At a glance
- Professional indemnity (PI) claims are a significant risk for solicitors
- There are however common trends in claims, that can help avoid future claims
- We focus in detail on four of the most common PI claims scenarios
The number of professional indemnity claims against solicitors may have fallen over the past year, but the risk of litigation is ever present.
Our solicitors@risk whitepaper lists the top 10 causes of claims against solicitors, and discusses strategies for minimising the risk of each. Here, we focus in detail on four of the most common claims scenarios and how to avoid them.
1. Failure to record instructions and advice given
In the event of a loss, solicitors’ clients often allege they were not properly advised. If a solicitor does not have a record of the advice they gave to clients, it can be very difficult to defend claims, particularly if a substantial period of time has elapsed.
Without written records to refer to, courts will often prefer the evidence of clients, concluding that as the transaction or matter is likely to have been a one-off for them, they will have a much better recollection of the advice given than a busy solicitor who may have been handling many other matters at the time.
Key points for solicitors PI customers
- Keep clear and detailed notes of advice sought and given
- In transactional matters, don’t just rely on successive drafts as a record of what the client wanted
2. Failure to record the scope of the retainer
We have received PI claims where the solicitor has been unable to produce a letter of retainer. If an engagement letter setting out the work the solicitor has been asked to carry out is not provided, the scope of their duties is likely to be unclear, which can make it harder for them to defend any subsequent claim.
Top 10 causes of claims against solicitors
1. Failure to record instructions and advice given.
2. Failure to distinguish role from that of other professionals.
3. Missing time limits.
4. Failure to record the scope of the retainer.
5. Lack of supervision.
6. Advising outside area of expertise.
7. Conflicts of interest.
8. Third parties.
9. Identifying the client.
10. Time pressures.
Conversely, if there is a clear, written record of what the solicitor has agreed to do, this can significantly improve PI claims defensibility. For example, in Stone Heritage Developments Ltd v Davis Blank Furniss, a solicitors’ firm was held not to have been negligent because the correspondence and documents made it clear exactly what it had been instructed to do.
Key points for customers
- A retainer letter should be sent out for every instruction, setting out clearly what work the solicitor will be carrying out, and making it clear what they will not be advising on
- If, during the course of the work, the scope of the retainer changes, a new retainer letter should be sent out, clearly identifying those changes
3. Advising outside the area of expertise
If a business describes itself as having specialist expertise in a particular area, it will be judged in court by this standard. This will occur even if the individual within the firm who handled the specific case that led to a claim was not a specialist.
Claims arising from a lack of expertise often relate to complex areas such as tax, leasehold enfranchisement, defamation or foreign jurisdiction.
Key points for customers
- Be careful not to stray from advising on areas where you do have expertise (e.g. conveyancing) into related areas where you do not (e.g. tax)
- Consider processes and systems to ensure partners are not tempted to hoard work for themselves, which could increase the risk of straying outside their area of expertise
4. Third parties
Customers might be surprised to receive a claim from somebody who was not a client. However, this can and does happen. A court will consider whether a solicitor, expressly or impliedly, assumed responsibility to a third party.
Responsibility to a non-client is most often assumed when there is direct communication between the solicitor and that third party. However, solicitors can sometimes find themselves owing a responsibility to a claimant with whom they have had no direct contact, e.g. a lender when acting for a borrower, or the beneficiaries of a will.
Key points for customers
- Be aware of the risks of inadvertently assuming duties to third parties
- Ensure your retainer letter contains an appropriate disclaimer that the advice may not be shown to, or relied upon, by third parties
- Resist any demands for advice to be shown to or relied on by third parties (e.g. lenders)
How Zurich can help manage PI risk
We have been providing professional indemnity insurance for solicitors since the move to an open market. We have a team of experienced and qualified solicitors who can handle the most complex PI cases, and locally empowered underwriters in branches across the UK.
The guidance outlined above is also explained more fully in our Solicitors@risk whitepaper.