Between 30 and 40 law firms each year have no professional indemnity insurance cover when they are sued, risk management firm Lockton has revealed.
The news comes as the 9,000 law firms in England and Wales are preparing to renew their professional indemnity insurance on 1 October.
Steve Holland, Lockton's risk solution executive director, said law firms that fail to take out the necessary cover risk having to pay a penalty of up to 27.5 per cent of their gross fees. This payment is known as the assigned risk pool and is dealt with by the Solicitors Regulation Authority. Holland said: "On average 30-40 firms are in this 'sin bin' situation, which can even lead to the Solicitors Regulation Authority closing them down."
The firms that have so far ended up in the 'sin bin' have generally been in the sole practitioner to 10-partner range. That said, a number of mid-tier firms have been on shaky ground by omitting to renew their policies.
Holland also warned that the 1,300 firms that have converted to LLP status will have to ensure that their indemnity cover is for at least £3m.
"Some LLP firms could fall foul of the professional indemnity requirements if they just renew their old partnership policy instead of increasing their limits," warned Holland.