Should clients worry about their solicitor's indemnity insurance cover?

If you are employing a solicitor to carry out your conveyancing you will probably take it for granted that your solicitor has professional indemnity insurance (PII) in place. But you probably won't think of checking the amount of cover that your solicitor has.

Until now that has not been a major concern for clients as all solicitors' firms must have cover of at least £2 million - sufficient to cover almost all conveyancing cases.

But that figure could be reduced to just £500,000 if proposals by the Solicitors Regulation Authority (SRA) are approved.

The SRA is an independent body which regulates solicitors and sets standards for their professional conduct. They also set out to serve the public interest and protect consumers of legal services.

One way in which consumers are protected is that all solicitors must have PII cover. So clients will know that if their solicitor makes a mistake an insurer will pay out on any claim against the solicitor.

The SRA currently requires all solicitors' firms to obtain a compulsory professional indemnity insurance cover of £2m (£3 million for incorporated firms). This level of cover is a minimum requirement and is not dependent on the legal work the solicitor does or the value of any property involved.

Some firms add layers of cover above the minimum level to cover higher potential risks in respect of the work which they do. But many other firms find this level of cover far more than they really need.

Since the premiums for PII cover are recovered from the fees which solicitors charge so higher premiums mean higher fees for clients. So if solicitors are paying for more cover than they really need then their clients will be having to pay higher legal fees than they should.

It also puts solicitors at a competitive disadvantage if they are competing with non-regulated companies who are carrying out similar work.

The SRA has therefore proposed reducing the minimum compulsory level of cover to £500,000 for any one claim. This would apply to all firms and no distinction will be made between different types of firms.

But there will be a further requirement that all firms must ensure they have an appropriate level of indemnity insurance cover to cover the type of work they do and the potential risk level.

These proposals are at present subject to approval by the Legal Services Board, the oversight regulator for all legal professions. If approved the changes will come into effect in October this year.

•Purchase conveyancing•Sale conveyancing•Sale & Purchase conveyancing•Remortgage conveyancing•Transfer of equity

There may be some merit in the proposals for some solicitors' firms who never handle conveyancing work. But is the £500,000 minimum is sufficient for those who do?

The SRA thinks that more than 99% of claims in negligence cases relating to conveyancing work are for less than £500,000. But as property prices continue to rocket this must be questioned.

Some mortgage lenders have already expressed doubts about the SRA's proposals. The Nationwide Building Society has told the Law Society Gazette that it will continue to require all 4,300 firms on its panel to have minimum cover of £2m as at present.

A spokesman said that Nationwide did not support the changes as they would reduce the level of regulatory protection provided to customers, and added “We hope the Legal Services Board will reject these proposals.”

Even if the proposals are approved it is likely that most mortgage lenders will follow the Nationwide and insist upon solicitors having higher cover than £500,000 if they are carrying out conveyancing work. So buyers who are getting a mortgage can be reasonably confident that their solicitor will have adequate cover in place.

However cash buyers may need to think twice - perhaps a cheap quote from a solicitor will only be possible because that solicitor has just got minimum PII cover. And if that is the case, is the amount of cover sufficient in relation to the value of the property?

This proposal does seem to make life more difficult for prospective clients. At present clients do not need to worry about their solicitor's PII cover because the SRA will have checked this before issuing an annual practising certificate.

But if the proposal is approved then clients - especially those buying or selling high-value homes - would need to ask their solicitor how much indemnity cover they have before confirming instructions. Surely that is an unnecessary step for ordinary clients.

Give Homeward Legal a call on and we'll talk you through the conveyancing process. We always include indemnity insurance in our fees, and we'll never add any extra costs onto your fee at the end.