Indemnity is illusory

Write to: The Editor, The Lawyer, 50 Poland Street, London W1V 4AX, fax 0171 734 0534, e-mail, DX44700 Soho Square

I was interested to see your recent article in which a City lawyer was suggesting that firms with claims should be thrown out of SIF. I can assure you that there are many unfortunate partners in small firms who have been severely hit by the new claims loading formula who would love to be allowed to insure in the open market.

All solicitors should be aware that the indemnity provided by SIF is illusory. If a substantial claim is made against your firm (even if it is through no fault of your own), do not believe that you are fully covered by SIF. The rule changes made in July mean that in a few years' time you could be expected to repay to the fund up to 45 per cent of that claim in increased premiums under the new claims loading formula.

Although the claims loading formula is meant to mirror the market in introducing claims experience, in the market you have can go elsewhere. Under SIF you do not. The claims loading formula is a compulsory tax over which you have no control. To make matters worse this is not a policy that will be introduced in the future.

It is effectively retrospective. If you had a claim against your firm in the early 1990s you would have believed that you were fully insured by the SIF. After all, you had paid all your premiums and deductibles. But the ground rules have been changed and you are in for a very expensive shock. Your firm is now facing premium increases of up to 100 per cent on the current year premiums. For some firms this is tens of thousands of pounds over which they have no control.

I appreciate this is not a matter that concerns large City firms. The claims loading formula is based upon a comparison of contributions to claims. It therefore only affects small firms with small contributions and, as I understand it, there are no large firms (of 20 partners or more) which suffer from claims loading premium increases.

I can therefore assure the City that there are many small firms who would also like to see the demise of SIF if it continues on its present course of claims loading.

P Watson-Lee, Law Society council member for Dorset.