Legal practices

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Legal practices.

Key developments in 2023

In RSA v Tughans [2023] EWCA Civ 999, the Court of Appeal held that solicitors were entitled to cover for liability in respect of fees which they are contractually entitled to, upholding the High Court's decision.

The decision will not be welcomed by insurers. The Court of Appeal suggested that cover provided under solicitors' compulsory indemnity insurance may even extend to restitutionary claims, which were traditionally thought to fall outside the scope of cover. It may well be that firms and their brokers will now rely on this decision to test the boundaries of the cover available.

We continued to see buyer-funded development claims throughout 2023 and the SRA remains active in this area. The decision of the Solicitors Disciplinary Tribunal in SRA v Hon-Ying Amie Tsang is worth mentioning. The Tribunal dismissed the SRA's allegations on the basis that Ms Tsang had acted reasonably within the terms of her retainer to set out the risks of the investment to her clients despite being under no duty to do so. Unusually, the Tribunal ordered the SRA to pay ~£75,000 in costs based on the SRA's inordinate delay in bringing the case which had harmed Ms Tsang's reputation and practice and the fact that there had been no basis in law for the SRA's allegations.

Finally, October 2023 saw the biggest SRA intervention ever in England and Wales with the collapse of Axiom Ince following the alleged misappropriation of over £60 million from the firm's client account by its former managing partner. We mentioned the SRA's decision to reduce the profession's contributions to the SRA Compensation Fund in our Annual Insurance Review in 2022. However, the SRA is considering an increase in the levy to law firms to fill any gap in the compensation fund as a result of Axiom Ince's collapse.

What to look out for in 2024

2023 saw an explosion in the development and use of generative AI models such as ChatGPT. This has raised questions over the appropriate use of AI in the legal profession as we move into 2024 and how solicitors can manage the risks involved when using such tools.

The SRA is also alive to the opportunities and risks posed by the rapid development of AI tools available to firms. It has identified a variety of opportunities for firms arising from AI, including the potential to substantially increase productivity, save costs and increase transparency where it is possible to show how an AI algorithm reaches its decisions. The SRA predicts that AI may also help firms to structure their businesses in new ways that better serve their clients' needs, for example through use of AI chatbots to provide services to clients when staff would not otherwise be available.

However, AI will also present risks and challenges for the legal industry as its use develops through 2024 and beyond. Generative AI has no concept of 'reality' and can therefore be prone to highly plausible but incorrect results. The speed at which AI operates may also make it more difficult to supervise its use effectively whilst there are also questions around the protection of client confidentiality when using generative AI tools. Firms will need to develop their AI policies on an ongoing and dynamic basis to ensure client data is protected and compliance with their regulatory obligations. They might also consider updating their standard terms of engagement to ensure that clients are suitably informed about how AI might be used by the firm in a given case.

Written by Cheryl Laird.