Who pays?
A judge rules that an LLP member is not responsible for indemnity insurance premiums
High Court upheld LLP member claim
A High Court ruling over who can be held liable for firms’ indemnity insurance premiums in the assigned risks pool (ARP), the insurer of last resort, has upset what has been a smooth renewal period.
It is the final year of the ARP, which is to be scrapped from the October 2013 renewal date. The move to abolish it, announced by the Solicitors Regulation Authority (SRA) in April 2011, was intended to attract more insurers to the market and bring down cover prices. This can only happen if the SRA stays committed to its promise to force firms in the ARP to pay their premiums.
Last year the regulator promised a tougher crackdown and for many insurers it seems to have worked. Then came the High Court ruling.
Earlier this month Nicholas Strauss QC, sitting as a deputy judge, ruled that individual members of LLPs sitting in the ARP could not be held individually liable for the unpaid premium. Ariel Zeckler, a member of the now-defunct Zecklers, argued that he was not a party to the contract between the firm and its insurers so why should he be held liable?
The judge agreed, saying there was no direct contract that needed to be upheld. This poses a problem: who should be paying up if not the LLP members?
The SRA is considering an appeal.
When it comes to solicitors’ insurance, nothing ever goes smoothly.
Katy Dowell
Readers' comments (1)
Frank Maher | 17-Sep-2012 11:12 am
I don't think this summary is quite accurate. Some policy wordings address the issue, purportedly at least. Others, including the ARP wording, are silent. In Ariel Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd, the Court acknowledged that there is room for argument, sufficient to justify setting aside a statutory demand served by the managers of the ARP on a member of an LLP for payment of the premium. So the ARP will have to (and can) bring fresh proceedings if they wish to pursue the point. The decision of the Chief Registrar was based on a false premise, that regulation of solicitors is contractual through membership of the Law Society. However, no bank would expect an LLP member to be personally liable on a loan to the LLP unless the members had signed personal guarantees. Why should insurers be in any better position? (I believe some may ask for PGs from small firm members.) I have previously litigated the point for LLP members but the matter was resolved at mediation, so there is as yet no authority apart from Jones v St Paul (badly flawed in many respects), which was not cited.
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