Chapter 10

Indemnity Insurance and Compensation Funds



Providers of regulated legal services are obliged to maintain professional indemnity insurance. Mandatory requirements are imposed by relevant regulators such as the SRA or the Bar Standards Board. The purpose of the insurance is both to protect the insured lawyer and to ensure that the claims of clients arising from the lawyer’s negligence are satisfied.

Professional indemnity insurance broadly covers claims for damages arising out of mistakes made by lawyers. The terms of policies may be widely drawn to include any description of civil liability in connection with the insured lawyer’s legal practice but excluding what might be called business debts.

It is clearly important for all practising lawyers to maintain effective and adequate professional indemnity insurance. A failure to maintain the required insurance may amount to professional misconduct. The absence of cover may result in a lawyer facing financial claims he is unable to meet, rendering him insolvent; and clients may be left with irrecoverable losses.

This chapter considers the risks arising from the provision of legal services, and how and with whom those risks can be insured. The chapter also considers the ways in which insurance cover may be lost or declined by insurers. The first part of the chapter deals with the regulatory framework of insurance requirements for different legal professions. The second part deals with specific insurance issues such as the terms of insurance, the insolvency of an insurer and the negligence of brokers. Finally, the framework for compensation other than by insurance is analysed.