Questions coming from practice managers and reporting accountants at the our November Conference in regard to professional indemnity insurance (pii).
Joel Harding, from Howden Broking, was one of our guest speakers at the ILFM’s November Virtual Conference and as you would imagine, professional indemnity insurance was hot on the agenda.
Some questions that came out of the conference were as follows, and therefore a big thanks to Joel for coming back with the answers! The main questions were surrounding breaches and what to disclose.
Joel said that his starting point would be to highlight the link between demand for “civil compensation and damages” and the obligation to remedy a breach of the SARs.
They are lined by the words “for these purposes”, so it is not a breach per se that is a “claim” but one that is associated with the loss of funds resulting in a right to civil compensation or damages.
Does a qualified AR1 constitute a claim?
A reporting accountant and auditor asked this question. Joel’s answer is:
“Not in my view – unless there is some associated loss of funds.”
Should practice managers and law firms provide their broker with a copy of their breaches’ register?
This was a question posed by a practice manager.
Joel’s answer to this is:
“At renewal any “material” breaches should be disclosed. If they involved the loss of client money, then they should have been notified as a claim (in accordance with the definition*) when they arose.
Reporting should relate to anything that is material and/or involves the loss of client funds.”
* Claim: means a demand for, or an assertion of a right to, civil compensation or civil damages or an intimation of an intention to seek such compensation or damages. For these purposes, an obligation on an insured firm and/or any insured to remedy a breach of the SRA Accounts Rules
Do brokers and insurers expect a firm to report every minor breach?
The question posed by a reporting accountant continued their comments with their question above as follows:
“A reporting accountant said that they act for firms with over 1,000 breaches per year on their register, so would they want to know about each of them when they are minor, and don’t result in a qualified AR1?”
Joel’s answer was short and sweet.
“No, as per the answer to second question above.”
In summary
With the varying levels and types of breaches, it is always difficult to give a black & white answer, but hopefully the above should act as a guide. Please do get in touch with your broker for specifics or get in touch with Joel direct.
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