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Legal practices

Published on 13 January 2021

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for legal practices.

Key developments in 2020

2020 will obviously be remembered for the pandemic, the consequences of which will continue to reverberate for years to come. It was also a year of increased focus on solicitors' involvement in facilitating dubious investment schemes, such as buyer-funded property developments, leasehold interests in hotel or care home rooms, storage units, etc. This involvement carries significant civil liability and regulatory risk: claims or complaints by former clients often giving rise to SRA investigations, which lead to more claims and/or make those claims harder to defend.  

In August the SRA updated their warning notice on the dangers of 'dubious or questionable' investment schemes and this topic also featured prominently in their Risk Outlook and Thematic Report. The warning notice is essential reading for practitioners and their insurers. It highlights, and this accords with our experience having been instructed on numerous claims and SRA investigations, how the type of asset and scheme is constantly being adapted in order to attract investment, often from naïve/overseas investors. The investors are promised excellent rates of return, security and the confidence that comes from dealing with a solicitor. 

These schemes often involve quite complex ownership and security structures. Accordingly, the level of scrutiny and advice expected by the SRA and the Courts is higher than for the standard property transaction. There are many pitfalls here for the unwary – solicitors and their insurers need to continue to focus their efforts on identifying these risks early, so they can be avoided.   

What to look out for in 2021

The seeds for the claims of 2021 and beyond have been sown in fertile soil. The combination of the worst recession for 300 years, home working and significant changes in the volume and type of work being undertaken will bring a fresh set of liability challenges for firms and their insurers. Corporate restructuring work gives rise to large but relatively rare claims in less turbulent times - so too work on re-structuring investments and occupational leases. The continuing increase in volume of this work will bring with it more claims in those areas and touch those with books focusing on large and small firms alike. 

This is not an area where mistakes of law are the problem; the errors emerge from translating the client's commercial intentions into long and complex documents. Drafting inconsistencies arise between the different constituent transaction documents where different lawyers are responsible for each and errors emerge in transaction documents in relation to the priorities and rights of the parties. When resolving ambiguities and errors by construction the courts still – unhelpfully in some cases – give some weight to a presumption that where a party has been represented by lawyers they will have used the words intended. 

Economic turbulence and impaired assets encourage claims across a broad spectrum of areas; found on breaches which might not generate any losses in a rising market. Experience from the 2008 crash suggests claims will emerge relatively quickly and only tail off as limitation starts to bite.

Authored by Sally Lord.

Download our full Annual Insurance Review 2021 for more insights.