What's the damage?

There is less than a month to go until the legal summer vacation begins, but with the words 'professional indemnity (PI) renewals' starting to echo around the offices of legal practices, this is no holiday period. By the end of August, firms must have finalised their insurance arrangements for the new year, which begins on 1 September.
Since the demise of the Solicitors' Indemnity Fund (SIF) two years ago and the introduction of an open insurance market, firms have enjoyed a wider choice and the lower premiums that accompany this. Things have been changing, however, and this year premiums are likely to increase. The market has become tougher. This is the result of a troublesome year for the insurance industry following the events of 11 September, coupled with a drop in the number of companies qualified to underwrite the first £1m of compulsory insurance. Of the 35 firms competing at the start of the open market in 2000, only 26 now remain. The latest to depart the scene was Lloyd's of London syndicate Wellington Underwriting, which, as revealed by The Lawyer (3 June), has announced its plans to instead focus on more profitable areas.
Commentators have suggested that the remaining insurance companies are also becoming more selective in who they provide cover to and firms are now realising the importance of developing close ties with one particular insurer. Even if they can obtain a more competitively-priced premium elsewhere, moving from one insurer to another is unlikely to bring about any crucial long-term benefits.
In an ideal world, once law firms have carefully balanced these considerations and finalised their insurance arrangements, the documents could be filed away for another year. But, in an increasingly litigious society, professional negligence claims are far more commonplace and the cover note will inevitably need to be revisited at some point during the year.
As a result, it is now crucial for lawyers to be aware of the law governing this field and the do's and don'ts of professional practice. The start of the PI renewal process is, therefore, a particularly good time to reflect on some recent professional negligence cases.
David Moy v (1) Pettman Smith (a firm) (2) Jacqueline Perry, CA, 19/6/2002
In this appeal, Pettman Smith solicitors and the claimant Moy challenged the trial judge's decision that instructed counsel (Perry) had not contributed to Moy's loss by advising him not to accept a payment into court. On the basis that she felt further medical evidence would be admitted that would strengthen Moy's case, Perry had advised him not to accept the £150,000 offer. Moy followed this advice but failed to beat the payment into court at trial at a loss of £210,000. It subsequently transpired that Perry had thought there was only a 50 per cent chance of being able to admit the new evidence, but had not communicated this to Moy. The Court of Appeal held that Perry was in breach of duty and the reasonable inference was that, given proper advice, Moy would have accepted the offer. Perry was held to be 25 per cent liable for the loss.
This case – and many others like it – serves as a reminder of the importance of ensuring that clients are given all the information required to allow them to make an informed decision in relation to their case.
Bernard Livesey QC and Duncan Macleod instructed by Barlow Lyde & Gilbert for Pettman Smith. John Ross QC and John Norman instructed by Withers for Perry.
Michael Patrick Sayers v Clarke Walker (a firm), CA, 14/5/2002
The Court of Appeal gave the solicitors in this case a slap on the wrists for not being fully up to speed on the new procedural rules under Part 52 of the Civil Procedure Rules. Clarke Walker had delayed in lodging a notice of appeal under the belief, following advice purportedly given to it by the Civil Appeals Office (CAO), that the deadline for lodging the appeal did not begin to run until the judge's orders had been sealed. Once the true position came to light, Clarke Walker immediately lodged the appropriate notices, but were “irretrievably out of time”.
Although the Court of Appeal gave Clarke Walker the opportunity of addressing the court on the merits of the proposed appeal, it made it clear that it was wrong for solicitors to attempt to rely on conversations with the CAO for the purpose of interpretation of civil practice, which as solicitors they were expected to know.
Robert Anderson instructed by Hammonds for Clarke Walker. Giles Goodfellow instructed by Thomas Eggar Church Adams for Sayers.
Cave v Robinson Jarvis & Rolf (a firm), HL, 25/4/2002
The House of Lords decision in Cave v Robinson given at the end of April is certainly the largest case of the year so far.
Overturning the Court of Appeal, the Lords finally closed a loophole that had allowed negligence claims to be brought many years after the mistake had occurred. Uncertainty first arose when the Court of Appeal in Cave and Brocklesby v Armitage & Guest (1999) effectively abolished the limitation defence in professional negligence cases. It took almost three years for the Lords to have an opportunity to restate the position in this field and confirm that Section 32 of the Limitation Act 1980, which postpones the commencement of the limitation period, relates only to the “deliberate commission of a breach of duty”. In cases arising out of genuine mistakes, the six-year limitation period remains.
The House of Lords' judgment brought a huge sigh of relief from all professional firms and their insurers. In practical terms, it means that such firms no longer need to ensure that they retain all their records and files indefinitely, and the number of possible claims against them will be capped. The decision also sees the end of the concern that insurance premiums would dramatically increase to cover the risk that possible liabilities from many years before could suddenly turn into a claim.
Nicholas Davidson QC and David Drake instructed by Beachcroft Wansbroughs (Bristol) for Robinson. Brian Doctor QC and Patrick Lawrence instructed by Roach Pittis (Isle of Wight).
Deborah Talbot is group editor of specialist products at Lawtel