The rising costs of covering solicitors

When assessing a solicitor's risk, brokers should be aware that the level of award the Consumer Complaints Service can impose for complaints against solicitors for poor service rose from £5000 to £15000 from 1 January 2006. Further reforms on the horizon are likely to compound the effect.

Under the Law Society's minimum terms of insurance, insurers can exclude liability in respect of a fine or penalty, or for paying the costs of the complainant or regulator. Until now, these provisions have demanded little attention from the industry, but the increased limit may draw more attention as to whether the award should be treated as a fine and therefore excluded under the policy. Insurers are, however, unlikely to be successful in a challenge, as an award is classed as compensation for the complainant's loss and therefore falls to be indemnified under the minimum terms.

What is of more concern is that the increase overlaps the civil courts' jurisdiction. The threshold for small claims is £5000. The increase means that it is not just small claims that are (in effect) being adjudicated by the CCS, but also claims that, given their value, could be heard in the multi-track system of the county court. This is worrying, as the evidential burden required by the CCS is much less than in the courts, with limited grounds for appeal.

There are further developments on the horizon. Last year's Clementi Report considered the regulatory framework for legal services in England and Wales and recommended a new gateway for complaints - the Office for Consumer Complaints, which would cover the whole legal profession: solicitors, barristers, legal executives and licensed conveyancers. Importantly, the report recommended that the distinction between inadequate service, misconduct and negligence be dispensed with. The resulting White Paper proposed a further increase of the limit of redress to £20,000.

In the past many firms have not notified these types of complaints to their insurers and brokers, but have dealt with them themselves, as the limit of £5000 for a 'compensation award' mostly fell within the insured's excess. In future, insurers are likely to insist that a firm's history of complaints are contained in their risk profile, and premiums are likely to be affected.