Small law firms could soon be eligible for a ‘hardship fund’ to cover insurance run-off costs if they plan to close.
The Solicitors Regulation Authority (SRA) has revealed that some sole practitioners wishing to close have been forced to stay open because they cannot afford insurance premiums. Insurers must cover solicitors for six years after they close.
The run-off indemnity cover is 50% and is calculated into general insurance costs therefore small businesses could find it very difficult to pay the premiums off.
The Solicitors Regulation Authority published its views in a consultation paper, suggesting several ways to ease the pressure – including setting up a hardship fund that firms can apply for. There were also suggestions to reduce the length of cover down to three years and even getting rid of the minimum limit to try and lower premiums. Last year, the Legal Services Board rejected the move to bring the limit down to £500,000 from £2 million.
Another option is to widen the list of exceptions where insurers don’t pay out. This would result in fewer claims, bringing down general costs. On the other hand, firms with valid claims in need of funding would find it more difficult to achieve this.