Do you need Directors & Officers insurance?
Published: Monday, 19 July 2021
Senior staff need added protection as their responsibilities increase
Regulatory hearings may not be covered by Professional Indemnity insurance and can be very expensive
In June 2017, the Gazette reported that human rights lawyers at Leigh Day had been cleared of 19 charges brought by the SRA in the Solicitors Disciplinary Tribunal.
The firm found that its PI policy did not cover the costs of regulatory hearings but fortunately the firm had arranged a Directors & Officers Liability policy some years before and this paid the costs (estimated at just under £7m).
The SRA enquiry would have bankrupted the partners without D&O cover highlighting the need for firms to have this protection in place.
When might my PI policy cover a regulatory investigation?
Professional Indemnity wordings vary despite the SRA Minimum Terms. Some policies do include regulatory enquiry defence costs, but only where a potential PII claim is present.
If the subject matter of the enquiry is conduct related with no client dispute, this would not fall within the scope of the Professional Indemnity policy.
What else can a director be held liable for?
Principals of law firms can be responsible for so much more than the issues that typically involve the SRA. For example, they can be personally sued in the event of a data breach.
Insurers fear a surge of claims on the back of the pandemic.
Working from home is an increased risk for directors with its implications for employment, health & safety, data, and client asset security, not to mention the financial effect on the firm and general management of the business.
Leigh Day 2019 survey shows insufficient cover held by Law Firms
As a result of their experience with the SRA investigation, Leigh Day commissioned a survey in 2019 asking other solicitors what D&O cover they had. The results show that many solicitors had insufficient cover to defend a regulatory investgation.
The growing regulatory reach of the SRA overlaying the ever-expanding list of responsibilities for business operators makes D&O a vital component of insurance protection for solicitors.
Not all D&O Insurers will cover Law firms
Compared to the 20 Professional Indemnity Insurers for solicitors in England & Wales, there are many more willing to provide D&O cover to business generally, but regretfully not to solicitors.
Several Insurers have stopped offering this cover to Law firms in recent years. Cover is still available although premiums are rising steeply.