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SRA Handbook

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SRA Indemnity Insurance Rules 2013

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 13 June 2013 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 2013.
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 participating insurers with effect from 1 October 2013.

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 2013. Refer to the interpretation provisions in Rule 3 and the SRA Handbook Glossary 2012 (the Glossary) and to the definitions in the Glossary 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 2013.

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 and SRA Indemnity Insurance Rules. From 1 October 2013, firms must take out insurance in accordance with these Rules with one or more participating 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 SRA Indemnity Insurance Rules 2012 shall not apply in respect of any indemnity period beginning on or after 1 October 2013 but they shall remain in force in respect of the indemnity period from 1 October 2012 to 30 September 2013 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 and SRA 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 and 2012.

Rule 2: Citation

2.1: These Rules may be cited as the SRA Indemnity Insurance Rules 2013.

Rule 3: Definitions and interpretation

3.1

The SRA Handbook Glossary 2012 (the Glossary) shall apply and, unless the context otherwise requires:

(a): all italicised terms shall be defined in accordance with the Glossary;
(b): terms shall be interpreted in accordance with the Glossary;
(c): a reference to a Rule is to a Rule forming part of these Rules;
(d): these Rules will be governed by and interpreted in accordance with English law.

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 2013 must take out and maintain qualifying insurance under these Rules.

4.2

A firm must in respect of its obligation to effect and maintain qualifying insurance:

(a): obtain a policy of qualifying insurance prior to the expiry of the policy period that provides cover incepting on and with effect from the expiry of the policy period;
(b): if the firm has been unable to obtain a policy of qualifying insurance prior to the expiry of the policy period in accordance with Rule 4.2(a), obtain a policy of qualifying insurance during or prior to the expiry of the extended indemnity period that provides cover incepting on and with effect from the expiry of the policy period; and
(c): if the firm has been unable to obtain a policy of qualifying insurance prior to the expiry of the extended indemnity period in accordance with Rule 4.2(b), cease practice promptly, and by no later than the expiration of the cessation period, unless the firm obtains a policy of qualifying insurance during or prior to the expiry of the cessation period that provides cover incepting on and with effect from the expiry of the policy period and covers all activities in connection with private legal practice carried out by the firm including, without limitation, any carried out in breach of Rule 5.2.

4.3

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.

Commentary:

Under these Rules, firms have a continuing obligation to ensure that they have professional indemnity insurance in place which satisfies the MTC requirements for qualifying insurance in place at all times with effect from 1 October 2013. 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 qualifying insurance that they take out in order to comply with these Rules (as opposed to any "top-up" cover) is taken out with a participating insurer. A list of participating 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, on or before the expiry of the policy period, fails to obtain a policy of qualifying insurance from a participating insurer commencing on the day following such expiration, the firm's participating insurer is required to extend cover under the existing policy for a further 30 days. If a firm fails to obtain an alternative policy of qualifying insurance during or prior to the expiration of the 30 day extended indemnity period it must cease practice within a further period of 60 days (known as the cessation period) unless the firm obtains a policy of qualifying insurance on or before the expiry of the cessation period which provides cover that incepts or is backdated to incept with effect on and from the expiry of the policy period. Any such policy of qualifying insurance must cover all activities carried out in connection with private legal practice by the firm, including any carried out during the cessation period in breach of Rule 5.2. During the cessation period, the firm (and its principals, employees, consultants and agents) may only engage in activities in connection with private legal practice on behalf of the firm to discharge its obligations within the scope of the existing instructions the firm held before the cessation period commenced or which are necessary in connection with the discharge of such obligations. Disciplinary action will be taken against those who accept new instructions and/or engage in other non-permitted legal activities during the cessation period. The firm's participating insurer is required to provide cover during the cessation period which, as a minimum, satisfies the MTC.

The SRA will work with the firm to ensure that it has ceased practice prior to the expiration of the 60 day cessation period. Firms must be aware that the participating insurer under the existing policy will not be required to provide any cover beyond this period except for run-off cover for a period of six years commencing on the expiry of the firm's final policy of qualifying insurance (excluding any extended indemnity period and cessation period (as may be applicable)).

Note that, under the MTC, a policy, once taken out, cannot be cancelled unless:

the firm obtains another policy of qualifying insurance; or
the firm merges with another firm and a policy of qualifying insurance is in place for the merged firm; or
it subsequently transpires that the firm was not in fact required to take out and maintain a policy under these Rules; or
the participating 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.

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 on or after 1 October 2013, and any person who is a principal of such a firm, must ensure that the firm takes out~~has in place~~ and maintains qualifying insurance at all times.

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: Each firm that has been unable to obtain a policy of qualifying insurance prior to the expiration of the extended indemnity period, and any person who is a principal of such a firm, must ensure that the firm, and each principal or employee of such firm, undertakes no activities in connection with private legal practice and accepts no instructions in respect of any such activities during the cessation period save to the extent that the activity in connection with private legal practice is undertaken to discharge its obligations within the scope of the firm's existing instructions or is necessary in connection with the discharge of such obligations.

Rule 6: Insolvency of participating insurer

6.1: If a firm is carrying on a practice which is being provided with qualifying insurance by a participating insurer (whether alone or together with other participating insurers) and that participating 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 that the firm has in place qualifying insurance with another participating insurer which must be arranged as soon as may be reasonably practicable and in any event within four weeks of such an insolvency event.

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 participating insurer. If an insolvency event occurs in respect of an insurer, that insurer will cease to be a participating 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 participating 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: [Deleted]

Rule 10: [Deleted]

Rule 11: [Deleted]

Rule 12: [Deleted]

Rule 13: Power to collect contribution from firms

13.1: Every firm and/or principal shall make contributions in such amounts, at such times and in such circumstances, as may be prescribed from time to time by the SRA in respect of the ARP, the cost of funding all or any part of the ARP or funding or providing any contribution, consideration, payment, undertaking, reimbursement, guarantee, surety or security in respect of the ARP, in each case, that the SRA agrees or determines is to be contributed or made available on behalf of firms and/or principals to or in consideration for participating insurers agreeing to underwrite the liabilities of the ARP in respect of the indemnity period commencing on 1 October 2012.
13.2: Any unpaid contribution under Rule 13.1 may be recovered as a debt due to the Society. The SRA may recover any unpaid contribution from a licensed body, and may require licensed bodies to make such further contributions as the SRA considers necessary in respect of the ARP, the cost of funding all or any part of the ARP or funding or providing any contribution, consideration, payment, undertaking, reimbursement, guarantee, surety or security in respect of the ARP, in each case, that the SRA agrees or determines is to be contributed or made available to or in consideration for participating insurers agreeing to underwrite the liabilities of the ARP in respect of the indemnity period commencing on 1 October 2012.

Part 4: [Deleted]

Rule 14: [Deleted]

Rule 15: [Deleted]

Part 5: Disciplinary offences and reporting

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

16.1

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

(a): be in policy default, and
(b): undertake any activities in connection with private legal practice in breach of Rule 5.2.

Rule 17: Use of information

17.1

Any participating insurer shall, in relation to any firm which applies to it for qualifying insurance, 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 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 participating 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 operated~~become~~ or is operating without qualifying insurance~~believed to have become a run-off firm~~;
(d): any matter or circumstances that would entitle the firm's participating 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 participating 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 are deemed to have consented to their participating insurer 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 17.4.

17.2

The Council may require any participating insurer 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

Each firm shall notify the Society (or such person as the Society may notify to the firm from time to time) and its participating insurer in writing as soon as reasonably practicable and in no event later than five (5) business days after the date on which:

(a): the firm enters the extended indemnity period under its policy;
(b): the firm enters the cessation period under its policy; and
(c): the firm obtains a policy of qualifying insurance where the firm is in the extended indemnity period or the cessation period, and in such case the notification shall include the name of the participating insurer who has issued the policy of qualifying insurance and the policy number.

17.4

In respect of any information that may be brought to the attention of the Society in accordance with Rules 17.1, 17.2 and 17.3:

(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.

17.5

The provisions of Rule 17.4 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).

17.6

The Society may, without limitation and in its absolute discretion, disclose and make available for public inspection the identity of a firm's participating 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 participating 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 participating insurer(s) who issued the policy; and
(b): the policy number; and
(c): the address and contact details of the participating 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 participating 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 to 2013 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 to 2013 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 to 2013 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 to 2013 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) that the firm has one or more certificates of qualifying insurance (or in respect of any period prior to 1 October 2013, 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 participating insurer is required under the participating 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.