A question of protection

The arrival of March brings with it the annual renewal season for barristers' professional indemnity insurance. The General Council of the Bar of England and Wales requires every practising barrister to purchase insurance against claims made in respect of civil liability arising out of their practice.

A minimum limit of £250,000 must be obtained by paying a basic contribution to the Bar Mutual Indemnity Fund (BMIF) calculated at specific rates applicable to gross income and type of work. Optional contributions can be paid to increase cover up to a maximum of £5 million under the fund.

Barristers have traditionally benefited from the widely held belief that they are immune to criticism of their court performance or for work preparatory to court work (House of Lords Rondel v Worsley 1969).

Unlike most other professions, where the need to protect a firm or practice against claims of negligence is well recognised, the attitude of barristers towards professional indemnity insurance varies enormously.

However, as the frequency and cost of negligence claims continues to increase, barristers are becoming more aware of the need to protect both their practices and their personal assets.

While it is clear that a practice concentrating on criminal or parliamentary and local government law will be less exposed than one specialising in commercial, landlord and tenant, revenue or other chancery matters, cover up to a limit of £30 million is being purchased on the open market.

This may seem high to some, but it seems inadequate when compared to the sums involved in the work some barristers are handling.

The assumption has been that any award made to an injured third party would be commensurate with the insured's level of professional Indemnity insurance.

However, the recent £105 million High Court award against accountancy firm BDO Binder Hamlyn has exposed the fallacy of this theory and concentrated many minds on purchasing the maximum limit of cover available.

The “claims-made” nature of professional indemnity insurance, whereby any claim is covered by the policy in force at the time the claim is made rather than the policy in force at the time the error was committed, raises questions for barristers appointed to the bench or contemplating retirement.

The temptation is to allow any excess layer insurance to lapse and to rely on the minimum level of cover provided by BMIF on payment of a cessation contribution.

However, it is still possible for claims to exceed the minimum level of cover and leave barristers exposed to an uninsured loss.

Limits of indemnity should be maintained at their previous levels and retired barristers should find that their 'run-off' premiums start reducing the longer they are retired.

As the size and frequency of claims increases so does unease about buying insurance cover through a mutual. Many barristers are aware of the problems that professions such as surveyors, architects and accountants have had with professional indemnity mutuals.

Supplementary contributions can be demanded at any time during or after the period of insurance the individual has already contributed to.

This concern has prompted demands for an alternative to BMIF at certain levels of cover and competitive quotes for £2.5 million cover in excess of a £2.5 million loss are now available on the open market.

Another factor in the increasing number of claims against barristers is that the Solicitors Indemnity Fund may seek contributions from BMIF for claims brought against negligent law firms which have, for example, given advice to a client after an opinion sought from counsel.

As the level of solicitors' contributions to their own fund becomes more dependent on claims experience rather than the size of practice, each firm will be seeking to protect its record as far as possible.

So, are barristers becoming aware of the need to purchase adequate levels of cover? The evidence suggests they are.

This company's scheme has experienced significant growth since its inception three years ago. Due to client demand, we now offer up to £27.5 million cover in excess of the £2.5 million available through BMIF with effect from 1 April 1996 – up from the £20 million maximum which was demanded only three years ago.