Solicitors Minimum Terms & Conditions – a volatile time

Until 2013/14, the Solicitors MTC enjoyed a relatively benign existence. They just “existed”. There was some excitement back in about 2005 when the aggregation clause was amended, and also I recall the minimum limit of indemnity increasing caused a minor stir. However, since 2014 they have faced unprecedented attention and we will just briefly look at here what is on the horizon.

SRA Consultation 1

We are currently awaiting the outcome of the 2015 consultation (which followed the ill-considered Solicitors Regulation Authority (SRA) 2014 consultation), but significant changes were proposed. These included:

• £500,000 per claim limit (minimum) 
• A reduction of run-off cover to three years 
• A limit on defence costs/excess to apply to them 
• Extended exclusion clauses 
• An aggregation limit (to avoid/limit sideways exposure)

In essence, the proposals would significantly “reduce” the minimum cover that insurers have to provide law firms thereby reducing the potential exposure when writing this business. The SRA will need to consider the commercial aspects of these proposals against the wider impact they would have on both the profession and the public.

The reasoning for these proposals can be understood when one considers the exposures faced by Insurers since 2007 in particular. It remains to be seen what changes are made in 2016, but it seems inevitable that we will see some reduction to the “gold-plated” nature of the policy. If nothing else, the aggregation clause needs reviewing and it is likely (although not inevitable) that a cap will be imposed there.

SRA Consultation 2

This came out in February 2016 and some minor amendments are proposed to the disclosure/re-imbursement provision, so as to bring the policy into line with the Insurance Act which comes into force on 12 August 2016. These changes are largely cosmetic, replacing “non-disclosure” with the phrase “fair representation of the risk”. However, policy wordings will need to be brought into line with this.

Court of Appeal 1

The outcome of the appeal in the aggregation case of AIG Europe Ltd v OC320301 LLP has just been handed down. While the subject is too detailed for this article, it is enough to note that the Court of Appeal has widened the stance taken by the court at first instance (and the ability to apply the aggregation clause), in that the requirement of an element of “dependency” has been removed. As regards the future, if an aggregate cap is built into the MTC, then the impact of this decision will be focused on historic policy years and not the future. This story probably has some way to run.

Court of Appeal 2

The case of Impact Funding Solutions Ltd (Claimant) v Barrington Support Services Ltd (formerly Lawyers at Work Ltd) (Defendant) & AIG Europe Ltd (Third Party) concerned the application of the trading debt exclusion clause in the MTC. At first instance, AIG were successful in applying it. However, on appeal, the decision was overturned. The story continues and the matter is on its way to the Supreme Court.

While here is not the place to discuss the facts of the underlying claim in detail, if the decision stands then insurers may well face a number of exposures arising from agreements law firms have entered into with clients that otherwise would have been assumed to be excluded from cover. This decision helps bring into focus the SRA’s consultation on the MTC, and clarification on the wording of the currently available exclusions would be welcomed. Put simply, the wording used was drafted at a time when law firms operated in a very different way and the exclusion clause in total would benefit greatly from a review.

Summary

We may find that 2016 is a watershed year for the MTC. They may survive unscathed, in which case it is unlikely we will see any significant change in the medium term. Alternatively, the MTC could undergo major surgery. In that event, the renewal process will be a more lengthy and detailed task both for law firms and their brokers. It is not difficult to envisage an increase in coverage disputes as well as “knock-on” claims against a law firm’s brokers if the level of cover obtained is found to be inadequate. It is equally possible that some firms will be unable to get the cover they require, as the minimum level offered may simply be inadequate. While Bryan Adams recalls the Summer of ’69 with fondness, it remains to be seen with anyone will be singing about the Summer of 2016 in the future.