A frequent conversation I have with my clients and contacts is how their ongoing relationship with their Professional Indemnity Insurer works. During your insurance year, any participating insurer providing a policy under the Minimum Terms and Conditions cannot come off cover and must deal with any claims or notifications put to them. As such, having an open dialogue with your broker and insurer throughout the life of the policy is the key to a positive, long-term relationship. Discussing potential changes to your firm at an early stage will allow you to be confident that your insurer has no underlying concerns with your plans.
It is good practice to notify your insurer of any material changes - i.e. changes from the information given in your original proposal form - as early as possible. A broker experienced in Solicitors’ PII can prove invaluable here; giving the best advice to outline your options and the potential consequences of each scenario. The types of changes I regularly advise on are:
Mergers: This appears obvious, but I have seen instances of firms not advising insurers that they have merged with another practice until after the merger has taken place. Due to the Successor Practice Rules, not engaging with your insurers before a merger can have a huge, unexpected impact on one or both firms. The insurer of the successor practice will normally ask for an additional premium to cover the enlarged risk once the merger has been completed. If you don’t advise your insurer of the merger, once the firm applies for renewal it is possible that the profile of the firm you have merged with will not appeal to your insurer and this could result in a very substantial increase in renewal premium, or even the firm being declined a quotation. I would advise that you should notify your broker at least a month prior to the scheduled merger date.
A change in the firm’s partnership or status: More and more firms are now converting to limited company or a Limited Liability Partnership (LLP), or even considering setting up an Alternative Business Structure (ABS). It is important to advise insurers of this well in advance of the conversion date. They will usually ask for the reasons behind the change and normally ask for your latest set of accounts. Common reasons for conversion include becoming a Limited Company for tax purposes, or becoming an LLP to assist with succession planning. Do not forget that currently, becoming a recognised body will also mean that you must carry a minimum professional indemnity limit of £3,000,000, which may require a change to your policy.
Changes to the types of work your firm conducts: If your firm is predominantly a general practice and you then decide to branch out into a completely different niche area, it is always a good idea to speak with your broker to see how this may impact the risk taken on by the firm and your PII policy. For example, a firm that has historically never done any personal injury work may decide to enter into this area. This could have a dramatic impact on the firm’s risk profile when it comes to the renewal as such work may fall outside the insurer’s appetite.
Accepting a major contract: I often assist clients who have been offered a major new contract and are unsure of the implications with regards to their PII. In many cases, the contract value can be well in excess of their current indemnity limit. It is always prudent to speak with your broker prior to accepting the contract as it may be advisable that you purchase additional indemnity cover, commonly referred to as "top up" cover, or there may be other factors to consider. Remember, you cannot purchase a one off policy for a particular contract, guidelines suggest that you need to maintain the new indemnity limit for at least six years.
New Partners/Fee earners: When looking to employ a new Partner or fee earner it is recommended that you notify your insurers prior to offering employment. The insurers will usually just ask for a brief questionnaire to be completed along with a copy of the candidate’s CV. In the past I have had clients that have employed a new member of staff without carrying out the appropriate checks, not notified their insurers and then found that they were declined at renewal due to the fact that this new employee had been responsible for the collapse of a firm previously insured by the same underwriter. Checking with your insurer can be considered a further, useful part of the due diligence process.
Opening another office location: Always inform your broker when you open another office. The insurer will want to know whether it will be supervised by a Partner/Member and if not what steps has the firm taken to ensure that the appropriate supervision and risk management is in place.
Whilst the above are not hard and fast rules, engaging with your insurer early on any possible changes will allow you to ensure you have fully addressed any potential risks and maintain a good, ongoing dialogue, which can only be a positive thing when looking at your next renewal.
If you would like to discuss any of the above in more detail or have any other queries regarding your PI cover please do not hesitate to contact a member of JLT Specialty’s Solicitors PI team.