Does your professional indemnity cover include personal guarantees?

20 August 2015

We have seen many firms move away from the traditional partnership model to either a Limited Liability Partnership (LLP) or a Limited Company. Some of these entity changes will have been made as a result of succession planning however some firms will have made these changes to afford the principles the comfort of personal protection in the event that the firm experiences financial difficulties. 

Principals of a limited liability entity should note however that they may not be exempt from paying run off insurance premiums and or policy excesses in the event the firms failure. This is due to some insurers incorporating personal guarantees in to their policies which would not be precluded by the Solicitors Regulatory Authority minimum terms. As such members of an LLP or directors of a limited company may find that their personal assets are exposed to demands by the firms insurers for the firms run off premium even where the resources of the firm are not able to meet the premium. 

Additionally as the minimum terms require insurers to pay a claim in full and then recover the excess, principals of an LLP that has ceased may be required to fund out of their personal resources excesses for claims occurring once the firm is run off. This applies even after the assets of the firm have been exhausted.

If you have any concerns as to whether your policy may include personal guarantees, you should speak to your professional indemnity broker or insurer.

contact James Frost