Legal practices
In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for legal practices.
Key developments in 2018
The combined Dreamvar and P&P appeal judgment has been widely analysed. While the decision makes clear that when a fraudster pretends to sell a property the solicitors for both the innocent buyer and the fraudulent seller are liable, we have yet to see how the apportionment/contribution arguments between those solicitors will play out.
Further, neither the judgment nor the associated commentary addresses the liability of a fraudulent seller’s solicitor to a lender, where the lender’s mortgage funds are paid away to the fraudster.
Although a lender may bring a claim against a seller’s solicitor in such circumstances, the relevant authorities have not been considered post-Dreamvar and, due to the fact-sensitive nature of these claims, significant potential exists for those authorities to be distinguished.
The vexed issue of reliance, which featured prominently in Dreamvar and P&P, will be of paramount importance in relation to breach of warranty of authority and breach of undertaking allegations in this context. Similarly, liability for breach of trust in these circumstances is not clear-cut.
In Dreamvar, the court took the view that the solicitors were insured and, as such, were better placed to sustain the loss. Where the claimant is a financial institution, not a small (and uninsured) company, we consider that the seller’s solicitors will be in a significantly better position to make a claim for section 61 relief from breach of trust, if they are found liable on that basis, provided they have acted competently.
It also remains to be seen if any changes will be made to the mechanics of conveyancing and/or solicitors’ professional indemnity insurance to resolve the issues highlighted by these cases.
What to look out for in 2019
The year looks set to bring a host of changes in the regulation of legal services.
In addition to introducing the new minimum terms and conditions (MTC), the Solicitors Regulation Authority (SRA) is set to publish a new code of conduct. The new code includes an obligation on the solicitor to “put matters right” if the client suffers loss or harm – a requirement that will undoubtedly be wielded against solicitors by unsatisfied clients without hesitation. The new code also contains an obligation to notify the client that they may have a claim against the firm, which is likely to be of concern to insurers.
Separately, and notwithstanding strong objections from the Law Society, the Legal Services Board has approved the SRA’s plans to introduce revolutionary new rules that will allow in-house legal teams to provide legal advice to members of the public without the need for the employer to be regulated by the SRA or to hold MTC-compliant professional indemnity insurance.
Although certain reserved legal activities (including probate, conveyancing and conducting litigation) are excluded, the changes will weaken the distinction between in-house and private legal practice. They will also offer an opportunity for in-house legal teams to compete with so-called “Big Law” by adopting a new (more profitable?) business model, to enable them to sell specialist advice to other companies and individuals.
The new regime is expected to be introduced in April or May 2019. We expect significant interest from insurers looking to insure these unregulated firms on a non-MTC basis.
Authored by Sam Kneebone.
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