The SRA Handbook is no longer in effect. It was replaced by the SRA Standards and Regulations on 25 November 2019.
Responsibility and monitoringBack to version 21
Version 7 of the Handbook was published on 01/04/2013. For more information, please click 'History' Above
Part 2: Responsibility and monitoring
Rule 4: Obligation to effect insurance
All firms carrying on a practice during any indemnity period beginning on or after 1 October 2012 must take out and maintain qualifying insurance under these Rules.
A firm that has been unable to renew its existing policy of qualifying insurance or obtain a policy of qualifying insurance from an alternative qualifying insurer prior to the expiration of the extended indemnity period must cease practice promptly, and by no later than the expiration of the cessation period unless the firm obtains a policy of qualifying insurance on or before the expiry of the cessation period which provides cover that incepts with effect on and from the commencement of the extended indemnity period and covers all activities in connection with private legal practice carried out by the firm including, without limitation, any carried out in breach of Rule 5.3.
A solicitor or REL is not required to take out and maintain qualifying insurance under these Rules in respect of work done as an employee or whilst otherwise directly engaged in the practice of another firm (including without limitation as an appointed person), where that firm is required by these Rules to take out and maintain qualifying insurance.
A run-off firm must apply in accordance with these Rules to be issued with an ARP run-off policy.
Under these Rules, firms have a continuing obligation to ensure that they have qualifying insurance in place at all times with effect from 1 October 2012. Refer to the definitions of practice, amongst others, to establish whether a firm falls within the scope of these Rules. Firms should also check that any insurance that they take out in order to comply with these Rules (as opposed to any 'top-up' cover) is taken out with a qualifying insurer. A list of qualifying insurers appears on the website of the SRA at www.sra.org.uk, and is also available from the SRA. Contact details appear at the end of the introductory commentary.
Firms should note in particular that work carried out by an appointed person for that firm may be covered by the firm's policy, whether that person is engaged as an employee or on a contract for services.
If a firm, on or before the expiry of the 2012 indemnity period, fails to obtain a policy of qualifying insurance from a qualifying insurer for a period of insurance commencing on 1 October 2013 the firm's qualifying insurer (except for the ARP) is required to extend cover under the existing policy for a further 30 days. If a firm fails to obtain an alternative policy of qualifying insurance prior to the expiration of the 30 day extended indemnity period it must cease practice within a further period of 60 days (that is, before the expiry of the cessation period) unless the firm obtains a policy of qualifying insurance on or before the expiry of the cessation period which provides cover that incepts or is backdated to incept with effect on and from the commencement of the new indemnity period. Any such policy of qualifying insurance must cover all activities carried out in connection with private legal practice by the firm, including any carried out during the cessation period in breach of Rule 5.3. During the cessation period, the firm (and its principals, employees, consultants and agents) may only engage in activities in connection with private legal practice on behalf of the firm to discharge its obligations within the scope of the existing instructions the firm held before the cessation period commenced or which are necessary in connection with the discharge of such obligations. Disciplinary action will be taken against those who accept new instructions and/or engage in other non-permitted legal activities during the cessation period. The firm's qualifying insurer (except for the ARP) is required to provide cover during the cessation period which, as a minimum, satisfies the MTC.
The SRA will work with the firm to ensure that it has ceased practice prior to the expiration of the 60 day cessation period. Firms must be aware that the qualifying insurer under the existing policy will not be required to provide any cover beyond this period except for run-off cover for a period of six years commencing on the expiry of the firm's final policy of qualifying insurance (excluding any extended indemnity period and cessation period (as may be applicable)).
Note that, under the MTC, a policy, once taken out, cannot be cancelled before the end of an indemnity period unless:
- the policy is an ARP policy and the firm has replaced it with a policy of qualifying insurance outside the ARP; or
- the firm merges with another firm and a policy of qualifying insurance is in place for the merged firm; or
- it subsequently transpires that the firm was not in fact required to take out and maintain a policy under these Rules; or
- in the case of an ARP policy, it subsequently transpires that the firm was not, or has ceased to be, an eligible firm; or
- the qualifying insurer which issues the policy becomes the subject of an insolvency event, and the firm has replaced the policy with another policy of qualifying insurance.
The effect of cancellation in the circumstances described in 3 or 4 above is that the firm ceases to have qualifying insurance in place with effect from the cancellation, and would therefore be in breach of Rule 4.1 if it were to carry on a practice thereafter without taking out a new policy.
Most recognised bodies and licensed bodies (in respect of their regulated activities) are required to obtain cover complying with the MTC and with a sum insured of £3 million, rather than £2 million for other firms. The definition of "relevant recognised body" and "relevant licensed body" in these Rules indicates which recognised bodies and licensed bodies this requirement applies to.
The provisions of this Rule 4 shall be without prejudice to the ability of firms to include as insureds on a policy persons not required under these Rules to be insured.
Rule 5: Responsibility
Each firm carrying on a practice during any indemnity period beginning on or after 1 October 2012, and any person who is a principal of such a firm, must ensure:
that the firm has in place and maintains qualifying insurance outside the ARP during any such indemnity period;
or, in the case of an eligible firm,
that the firm has applied to enter the ARP in accordance with the procedure set out in Rule 10;
in either case before the start of any relevant indemnity period or the start of practice whichever is later.
Note that the duty to ensure that qualifying insurance is in place rests not just on the firm as a whole, but also on every principal within that firm.
A run-off firm, and any person who was a principal of that run-off firm immediately prior to it becoming a run-off firm, must ensure that the run-off firm has applied to enter the ARP in accordance with the procedure set out in Rule 14.4(a). Making such an application does not absolve any firm or person from any breach of Rule 5.1.
A firm which has continued to practise without qualifying insurance immediately prior to closing down is required to apply for run-off cover through the ARP, but the firm and any principal of the firm may still face action for a breach of Rule 5.1 for practising without qualifying insurance.
Each firm that has been unable to obtain a policy of qualifying insurance prior to the expiration of the extended indemnity period, and any person who is a principal of such a firm, must ensure that the firm, and each principal or employee of such firm, undertakes no activities in connection with private legal practice and accepts no instructions in respect of any such activities during the cessation period save to the extent that the activity in connection with private legal practice is undertaken to discharge its obligations within the scope of the firm's existing instructions or is necessary in connection with the discharge of such obligations.
Rule 6: Insolvency of qualifying insurer
If a firm is carrying on a practice which is being provided with qualifying insurance by a qualifying insurer (whether alone or together with other qualifying insurers) and that qualifying insurer is the subject of an insolvency event then, subject to any waiver under Rule 19.1, the firm and any person who is a principal of the firm must ensure:
that the firm has in place qualifying insurance with another qualifying insurer which must be arranged as soon as may be reasonably practicable and in any event within four weeks of such an insolvency event;
or, in the case of an eligible firm,
that the firm applies within that period of four weeks to enter the ARP in accordance with the procedure set out in Rule 10.
It is important to be aware that the arrangements for professional indemnity insurance put in place by the SRA do not seek to protect firms against the insolvency of a qualifying insurer. If an insolvency event occurs in respect of an insurer, that insurer will cease to be a qualifying insurer for the purposes of writing new policies and firms insured by that insurer must effect alternative insurance in accordance with these Rules. This is because, in such circumstances, the insurer may not be in a position to pay claims in full. Any firm which has qualifying insurance with a qualifying insurer which is the subject of an insolvency event is required therefore to obtain replacement cover as soon as possible, and in any event within four weeks of the insolvency event occurring. Having done so, a firm should cancel the policy with the insolvent insurer and, if entitled to do so, seek a return of the premium relating to the balance of the policy period from the insurer which has become the subject of the insolvency event.
Any firm that enters the ARP by reason of a qualifying insurer being subject to an insolvency event may not remain in the ARP beyond 30 September 2013, regardless of the date on which the firm entered the ARP, except in respect of an ARP policy under which the period of run-off cover pursuant to clauses 5.1 and 5.2 of the ARP policy commences on or before 1 October 2013 or an ARP run-off policy which incepts on or before 30 September 2013).
Rule 7: Monitoring
The Council may require from a firm or any principal in a firm carrying on, or reasonably believed by the Council to be carrying on, a practice such information and evidence as it may reasonably require to satisfy itself that such a firm has in place qualifying insurance.
Rule 8: RELs
The special provisions contained in Appendix 3 to these Rules shall apply to a firm that has at least one principal who is a REL.