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Is Self Insuring A Sick Bird?

Old joke this one - What's the difference between unlawful and illegal?

Answer: The first means doing something which breaches an existing legal statute, the second is a sick bird.

Boom boom.

So Happy New Year to everyone.

Things are picking up here at Box Legal, with more and more firms finally getting to grips with their rush of pre-Jackson work. Policy numbers continue to climb and we are also seeing a surprising number of new enquiries - some from very large firms. The reason? Well we think it is flexibility - our new campaign says it all really, we can offer policies at any price, and will let you know what you get in return. Simple.

Now on to the joke and by this I mean firms who are self insuring.

We have come across a small number of firms who say they dare not push an ATE policy on the client as they fear they will lose the business. Instead they are either saying nothing to the client, leaving the choice up to the client or (unbelievably) saying they will take the risk themselves as a firm.

So let's analyse these options shall we:

1. Saying nothing

Keeping quiet and not telling the client about the risks and advising them to insure against them is a recipe for disaster. Two possible results here: first - you get away with it so everyone is happy; second the case is lost or an offer is not beaten so the client loses - they will complain and so you will have to put your hand in your pocket. Worse, they may report you to the SRA. Now funny this but we are aware that the SRA are clamping down on this shoddy practice in their visits so watch out. It is NOT a defence to point to the CFA small print by the way.

2. Leaving the choice up to the client

Almost as bad as saying nothing. The issue here is - can the client make an informed decision based on a long client care letter? We think not (and the SRA seems to agree with us). Again we have heard of firms being visited and asked why they did not discuss the choices with the client in a meeting.

Anyway - what happens to the client who decides to go ahead without ATE cover? If they lose, who pays then? The client has agreed to it but won't they be jumping up and down at that point. Will you really be suing them for the money? Will you be able to find them? You could of course ask for money on account at the start of the case...

3. Self Insuring

Ok ok - it isn't illegal. The case of Sibthorpe & Morris v LB of Southwark says adding a clause to your CFA to say you will take the risk of losing is absolutely fine. What is illegal is charging the client for this. If you attempt to add a fee for taking the risk then this is insurance so you would be breaking the law.

So why then would you take all the risk but not get paid for it? We think this is a bit daft - after all, you would need to notify your Professional Indemnity Insurer who would not be happy (as they would be taking on additional risks) - your PII premium would no doubt rise as a result. You would also need to make a provision in your accounts for the amount you may have to pay out in the future. This would reduce profits.

So why do people do this? Well it is the fear of clients disappearing.

So let me put your minds at ease. In the past 3 months we have visited over 50 firms and only one has lost a client when they insisted on the client taking out an ATE policy. When I say 'a client' I mean just one client. That very client then came back with his tail between his legs when the firm down the road failed to provide a decent service.

Almost all firms are now insisting on insurance - it protects the client and it protects you, the solicitor. There is nowhere else for the client to go.

I think it is time for the sick bird to become deceased. To shuffle off this mortal coil. To kick the bucket etc, etc ....

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