Solicitors indemnity fund: Troubled indemnity

Graham Balchin says it is time SIF looked at its own claims handling record. Graham Balchin is head of the professional negligence department at Bolt Burdon. Much has been written in recent weeks about the future of the Solicitors Indemnity Fund (SIF) and the extraordinary u450m shortfall of the current year.

Discussion has centred on premium increases, which group should bear the brunt of the shortfall, and whether it is time for the profession to rethink the whole question of purchasing cover from the com mercial market.

The Law Society Council has agreed to a 50 per cent increase in contributions, and firms have now received this years demands, which reflect that increase. Meanwhile, the issue of whether or not SIF should continue as a mutual fund is being studied by the Law Societys Appleby Committee. Yet few people are asking why it costs SIF so much to deal with claims. Do not forget that SIF is unique in that it deals with one type of insurance only, and so has the luxury of being able to specialise.

As a solicitor who specialises in plaintiff professional negligence claims, I am all too aware of the apparent inability of SIF to make prompt and commercial decisions when assessing claims. My experience is that costs frequently exceed claims, and, unless my firms experience is unique, this must go some way towards explaining the present financial fiasco. This appears to be borne out by SIFs own statistics. From its last annual report, it appears that about one-third of SIFs budget is being spent on panel firms fees and claimants costs.

Take, for example, a case in which I was recently involved. This was a straightforward personal injury claim arising from an accident at work with a value of about u6,000. The plaintiffs solicitors fell foul of Order 17 r.11 and the claim was automatically struck out. A letter before action was sent to SIF, but no admission of liability was forthcoming. Further attempts at negotiation ensued, but with no substantive progress. Two months later proceedings were issued. SIF then appointed its own panel solicitors, who indicated that they would be defending the proceedings. A defence was then served admitting liability. A firm of loss adjusters then started negotiating on behalf of SIF and the claim was settled at slightly under u7,000, plus overall costs of more than u10,000.

This was not a one-off case. In fact, the situation is so predictable that my firm, as a matter of policy, recommends clients issue proceedings rather than negotiate with SIF as it seems unwilling to settle any claim until proceedings are issued. At that stage the claims are usually passed to SIFs panel firms, and further delay and costs inevitably follow.

In another case involving the theft of client money, SIF instructed solicitors to defend the claim. Halfway through the trial SIF provided alternative representation (a new panel firm plus new counsel) and, when judgment was given for our client, SIF decided it was not liable to pay the claim after all, because it arose out of dishonesty. As a result, SIF has incurred substantial costs (I estimate not less than u70,000), our client has also incurred significant costs, and SIF can expect to be served with an originating application in respect of our clients costs (amounting to u52,000) pursuant to s.51 of the Supreme Court Act. Altogether, a judgment for u84,000 will probably end up costing the profession between u200,000 and u250,000.

This is madness when you realise that this was one of seven similar claims against the same firm being dealt with by my firm alone.

I quite understand that SIF does not wish to have a reputation for being a soft touch, but some decisions based on commercial reality have to be applied at some stage, or every claim made against SIF would end up going to trial. A proper assessment of claims is exactly what we make before advising clients to sue, and, indeed, before applying for legal aid.

Claims handling may not be the only (or even the main) problem facing SIF, but it is certainly a significant one. SIF is very keen to encourage best practice among members of the profession. Perhaps it is time it looked at its own claims handling record. If abandoning a mutual fund means firms with a poor claims record are put out of business surely this is in the best interests of the public at large and the profession as a whole.