Solicitors' insurance body seeks funds for wind-down
THE SOLICITORS’ professional insurance body, the Solicitors Mutual Defence Fund, is to cease writing new business and is seeking financial support from the Law Society to allow its orderly wind-down over 10 to 15 years.
A special general meeting of members of the Law Society has been called for May 4th to consider the fund’s request for financial support of between €14 million and €16 million.
Chairman of the fund Laurence Shields wrote to solicitors insured with the fund last Friday, explaining that it may not have sufficient reserves to pay all claims into the long-term future. The letter, which has been seen by The Irish Times, explained that the options were to appoint a liquidator or commence an orderly wind-down by working through the claims over a number of years while not taking on any new risk.
The latter option, which is the one favoured by the fund and the Council of the Law Society, would require a capital commitment estimated at between €14 million and €16 million payable over approximately 15 years.
The only possible source of this money is the Law Society, whose members set up the fund to provide professional indemnity insurance for solicitors more than 20 years ago. Several former presidents of the society sit on its board. The council of the society has, therefore, called a special general meeting of members to discuss this proposal.
A crucial consideration for the meeting on May 4th is that liquidation could expose anyone insured with the fund and facing a possible claim to payment of 10 per cent of any judgment against them and costs.
The fund has reinsured 90 per cent of its exposure over the past 10 years. According to Mr Shields’s letter, these contracts are secure but an orderly wind-down is essential to extract the maximum benefit from them.
Professional indemnity insurance is a requirement for all solicitors, who cannot renew their practising certificates without it. In addition to ensuring solicitors are not personally liable if found to be negligent, members of the public who successfully sue solicitors can be sure of being paid.
The fund was set up to compete with commercial insurance companies and traded successfully for a number of years. However, in 2008 and 2009 the global financial collapse, combined with a huge increase in claims against solicitors, primarily from financial institutions, put it under severe strain.
It continued to write insurance, but only after obtaining a loan guarantee from the Law Society for €8.4 million, which has not been drawn down, and now will not be, said Mr Shields.
The Council of the Law Society, which met twice last week, agreed that the decision to financially support the fund should be taken by the members of the society in a general meeting, rather than by the council. President of the Law Society John Costello wrote to all members of the society last week informing them of the special general meeting. According to the letter, the council has had extensive advice from independent experts on all the options available to the society and the consequences of each.
The proposal for all members of the society to subsidise the winding down of the fund over a period of at least 10 years is likely to be resisted, especially among the majority of members who are not insured with it. At its height the fund insured 60 per cent of all solicitors, but it is believed this figure has more than halved.
The Mayo Solicitors Bar Association called an emergency general meeting for last night to discuss the proposal prior to the May 4th meeting. This is likely to be followed by other county bar associations.