“Many firms are walking a knife-edge with inadequate insurance cover to protect themselves against an investigation or a prosecution by their regulator.”
That was the assertion made by Leigh Day when the UK-based law firm released the findings of new research on how regulatory and compliance matters are dealt with by its peers. Conducted by IRN Research on behalf of Leigh Day’s regulatory & disciplinary team, the study found that less than 50% of firms have management liability insurance (MLI).
Sufficient and appropriate MLI cover, Leigh Day explained, funds the costs of seeking expert assistance in the face of a regulatory probe or prosecution. The human rights law firm is no stranger to the coverage, as it had insurance to thank when it found itself, between 2014 and 2018, successfully defending a Solicitors Regulation Authority (SRA) investigation and prosecution of Leigh Day and three of its solicitors.
The disciplinary case, proceedings for which cost Leigh Day – in turn, its insurer – millions of pounds, saw the Solicitors Disciplinary Tribunal (SDT) dismiss all allegations of breach of professional conduct rules as well as the High Court junking the subsequent appeal by the SRA.
“While professional indemnity insurance (PII) used to cover these sorts of costs, the rules changed in 2010 and that is no longer the case,” noted Leigh Day when it revealed the current underinsurance among law firms. “This research suggests that, despite the passage of time, this fact is something that seems to be lost on much of the profession.
“This lack of cover leaves the profession dangerously exposed and can lead to firms and solicitors being sanctioned by (or accepting a sanction with) the SRA or at the Solicitors Disciplinary Tribunal whether or not there has actually been misconduct, simply because they do not have the financial means to instruct experts in solicitors’ conduct and regulation who can advise and assist them to defend themselves.”
Leigh Day’s survey involved 200 law firms of different sizes across the UK.
“The recent changes to reporting requirements in the SRA’s new Standards and Regulations mean there will surely be an increase in the number of reports to the SRA,” said solicitor Gideon Habel, who is part of the regulatory & disciplinary team at Leigh Day. “At the same time, the SDT has just lowered the standard of proof it applies when deciding cases before it to the civil standard.
“It seems something of a perfect storm for firms and solicitors at the moment, particularly given the findings of this research which show that uptake of insurance for defence cover is still low, despite the risks. We would urge all firms to check their insurance provision with the findings of our research in mind.”
Meanwhile fellow solicitor Emma Walker elaborated: “The questions that practitioners everywhere should be asking are: whether they are covered, when that cover triggers, and how much it is worth. Those managing firms should also consider the question of cover for staff who are not managers or partners from an ethical perspective; all those who are regulated should be appropriately equipped to respond to regulatory scrutiny.”
In 2017, Leigh Day co-founder and senior partner Martyn Day pointed to one of the biggest lessons from their SRA experience, advising others to get insured.
“We took out directors’ and officers’ insurance, and the big message I would pass out to the profession is check your insurance – if you are not insured for cover in relation to the regulator, then for god’s sake go out and get it tomorrow,” stated Day in a Q&A with The Law Society Gazette at the time.
He added: “For me I feel that the human rights world in particular, and lawyers across the land, should go and check their insurance because normal PII does not cover this sort of work. If we had not got out this other policy, we would have been knackered.”
Leigh Day’s regulatory & disciplinary team was set up following the SRA case. The goal is to help other solicitors and firms in handling investigations and prosecutions as well as navigating their regulatory landscape more broadly.