the ones the system is built to protect.