To say that the relationship between professional indemnity insurers (PII) and conveyancing law firms is strained, is somewhat of an understatement.
Conveyancing law firms carry most of the blame for a PII market, which is fraught with inequity and continues on a downward spiral. A number of high profile cases include the Nabarro Nathanson £130 million PII claim which eventually settled for £10 million and the Withers PII claim which settled for £1.6 million. These coupled with the impact on the market of the collapse of Lemma, Balva, ERIC and Quinn – guarantee that the situation is unlikely to improve, and that property law practitioners will bear the brunt of it.
While the Solicitors Regulation Authority (SRA) attempts to address PII premium inequity via regulation, the Council of Mortgage Lenders (CML) has also entered the debate. In the case of the CML, its interest rests solely in ensuring that its membership is not prejudiced by a systemic failure of the regulator to properly consider the impact of the proposed changes to the PII regime on the quality of conveyancing and the risk transference tools which sit behind such conveyancing.
Albeit in the 2014 PII renewals context, the SRA has chosen the path of least resistance by delaying until 2015, but its decisions on eligibility criteria, aggregate limits and shortened run-off cover make the need for a future debate on the proposals unavoidable. The CML has been very vocal in its view that, rather than consulting on solicitors’ PII cover, the SRA should instead first consider how to deal with the causes of professional indemnity claims, with a focus on conveyancing and other high-risk areas.
There are further concerns, that the lowering of the minimum compulsory coverage threshold to £500,000 may result in mortgage lenders with high exposures placing separate insurance cover. The costs of which would then be passed on to the borrower. Add to this the ongoing debate over aggregation of claims introduced by Godiva Mortgages Ltd v Travellers Insurance Company Ltd, and it becomes apparent that the mortgage lending community will be faced with a quandary over how to properly manage conveyancing risk whilst PII support as a risk transference tool becomes increasingly hard to obtain.
However, it’s worth remembering that other risk management tools which exist independently of PII coverage but which can be equally as, if not more, beneficial do exist. Title insurance, as just one example, has often been used as a surrogate for PII in the management of conveyancing risk. In some circles, the title insurance solution is perceived as a better alternative to PII due to the fundamental principle that title insurance policies are not dependent on proof of negligence as trigger for a claim pay out. Even more compelling is the inference that PII insurers deem title insured risks as more attractive and tend to reflect this in lower PII premiums.
Perhaps one route to mending the relationship between the conveyancing solicitor and his PII insurer lies in title insurance, driven by mortgage lenders with a mandate to effectively manage the risks on their books.
By Chris Taylor, Chief Executive of Titlesolv