SRA Indemnity Insurance Rules 2011
Version 2 (Superseded)

Version 2 of the Handbook was published on 23 December 2011, and was superseded by Version 3 on 18 April 2012. For more information, click "History" above.

SRA Indemnity Insurance Rules 2011

The commentary provided with these Rules does not form part of the Rules, is provided for guidance only, and does not affect the meaning or interpretation of the Rules in any way.

Part 1: General

Rule 1: Authority and commencement
1.1

These Rules are made on 17 June 2011 by the Solicitors Regulation Authority Board under sections 31, 37, 79 and 80 of the Solicitors Act 1974, section 9 of the Administration of Justice Act 1985, and paragraph 19 of Schedule 11 to the Legal Services Act 2007, with the approval of the Legal Services Board under paragraph 19 of Schedule 4 to the Legal Services Act 2007.

1.2

These Rules come into force on 1 October 2011.

1.3

These Rules require solicitors, RELs, RFLs, recognised bodies and their managers and licensed bodies (in respect of their regulated activities) in private practice in England and Wales to take out and maintain professional indemnity insurance with qualifying insurers with effect from 1 October 2011.

Commentary:

These Rules apply to:

  • solicitors
  • RELs
  • RFLs
  • recognised bodies and their managers and
  • licensed bodies in respect of their regulated activities (but not to any other activities that may be undertaken by the licensed body concerned)

carrying on private practice in England and Wales as a firm at any time after 1 October 2011. Refer to the interpretation provisions in Rule 3 and the definitions in Appendix 4 for guidance on the exact meanings of these terms.

1.4

These Rules will apply to any indemnity period beginning on or after 1 October 2011.

Commentary:

Before 1 September 2000, firms were required to take out insurance with the Solicitors Indemnity Fund. Since 1 September 2000, firms have been required to take out insurance in accordance with the Solicitors' Indemnity Insurance Rules. From 1 October 2011, firms must take out insurance in accordance with these Rules with one or more qualifying insurers. Continuing arrangements dealing with past claims on the Solicitors Indemnity Fund are covered in the Solicitors' Indemnity Rules and the SRA Indemnity Rules.

1.5

The Solicitors' Indemnity Insurance Rules 2010 shall not apply in respect of any indemnity period beginning on or after 1 October 2011 but they shall remain in force in respect of the indemnity period from 1 October 2010 to 30 September 2011 inclusive subject to the provisions of Rules 19.1(a), 19.1(b), 19.1(c) and 19.1(d) below.

Commentary:

You should refer to previous Solicitors' Indemnity Insurance Rules in relation to earlier indemnity periods since 1 September 2000. However, you should refer to Rules 19.1(a) to 19.1(d) in relation to time limits in respect of an application for a waiver of the provisions of the Solicitors' Indemnity Insurance Rules 2000 to 2010 and the SRA Indemnity Insurance Rules 2011.

Rule 2: Citation
2.1

These Rules may be cited as the SRA Indemnity Insurance Rules 2011.

Rule 3: Definitions and interpretation
3.1

In these Rules, unless the context otherwise requires, the terms in italics will have the meaning set out in Appendix 4.

3.2

In these Rules, unless the context otherwise requires:

(a)

the singular includes the plural and vice versa;

(b)

words importing the masculine gender include the feminine and vice versa and references to the masculine or feminine include the neuter;

(c)

the word "body" includes a sole practitioner, and a special body within the meaning of section 106 of the LSA;

(d)

the word "person" includes an individual, partnership, or a body of persons (corporate or unincorporated);

(e)

any explanatory notes, guidance notes and/or commentary are for the purposes of guidance only and where any conflict exists, they shall not affect the interpretation of the provisions within these Rules;

(f)

any headings are for ease of reference only and shall not affect the interpretation of the provisions within these Rules;

(g)

"in writing" includes any form of written electronic communication normally used for business purposes, such as emails;

(h)

references to certificates, letters or other forms of written communication include references to those in both electronic and hard copy format;

(i)

a reference to a Rule is to a Rule forming part of these Rules;

(j)

a reference to any statute, statutory provision, code or regulation includes:

(i)

any subordinate legislation (as defined by section 21(1) of the Interpretation Act 1978) made under it; and

(ii)

any provision which it has superseded or re-enacted (with or without modification) or amended, and any provision superseding it or re-enacting it (with or without modification) or amending it either before, at the date of or after the date of the commencement of these Rules; and

(k)

these Rules will be governed by and interpreted in accordance with English law.

3.3

These Rules shall not apply to licensed bodies until such time as the Society is designated as a licensing authority under Part 1 of Schedule 10 to the LSA and all definitions shall be construed accordingly.

3.4

In these Rules, references to the Rules being made under paragraph 19 of Schedule 11 to the Legal Services Act 2007 shall have no effect until the Society is designated as a licensing authority under Part 1 of Schedule 10 to the LSA.

Part 2: Responsibility and monitoring

Rule 4: Obligation to effect insurance
4.1

All firms carrying on a practice during any indemnity period beginning on or after 1 October 2011 must take out and maintain qualifying insurance under these Rules.

4.2

A solicitor or REL is not required to take out and maintain qualifying insurance under these Rules in respect of work done as an employee or whilst otherwise directly engaged in the practice of another firm (including without limitation as an appointed person), where that firm is required by these Rules to take out and maintain qualifying insurance.

4.3

A run-off firm must apply in accordance with these Rules to be issued with an ARP run-off policy.

Commentary:

Under these Rules, firms have a continuing obligation to ensure that they have qualifying insurance in place at all times with effect from 1 October 2011. Refer to the definitions of practice, amongst others, to establish whether a firm falls within the scope of these Rules. Firms should also check that any insurance that they take out in order to comply with these Rules (as opposed to any 'top-up' cover) is taken out with a qualifying insurer. A list of qualifying insurers appears on the website of the SRA at www.sra.org.uk, and is also available from the SRA. Contact details appear at the end of the introductory commentary.

Firms should note in particular that work carried out by an appointed person for that firm may be covered by the firm's policy, whether that person is engaged as an employee or on a contract for services.

If a firm cannot obtain a policy from a qualifying insurer it should apply to join the ARP in accordance with Part 3 of the Rules, if it is an eligible firm. If it is not an eligible firm, it must cease practice.

Note that, under the MTC, a policy, once taken out, cannot be cancelled before the end of an indemnity period unless:

  1. the policy is an ARP policy and the firm has replaced it with a policy of qualifying insurance outside the ARP; or
  2. the firm merges with another firm and a policy of qualifying insurance is in place for the merged firm; or
  3. it subsequently transpires that the firm was not in fact required to take out and maintain a policy under these Rules; or
  4. in the case of an ARP policy, it subsequently transpires that the firm was not, or has ceased to be, an eligible firm; or
  5. the qualifying insurer which issues the policy becomes the subject of an insolvency event, and the firm has replaced the policy with another policy of qualifying insurance.

The effect of cancellation in the circumstances described in (3) or (4) above is that the firm ceases to have qualifying insurance in place with effect from the cancellation, and would therefore be in breach of Rule 4.1 if it were to carry on a practice thereafter without taking out a new policy.

Most recognised bodies and licensed bodies (in respect of their regulated activities) are required to obtain cover complying with the MTC and with a sum insured of £3 million, rather than £2 million for other firms. The definition of "relevant recognised body" and "relevant licensed body" in these Rules indicates which recognised bodies and licensed bodies this requirement applies to.

4.4

The provisions of this Rule 4 shall be without prejudice to the ability of firms to include as insureds on a policy persons not required under these Rules to be insured.

Rule 5: Responsibility
5.1

Each firm carrying on a practice during any indemnity period beginning on or after 1 October 2011, and any person who is a principal of such a firm, must ensure:

(a)

that the firm has in place and maintains qualifying insurance outside the ARP during any such indemnity period;

or, in the case of an eligible firm,

(b)

that the firm has applied to enter the ARP in accordance with the procedure set out in Rule 10;

in either case before the start of any relevant indemnity period or the start of practice whichever is later.

Commentary:

Note that the duty to ensure that qualifying insurance is in place rests not just on the firm as a whole, but also on every principal within that firm.

5.2

A run-off firm, and any person who was a principal of that run-off firm immediately prior to it becoming a run-off firm, must ensure that the run-off firm has applied to enter the ARP in accordance with the procedure set out in Rule 13.4(a). Making such an application does not absolve any firm or person from any breach of Rule 5.1.

Commentary:

A firm which has continued to practise without qualifying insurance immediately prior to closing down is required to apply for run-off cover through the ARP, but the firm and any principal of the firm may still face action for a breach of Rule 5.1 for practising without qualifying insurance.

Rule 6: Insolvency of qualifying insurer
6.1

If a firm is carrying on a practice which is being provided with qualifying insurance by a qualifying insurer (whether alone or together with other qualifying insurers) and that qualifying insurer is the subject of an insolvency event then, subject to any waiver under Rule 19.1, the firm and any person who is a principal of the firm must ensure:

(a)

that the firm has in place qualifying insurance with another qualifying insurer which must be arranged as soon as may be reasonably practicable and in any event within four weeks of such an insolvency event;

or, in the case of an eligible firm,

(b)

that the firm applies within that period of four weeks to enter the ARP in accordance with the procedure set out in Rule 10.

Commentary:

It is important to be aware that the arrangements for professional indemnity insurance put in place by the SRA do not seek to protect firms against the insolvency of a qualifying insurer. If an insolvency event occurs in respect of an insurer, that insurer will cease to be a qualifying insurer for the purposes of writing new policies and firms insured by that insurer must effect alternative insurance in accordance with these Rules. This is because, in such circumstances, the insurer may not be in a position to pay claims in full. Any firm which has qualifying insurance with a qualifying insurer which is the subject of an insolvency event is required therefore to obtain replacement cover as soon as possible, and in any event within four weeks of the insolvency event occurring. Having done so, a firm should cancel the policy with the insolvent insurer and, if entitled to do so, seek a return of the premium relating to the balance of the policy period from the insurer which has become the subject of the insolvency event.

Rule 7: Monitoring
7.1

The Council may require from a firm or any principal in a firm carrying on, or reasonably believed by the Council to be carrying on, a practice such information and evidence as it may reasonably require to satisfy itself that such a firm has in place qualifying insurance.

Rule 8: RELs
8.1

The special provisions contained in Appendix 3 to these Rules shall apply to a firm that has at least one principal who is a REL.

Part 3: The ARP

Rule 9: Operation of the ARP
9.1

The ARP shall be managed by the ARP manager.

Rule 10: Applying to the ARP
10.1

Where a firm carrying on a practice has not obtained qualifying insurance outside the ARP in respect of any indemnity period or part thereof to which these Rules apply it must, if an eligible firm, apply in accordance with the procedure set out in this Rule 10 to enter the ARP, subject to Rule 10.2, before the start of the relevant indemnity period.

Commentary:

A firm which for any reason does not have qualifying insurance in place should apply to the ARP before the start of the relevant indemnity period if it is an eligible firm. However, it is important to note that premiums payable to the ARP are intended to be high, and firms would therefore be prudent to seek quotations from qualifying insurers outside the ARP before the start of an indemnity period.

An ARP policy can be cancelled if it is replaced by a policy with a qualifying insurer. A return premium may be payable to a firm which cancels an ARP policy in these circumstances - refer to Appendix 2 for the basis on which the ARP premium and any return premium is calculated.

Firms should also be aware of the other consequences of being insured through the ARP set out in this part of the Rules, including the need to comply with any special measures under Rule 10, and the limitations on eligibility set out in the definition of "eligible firm".

10.2

A firm must not start carrying on a practice without having obtained qualifying insurance outside the ARP.

Commentary:

Any firm wishing to start up a new practice must obtain qualifying insurance with a qualifying insurer other than the ARP, before starting practice. For the avoidance of doubt, a firm which has not previously been regulated by the SRA or a non-SRA firm that elects (and is accepted) for regulation by the SRA must also arrange qualifying insurance outside the ARP in order to commence carrying on a practice. Subject to this requirement, a new firm may start practice at any time during an indemnity period.

10.3

By applying to enter the ARP, the firm and any person who is a principal of that firm agrees to, and (if the firm is admitted to the ARP) the firm and any person who is a principal of that firm shall be jointly and severally liable to:

(a)

pay the ARP premium in accordance with these Rules, together with any other sums due to the ARP manager under the ARP policy; and

(b)

submit to such investigation and monitoring and to pay the Society's costs and expenses as referred to in Rule 11.2; and

(c)

pay any costs and expenses incurred by the Society or the ARP manager incurred as a result of any failure or delay by the firm in complying with these Rules;

and shall be required to implement at the expense of the firm any special measures.

Commentary:

Firms within the ARP may be subject to a range of special measures. The appointed inspectors (in the first instance, the Forensic Investigations Unit of the Compliance Directorate) will visit a firm insured through the ARP to carry out investigation and monitoring of the firm. This is in order to determine what special measures are appropriate for that firm, and to ensure that those measures are fully implemented. It should be noted that the costs of investigation and monitoring by the Inspection & Investigation Directorate, costs and expenses incurred through any failure or delay by the firm to comply, and the implementation of the special measures will be payable by the firm concerned (and by any principal of that firm), in addition to paying the ARP premium.

10.4

Any material misrepresentation made in an application for admission to the ARP shall, subject to any waiver under Rule 19.1, render the firm a firm in default for the purposes of Part 4 of these Rules. The provisions of that Part shall apply to the firm as if that firm had not been admitted to the ARP but neither the firm nor any principal of the firm shall be entitled to the refund of any ARP premium paid to the ARP manager. Any amount so paid shall be credited against any sums payable under Part 4 of these Rules.

Commentary:

Although an ARP policy, once issued, cannot be cancelled (unless and until a replacement policy with a qualifying insurer is issued to that firm), a firm which makes a material misrepresentation in its application to be admitted to the ARP will be nevertheless treated in the same way as a firm in default.

10.5

The application for admission to the ARP must be made to the ARP manager on the proposal form provided by the ARP manager.

10.6

The applicant must state on the proposal form the date from which cover is sought. This date must not be earlier than the date on which the application is made for admission to the ARP. The applicant must also provide such other information as the ARP manager requires for the purposes of setting a premium.

10.7

If the applicant is a firm in default it must state on the proposal form that it is a firm in default and give the date of the start of the period of default from which retrospective cover is sought.

Commentary:

The ARP premium is calculated in accordance with a formula set out in Appendix 2, and is linked to the gross fees of the firm concerned. It is important to note that, under Rule 15, any material misrepresentation in an application will result in the firm being treated in the same way as a firm in default, including being liable to pay the ARP default premium.

10.8

The firm, together with each principal of the firm, must ensure that the firm's application has been made and must provide the ARP manager with all information it reasonably requires to process the application.

Commentary:

It is in the interests of the firm and each of the principals of that firm to verify that the application to enter the ARP has been received and that the firm is insured. An application should be made before the start of an indemnity period. Failure to comply with the requirements of this Rule and Rules 13 to 15 will result in the firm becoming a firm in default.

10.9

If a firm has not received a written acknowledgement of its application from the ARP manager 30 days after making the application, or within such other period as is stated on the proposal form, the firm and any person who is a principal of the firm must seek written confirmation that the firm's application has been received by the ARP manager. If that written confirmation is not obtained within seven days after the end of the 30 days, or within seven days after such other period specified on the proposal form, the application shall be deemed not to have been made.

10.10

An applicant whose first application is deemed under Rule 10.9 not to have been made must, within seven days of the day when under Rule 10.9 the first application is deemed not to have been made, make a fresh application. The firm and any person who is a principal of the firm must ensure that the firm is in a position to prove to the reasonable satisfaction of the Society that the firm's fresh application was delivered within those seven days to the ARP manager at the address specified on the proposal form. Provided the firm's fresh application was so delivered, the application shall be treated as having been made at the date when the firm's first application was made. A firm that is not in a position to prove to the reasonable satisfaction of the Society that its fresh application was so delivered shall be deemed not to have made any application.

10.11

Provided that an application or, if necessary, a fresh application, has been made in accordance with Rules 10.5 to 10.10, a firm which is an eligible firm will be covered in the terms of the ARP policy to be issued to it from the start of the relevant indemnity period or, in the case of a firm to which Rule 10.2 applies, the date specified in the application, being the date specified in accordance with Rule 10.6, until whichever is the earlier of:

(a)

the end of the relevant indemnity period; or

(b)

the date on which the firm obtains qualifying insurance outside the ARP; or

(c)

the date when the firm ceases to be an eligible firm.

Commentary:

An eligible firm which should have applied to the ARP before the start of an indemnity period but fails to do so will have breached these Rules by failing to take out a policy from the start of that indemnity period. It may make a later application, but will be liable to pay the ARP default premium for the indemnity period in question. Each principal in an eligible firm which fails to make an application in time commits a disciplinary offence.

10.12

Any firm in the ARP, and any person who is a principal of that firm, is liable to pay to the ARP manager the ARP premium in respect of that firm within thirty days of such premium being notified to it by the ARP manager.

Commentary:

It is a disciplinary offence for a firm and for any principal of that firm to fail to pay the ARP premium (including the ARP run-off premium) to the ARP manager within the required 30 day period. A firm may enter into arrangements with, for example, a premium funding company (whether offered by the ARP manager or arranged independently) to enable it to make payments by instalments, provided that the premium is received in full by the ARP manager from the premium funding company within the required 30 day period.

Rule 11: Special measures
11.1

An eligible firm that has applied to enter the ARP in accordance with the procedure set out in Rule 10 will be issued with an ARP policy by the ARP manager.

Commentary:

A copy of the standard-form ARP policy is available on the website of the SRA at www.sra.org.uk and is also available from the SRA. Contact details appear at the end of the introductory commentary.

11.2

A firm in the ARP must if and to the extent required by the Council submit to investigation and monitoring by the Society and/or its agents, including investigation and monitoring:

(a)

to determine the reasons why qualifying insurance outside the ARP was not obtained;

(b)

to ascertain what special measures should be taken by the firm.

The Society's costs and expenses of the investigation and monitoring and the Society's costs and expenses of ascertaining what special measures should be taken and of monitoring them shall be met by the firm and by any person who is a principal of that firm. The amount of such costs and expenses shall be determined by the Society which shall not be required to give any detailed breakdown thereof.

Commentary:

The appointed inspectors (in the first instance, the Forensic Investigations Department of the Inspection & Investigation Directorate) will visit a firm insured through the ARP to carry out investigation and monitoring. This is in order to determine what special measures should be taken and are appropriate for that firm, and to ensure that those measures are fully implemented. It should be noted that the costs and expenses of investigation and monitoring by the Inspection & Investigation Directorate and the implementation of the special measures (together with VAT if applicable) will be payable by the firm concerned (including each principal of that firm), in addition to paying the ARP premium.

Rule 12: Time in the ARP
12.1

A firm may leave the ARP at any time after it has satisfied the ARP manager that the firm has obtained qualifying insurance outside the ARP at least until the expiry of the relevant indemnity period.

Commentary:

Refer to Appendix 2 to determine whether any return premium will be payable on leaving the ARP.

12.2

Subject to Rule 12.6, a firm may only remain in the ARP so long as it is an eligible firm, or if it becomes a run-off firm.

Commentary:

A firm cannot remain insured through the ARP for more than 6 months in any four consecutive indemnity periods (unless it satisfies one of the exceptions to this requirement in the definition of "eligible firm"), and should therefore seek insurance in the open market with a qualifying insurer as soon as practicable. A firm which is no longer an eligible firm (because, for example, it has already been insured through the ARP for 24 months in the last four indemnity periods) must either obtain qualifying insurance on the open market or cease carrying on practice.

12.3

Subject to Rule 12.6(b), a firm in policy default at the end of an indemnity period shall be deemed to be a firm in default for the purposes of Part 4 of these Rules and shall not be an eligible firm. This Rule shall not apply in any case where the Council is satisfied that there exists a genuine dispute between the firm and a qualifying insurer or the ARP manager which makes it unreasonable for the firm to be deemed to be a firm in default pending the resolution of that dispute.

Commentary:

A firm in policy default must remedy that default before the start of an indemnity period if it wishes to obtain insurance through the ARP at any time during that indemnity period. Alternatively, it must either obtain qualifying insurance in the open market, or cease carrying on practice. If a firm believes that there is a genuine dispute which justifies that firm not being deemed to be a firm in default, it should apply to the SRA as soon as possible before the start of the next indemnity period. Contact details appear at the end of the introductory commentary.

12.4

A firm that is no longer an eligible firm must either have qualifying insurance outside the ARP or forthwith cease carrying on practice.

12.5

The Council may in its absolute discretion treat a successor firm or successor firms (or any of them) and the firm from which such successor firm or successor firms were derived as being a single firm for the purposes of determining whether the successor firm or successor firms or any of them are or remain an eligible firm.

Commentary:

The purpose of this Rule is to ensure that the time limit on participation in the ARP cannot be avoided by a merger or reconstitution of that firm. A firm which was not previously eligible to join the ARP will not necessarily become an eligible firm by virtue of changes in the composition of a firm. firms which are unsure about their eligibility following any such change should consult the SRA. Contact details appear at the end of the introductory commentary.

12.6

The Council shall have power in any particular case or cases:

(a)

to allow a firm to remain in or to re-enter the ARP after any date when the firm would otherwise cease to be an eligible firm; and

(b)

to permit a firm to be admitted into or remain in or to re-enter the ARP notwithstanding that the firm is in policy default on such terms and conditions as the Council may prescribe including the taking of steps by the firm by a specified date or dates to remedy the policy default;

and when such power is exercised the firm shall continue to be an eligible firm for so long as the Council may from time to time permit and provided that it complies with any such terms and conditions.

Commentary:

It is envisaged that these powers would be exercised only in exceptional circumstances. Any application seeking the exercise of this power should be made to the SRA at least three months before the firm in question would otherwise cease to be an eligible firm.

Part 4: Firms in default

Rule 13: Eligibility of firms in default
13.1

At any time during the period of default a firm in default is entitled to be admitted to the ARP and to be issued with an ARP policy in accordance with Rule 13.2, subject to the provisions of this Rule 13.

13.2

A firm in default is entitled to be admitted to the ARP if:

(a)

it was an eligible firm at the start of the period of default;

(b)

had it been admitted to the ARP at the start of the period of default, its admission at that time would not have rendered it ineligible to be admitted to the ARP for any part of any subsequent indemnity period in which it was in fact admitted to the ARP;

(c)

it has applied to join the ARP in accordance with Rule 10;

(d)

the firm discharges in full the ARP default premium calculated for the whole of the indemnity period or indemnity periods for which cover is sought within 30 days of such premium being notified to it by the ARP manager or such longer period as the Council may allow;

(e)

the firm will be subject to and comply with Rules 10.3 (other than Rule 10.3(a)) and 11.2.

Commentary:

If a firm fails to make an application to the ARP at the start of an indemnity period, and does not have any other policy of qualifying insurance in force for that indemnity period, it may still be eligible to be issued with an ARP policy provided that it meets all of the requirements of Rule 13.2. However, each principal of the firm will have committed a disciplinary offence, and the firm and each principal of that firm will be liable to pay the ARP default premium under any ARP policy issued.

13.3

An ARP policy issued under this Rule may afford cover retrospectively from the start of the period of default until the earlier of:

(a)

the end of the then current indemnity period; or

(b)

the date on which the firm in default would have ceased to be an eligible firm, ignoring for these purposes any failure to pay the ARP premium or the ARP default premium; or

(c)

the date on which, had the firm in default been admitted to the ARP at the start of the period of default, its being covered by the ARP from that time would have first caused it to have been ineligible to be admitted to the ARP for any part of any subsequent indemnity period in which it was in fact admitted to the ARP.

13.4

A run-off firm shall be entitled at any time following the date on which it first becomes a run-off firm to be admitted to the ARP and to be issued with an ARP run-off policy, subject to the following conditions:

(a)

the run-off firm has made an application to join the ARP in manner provided by Rule 10.5 stating on the proposal form that it is a run-off firm and giving the date from which cover under an ARP run-off policy is sought;

(b)

the ARP run-off premium is discharged in full within thirty days of such premium being notified by the ARP manager to the firm or such longer period as the Council may allow; and

(c)

the firm, and any person who is a principal of that firm, will be subject to and comply with Rule 10.3(c).

Commentary:

A run-off firm will be eligible to be issued with an ARP policy if it meets all of the requirements of Rule 13.4. However, each principal of the firm will have committed a disciplinary offence for failing to make an application to the ARP for run-off cover in accordance with Rule 5.2, and the firm and each principal of the firm will be required to pay the ARP run-off premium under any ARP run-off policy issued.

13.5

An ARP run-off policy shall provide run-off cover to a run-off firm retrospectively from the date on which it became a run-off firm until the end of the day immediately prior to the sixth anniversary of:

(a)

the start of the indemnity period in which it became a run-off firm; or

(b)

if applicable, the start of the last indemnity period, prior to it becoming a run-off firm, in which it both ceased to be an eligible firm and was a firm in default and continued as such until the date on which it became a run-off firm,

whichever is the earlier.

Commentary:

Run-off firms which are issued with an ARP run-off policy obtain six years' run-off cover either from the start of the indemnity period in which their practice ceased, or the date on which they ceased to be eligible to apply for an ARP policy while practising uninsured.

13.6

Rule 12.6 shall apply so as to enable the Council to extend the period in Rule 13.3(b) for which a firm in default may be issued with an ARP policy.

Commentary:

It is envisaged that this power would be exercised only in exceptional circumstances.

13.7

Any firm that has been admitted to the ARP under Rule 13.1 shall for the purposes of computing its continuing eligibility to remain in the ARP be deemed to have been admitted to the ARP at start of the period of default and to have remained continuously in the ARP until the end of the indemnity period current at the date of its application.

13.8

Rule 15.2 shall not apply to a firm which has under Rule 13 been admitted to the ARP and which has been issued with an ARP policy or an ARP run-off policy, the liability of the firm and of any person who is a principal of that firm being limited in those circumstances to the excess payable under the terms of the policy.

Commentary:

If a firm is eligible to be issued with an ARP policy under Rule 13.1, or an ARP run-off policy under Rule 13.4 then, provided that it complies with the relevant requirements under Rule 13 and is issued with an ARP policy or an ARP run-off policy, the firm and the principals of that firm will be required to pay to the ARP manager only the relevant premium and the excess in the event of any claim.

Rule 14: Firms which fail to apply to the ARP
14.1

A firm in default which is entitled to be admitted to the ARP and to be issued with an ARP policy in accordance with Rule 13.1 but which does not make an application to join the ARP shall, notwithstanding, be liable, together with any person who is a principal of that firm, to pay to the Society an amount equivalent to the ARP default premium calculated for the whole of the period of default.

14.2

A firm in default which is entitled to be admitted to the ARP and to be issued with an ARP run-off policy in accordance with Rules 13.4 and 13.5 but which does not make an application to join the ARP shall, notwithstanding, be liable, together with any person who is a principal of that firm, to pay to the Society an amount equivalent to the ARP run-off premium calculated for the whole of the period equivalent to that which would be provided by an ARP run-off policy in accordance with Rule 13.5, or, if shorter and if it can be ascertained, the period of default.

14.3

Any amount payable in accordance with Rules 14.1 or 14.2 shall be determined by the ARP manager on the basis of such assumption as to the firm's gross fees and other matters as the ARP manager shall in its absolute discretion determine, and may be reviewed from time to time by the ARP manager in its absolute discretion on the basis of any further information provided to it. Any such amount paid under Rule 14.1 or 14.2 shall be deducted from any amount payable pursuant to Rule 15.2. The ARP manager may and is hereby authorised to recover all sums due under Rules 14.1 or 14.2 on behalf of the Society.

Commentary:

If a firm fails to make an application to the ARP, but carries on practice without having obtained qualifying insurance, each principal in that firm will have committed a disciplinary offence. The same is true if a run-off firm fails to apply to be issued with an ARP run-off policy. In each case, that firm, and each principal in that firm, will also be liable under these Rules to:

  • pay an amount to the Society equivalent to the ARP default premium calculated for the whole of the period of default; and
  • reimburse to the Society in full under Rule 15 the amount of any claim (together with defence costs) made against the firm and relating to the period when it did not have qualifying insurance in force, less any amount due under this Rule.
Rule 15: Arrangements in relation to uninsured firms
15.1

The ARP manager on behalf of the Society shall make arrangements with qualifying insurers to cover any claim against:

(a)

a firm in default; and

(b)

a run-off firm

including any defence costs relating to a claim, in like manner and to the like extent as the claim and the defence costs would have been covered had that firm during the period of default been in the ARP and been issued with an ARP policy and/or, as the case may require, an ARP run-off policy.

15.2

Subject to Rule 13.8, Rule 14.1 and Rule 14.2, the Society on behalf of qualifying insurers shall be entitled to recover from each and every principal in the firm in default during the period of default all amounts paid in or towards the discharge of a claim and defence costs pursuant to Rule 15 together with interest thereon at Barclays Bank Plc base rate plus three per cent from the date when such amounts were respectively paid. The ARP manager may and is hereby authorised to recover all sums due under this Rule on behalf of the Society.

15.3

A firm shall not be deemed to have been admitted to the ARP or to be covered in accordance with Rule 15 solely by virtue of the fact that the ARP manager may conduct or settle any claim made against that firm under the terms of any agreement between the Society and any qualifying insurer.

Commentary:

If a firm fails to make an application to the ARP, but carries on practice without having obtained qualifying insurance, each principal in that firm will have committed a disciplinary offence. The same is true if a run-off firm fails to apply to be issued with an ARP run-off policy. In each case, that firm, and each principal in that firm, will also be liable under these Rules to:

  • reimburse to the Society in full the amount paid pursuant to Rule 15.1 in respect of any claim (together with defence costs) made against the firm and relating to the period when it did not have qualifying insurance in force, less any amount due under Rule 14 (where applicable); and
  • pay an amount under Rule 14 (where applicable) to the Society equivalent to the ARP default premium calculated for the whole of the period of default.

However, if a firm in these circumstances is eligible under Rule 13.1 to be issued with an ARP policy, then, provided that it complies with Rule 13.1 and is issued with an ARP policy, the liability of the firm and the principals of that firm will be limited, from that point on, to the ARP default premium and the excess payable under the terms of the ARP policy.

Part 5: Disciplinary offences and reporting

Rule 16: Disciplinary consequences of failure to comply with these Rules
16.1

The provisions in Part 4 of the Rules are made without prejudice to the powers of the Council or the Society under the SA, the AJA, the Courts and Legal Services Act 1990, the European Communities (Lawyer's Practice) Regulations 2000 or the LSA, or rules made under any of them, to bring disciplinary proceedings or take disciplinary action against any firm that has failed to comply with these Rules or any person who is or was a principal in such a firm or to intervene in a practice carried on by such a firm.

Commentary:

Payment of the ARP default premium and/or the ARP run-off premium does not detract from the fact that the firm in question, and each principal of that firm, has committed a breach of these Rules as a result of the firm being a firm in default. If a firm in default is not an eligible firm, it must either obtain qualifying insurance in the open market, or cease carrying on practice and make an application to the ARP for run-off cover in accordance with Rule 5.2.

16.2

Without prejudice to any other disciplinary offence which may arise under these Rules, it shall be a disciplinary offence for any firm or any person who is at the relevant time a principal in a firm to be in policy default, or to fail to implement any special measures to the satisfaction of the Society.

Commentary:

Policy default and special measures are defined in Appendix 4. Note that a firm that is carrying on a practice while in policy default will also not be an eligible firm for the purpose of seeking further cover through the ARP.

Rule 17: Use of information
17.1

Any qualifying insurer (including the ARP manager) shall, in relation to any firm which applies to it for qualifying insurance, and in the case of the ARP manager any run-off firm or firm in default, whether or not that firm applies to enter the ARP, bring to the attention of the Society (including, in the case of the matters referred to in Rule 17.1(f), the Office for Legal Complaints (including the Legal Ombudsman)) at any time and without notice to the firm concerned:

(a)

any failure on the part of the firm or any person who is a principal of that firm to pay any sum, including an ARP premium, ARP default premium or ARP run-off premium, on or before the date specified in these Rules or to reimburse any amount falling within a policy excess which has been paid out by a qualifying insurer to a claimant;

(b)

a material inaccuracy in any proposal form submitted by or on behalf of the firm;

(c)

the fact that the firm has become or is believed to have become a run-off firm;

(d)

any matter or circumstances that would entitle the firm's qualifying insurer to avoid or repudiate a policy but for the provisions of clause 4.1 of the MTC (and/or the corresponding of the policy);

(e)

any dishonesty or fraud suspected by a qualifying insurer on the part of any insured; and

(f)

any claim of inadequate professional services made against the firm or any insured of that firm of which it becomes aware.

Commentary:

All firms, whether they obtain their qualifying insurance on the open market or through the ARP, or whether, having failed to obtain qualifying insurance, they are subject to the provisions of Part 4 of these Rules, are deemed to have consented to their qualifying insurer or the ARP manager bringing to the attention of the SRA any of the matters referred to Rule 17.1 that may be applicable to the firm. Any such information is subject to the confidentiality provisions of Rule 17.3.

17.2

The Council may require any qualifying insurer or the ARP manager to bring to the attention of the Society any of the matters referred to in Rule 17.1 where it reasonably believes there are matters which ought to be brought to the attention of the Society in accordance with Rule 17.1.

17.3

In respect of any information that may be brought to the attention of the Society in accordance with Rules 17.1 and 17.2:

(a)

the Society shall keep all such information confidential;

(b)

the Society shall not (except where and to the extent required by law or in the proper performance by the Society of its regulatory functions) at any time reveal any such information to any person other than a duly authorised employee of the Society or any of its subsidiaries; and

(c)

any privilege attaching to such information shall not be regarded as having been waived whether by virtue of such information having been provided to the Society or otherwise.

17.4

The provisions of Rule 17.3 shall not prevent the Society from:

(a)

making use of any information referred to in that Rule for the purpose of bringing disciplinary proceedings against any person; or

(b)

in relation to information about a firm's policy under Rule 18, disclosing that information, where and to the extent that the Society in its absolute discretion considers it appropriate, to any person entitled to such information, and to any other department or office of the Society, including without limitation to the Office for Legal Complaints (including the Legal Ombudsman).

17.5

The Society may, without limitation and in its absolute discretion, disclose and make available for public inspection the identity of a firm's qualifying insurer. Nothing in these Rules shall act to prohibit the Society from making such a disclosure nor give rise to any liability of the Society, for breach of any obligations of confidentiality or otherwise.

Rule 18: Details of qualifying insurer
18.1

If a claimant asserts a claim against a firm or any person insured under that firm's policy, and where such claim relates to any matter within the scope of cover of the MTC (whether or not such claim would or may be upheld), the firm and any person who is at the relevant time (or, in the case of a firm which has ceased practice, any person who was immediately before that firm ceased practice) a principal in that firm shall be required, upon being so requested by that claimant, by any person insured under that firm's policy, or by any other person with a legitimate interest, to provide to that person the following details in relation to that firm's policy:

(a)

the name of the qualifying insurer(s) who issued the policy; and

(b)

the policy number; and

(c)

the address and contact details of the qualifying insurer(s) for the purpose of making a claim under the policy;

in each case in respect of the policy which it is reasonably believed to be the relevant policy to respond to the claim, or, if applicable, the fact that the firm or person against whom the claim is asserted is covered by supplementary run-off cover.

Commentary:

A firm, and each principal in that firm, is required to provide details of that firm's policy of qualifying insurance to any person who asserts a claim against anyone insured under that firm's policy. Under Rule 17, the SRA has the power to disclose information regarding a firm's qualifying insurer where it considers it appropriate to do so.

Part 6: General powers of the Council

Rule 19: Waiver powers
19.1

The Council shall have power on such terms and conditions as it shall think fit to waive any Rule or part of any Rule in a particular case or cases including extending the time, either prospectively or retrospectively, for the doing of any act under any Rule.

(a)

Any application by any person for a waiver of any Rule or part of any Rule under the Solicitors' Indemnity Insurance Rules 2001 to 2010 or SRA Indemnity Insurance Rules 2011 must be made in writing to the Society as soon as reasonably practicable.

(b)

No application by any person for a waiver of any Rule or part of any Rule under the Solicitors' Indemnity Insurance Rules 2000 may be considered unless it was made in writing to the Society as soon as reasonably practicable and in any event no later than 28 February 2002.

(c)

Any appeal against any decision made by the Society in respect of any application for a waiver of any Rule or part of any Rule under the Solicitors' Indemnity Insurance Rules 2000 to 2010 or SRA Indemnity Insurance Rules 2011 must be made in writing to the Society within 21 days from the date of the decision.

(d)

An application for a waiver as contemplated by this Rule 19.1 or the making of an appeal against any decision made by the Society in respect of such application shall not relieve any person from any obligation under the Solicitors' Indemnity Insurance Rules 2000 to 2010 or SRA Indemnity Insurance Rules 2011 pending the determination of any such application or appeal.

Commentary:

It is envisaged that Rules will be waived only in exceptional circumstances. Anyone who wishes to apply for a waiver, or to appeal against an initial decision, must do so in accordance with the time limits set out in this Rule. Contact details appear at the end of the introductory commentary. The Panel of Adjudicators Sub Committee has adopted a waiver policy, which is available on request. Unless and until any waiver is granted, the person concerned must comply with the requirements of these Rules in full. A waiver may be granted subject to conditions, and may be revoked without notice.

19.2

The Council shall have power to treat any firm as complying with any Rule or Rules for the purposes of the SA notwithstanding that the firm has failed to comply with a Rule or Rules where such non-compliance is regarded by the Council in a particular case or cases as being insignificant.

19.3

For the purposes of the SA (including without limitation section 10 of that Act), any person who is in breach of any Rule or part of any Rule under the Solicitors' Indemnity Insurance Rules 2000 to 2010 or SRA Indemnity Insurance Rules 2011 shall be deemed, for so long as he remains in breach, not to be complying with these Rules.

Commentary:

The effect of this general power is that, for example, a practising certificate may be issued to a person notwithstanding a technical and insignificant breach by that person or a firm of any provision of these Rules.

Part 7: Other obligations

Rule 20: Accountants' reports
20.1

Any accountant's report which a solicitor, REL or RFL who is a principal in a practice or a recognised body or a licensed body is required to deliver to the Society under section 34 of the SA or paragraph 8 of Schedule 14 to the Courts and Legal Services Act 1990 or under section 83(5)(h) of and paragraph 20 of Schedule 11 to the LSA containing such information as is prescribed by rule 35 of the Solicitors' Accounts Rules 1998 (as amended from time to time), or any rules (including, without limitation, the SRA Accounts Rules) which replace the Solicitors' Accounts Rules 1998 in whole or in part, must contain a statement certifying (if it is the case) for the whole period covered by the report (excluding any part of that period falling before 1 September 2000) either that the firm has one or more certificates of qualifying insurance outside the ARP or that the firm has been issued with one or more policies by the ARP manager.

Commentary:

Firms are required to provide evidence to their accountants that a policy of qualifying insurance is in place. Each qualifying insurer is required under the qualifying insurer's agreement to provide a certificate of qualifying insurance to each firm within 20 working days of the start of the period covered by the policy. Producing the relevant certificate(s) to the reporting accountant will satisfy the requirement of this Rule.