Global FINEX - Professional Indemnity Insurance
We are grateful to Laura Stocks and Georgia Durham, from law firm Reynolds Porter Chamberlain LLP who authored this article. The views expressed in the article are not necessarily those of Willis Towers Watson.
The PI insurance market has continued to harden in 2021, with most firms seeing premium increases in their 2021 renewals. As we come out of a highly disruptive period off the back of the pandemic and adjust to a new way of working, the solicitors PI market is likely to continue to see claims arising in areas such as cyber-related incidents, residential conveyancing, commercial property, wills and probate, and lost litigation. In this article we look at a common thread in many of these types of claim: procedural and administrative errors.
Procedural and administrative errors arise in a variety of different contexts. Claims arising out of litigation are often caused by missed deadlines, such as the failure to recover any claimant or defence costs by the failure to serve a cost budget on time; the inability to pursue a particular cause of action or defence by the delay in meeting a court deadline; or the loss of the entire claim by the failure to issue before limitation expires. These draconian consequences can lead to high value claims.
Procedural and administrative errors are also frequently seen in commercial property transactions. Drafting errors are common in commercial leases, options and overage agreements. These arise from insufficient or inadequate review of documents, or the over-reliance on precedents or drafting technology. Time limit errors are also common; the service of a notice is often required in many areas of commercial property work, such as rent reviews and lease extensions. The consequences of failing to serve timeously are usually severe. These types of claims are difficult to defend because of the often binary nature of the opportunity that was lost, and claim values can be eye-watering in value. Good supervision is essential to pick up drafting errors. Lack of effective systems to record and monitor deadlines can contribute to claims, leaving the requirement to calculate and effectively diarise deadlines in the hands of the individual lawyers.
Residential property claims are the single largest source of claims against solicitors. This work is often highly process driven as a result of the large volume of work that practitioners in this area undertake. The failure to perform relevant checks or the transfer of funds to the wrong party are examples of common administrative errors. Failing to consider the particular transaction means that key steps can often be overlooked. This can easily arise when conveyancers are under pressure. Proper case management systems and processes are essential to ensure that relevant steps are not missed. Lack of effective oversight and overwork will contribute to errors arising in this area of practice.
There are a number of different root causes that may be driving the increased prevalence of procedural and administrative errors in claims. There is a reported increase in mental health problems in the legal profession, borne out of stress, overwork and the pressure of the role, exacerbated in many cases by the pandemic and the sudden shift to remote working. The sense that lawyers needed to be "on" 24 hours a day have blurred the lines between work and home life. Workplace culture is essential to tackle this root cause. Making sure that mental health is prioritised, and ensuring that there is a culture of openness and approachability at all levels of the business will mitigate claims.
The lack of effective supervision is also likely to generate these types of claims. The pandemic and overnight shift to remote working may have exacerbated already strained supervision relationships. The lack of established etiquette around how to communicate effectively amongst teams and how to adapt working practices to accommodate remote working are likely to have generated claims where they may not have occurred in the previous traditional "in office" working model. Now, as we move towards more hybrid ways of working, firms should be alive to the need to properly define expectations and requirements around supervision. Again, culture is key; ensuring that supervision is appropriate, effective and accessible is paramount to reducing claims.
Beyond these underlying issues, it is likely that the economic conditions are driving some of the claims trends we are seeing. Economic trading had been tough for businesses and individuals in the last 18 months. Tenants may be looking to rely on break clauses as remote and / or hybrid working means businesses require less office space. A landlord with a valuable tenant will carefully examine their lease and rent review clause to ensure that the maximum rent terms are obtained from their tenant. The increase in scrutiny in these types of agreements is likely to mean that errors which may otherwise have gone unnoticed in better times are more likely to be the subject of a claim in more challenging times. Similarly, the prospect of increasing numbers of insolvencies and administrations, driven by the harsh economic conditions and end to government business support post-pandemic may also lead to greater scrutiny of contractual arrangements. Insolvency practitioners may look for easy ways to recover business losses from solicitors with deep PI pockets.
PI claims arise out of human error; it is impossible to eradicate them completely. But there are some steps that firms can take to optimise working culture, systems and processes to avoid unnecessary and avoidable claims:
01
In Heathfield International LLC v Axiom Stone (London) Ltd [2020] EWHC 1075 (Ch)1 Second Defendant failed to file and serve their costs budget in time before a CCMC. In a later application for relief from sanctions, the Second Defendant's solicitor admitted that they had missed the deadline because the wrong date had been diarised in their calendar. The court held that the Second Defendant's failure to file and serve their costs budget was serious. The chronology of missed deadlines demonstrated an inefficient conduct of the litigation including, but also going well beyond, costs budgeting. As a result, the Second Defendant's costs were limited to court fees alone. This was a costly £110,000 error which could have been easily avoided by the firm maintaining a proper system to identify and record court deadlines. The error will inevitably form the basis of a claim against the solicitor in due course.
02
In Spire Property Development LLP & Anor v Withers LLP [2021] EWHC 2400 (Comm)2, the Court considered whether the law firm negligently failed to commission appropriate searches in relation to two commercial property acquisitions it was instructed to advise on. The Court found that the solicitor had negligently failed to commission a power lines search. Whilst the search was not a standard search which would ordinarily have been ordered, the lawyer did not take a conscious decision not to request one by reference to the sophistication of the client, nor was there any basis to assume that the clients themselves would undertake the relevant searches. Whilst the law firm was able to resist the majority of this aspect of the claim on causation grounds, the court found the law firm liable for £462,000 of wasted expenditure incurred as a result of the breach. In this case the law firm gave inadequate consideration to the necessary searches. It used a standard template to commission searches depending on the nature of the transaction. This highlights the risk of relying on template and automated systems in undertaking what appears to be routine work.
1 https://www.bailii.org/ew/cases/EWHC/Ch/2020/1075.html
2 https://www.bailii.org/ew/cases/EWHC/Comm/2021/2400.html
