Scottish Executive Consultation

Transcription

1 Scottish Executive Consultation Reforming complaints handling, Building consumer confidence Regulation of the Legal Profession in Scotland Response by Marsh Ltd

2 Contents Page No Part A Scope of Response 1 Part B Summary consumer confidence 2 Part C Response to Consultation Paper 3 Appendix 12

3 Scope of Response Reference is made to: Letter of 10 May 2005 from the Head of Legal Services Policy Team, Justice Department, Scottish Executive enclosing, and seeking views on the proposals set out in Consultation paper Reforming complaints handling, Building consumer confidence Regulation of the Legal Profession in Scotland This response is made by Marsh Ltd. Marsh Ltd is the broker appointed by The Law Society of Scotland to The Law Society of Scotland Master Policy for Professional Indemnity Insurance for solicitors in Scotland ( the Master Policy ). This response is confined to: Questions 20, 21 and 28 of the Consultation Paper Aspects of the operation of the Master Policy no comment is made in relation to The Scottish Solicitors Guarantee Fund. Matters concerning solicitors negligence. (Note: The Master Policy indemnifies solicitors in respect of claims arising out of breach of professional duty, not merely claims for negligence. The cover extends, for example, to certain instances of fraud/dishonesty on the part of solicitors or their staff.) By way of background, the Appendix to this response briefly explains: The concept of professional negligence The process of pursuing a claim for (alleged) professional negligence The operation of the Master Policy as well as providing extracts from the relevant statutory provisions and Practice Rules relating to the compulsory Professional Indemnity Insurance requirements applying to solicitors in private practice in Scotland. Our views on the proposals in the consultation paper are set out in detail in Part C with Part B summarising points relevant to consumer confidence. Prepared by Alistair J Sim LLB Dip LP ACII Marsh Limited Orchard Brae House 30 Queensferry Road Edinburgh EH4 2HS 2 August

4 Summary consumer confidence The Consultation Paper is sub titled building consumer confidence. The following points identified in this response (and in the Appendix) are relevant to consumer confidence : All solicitors covered for claims for (alleged) negligence The compulsory Professional Indemnity Insurance arrangements operated by The Law Society of Scotland ensure that all solicitors (currently and formerly) in private practice in Scotland have insurance against losses arising out of their negligence. Focus on consumer protection A claim validly established against a solicitor arising out of that solicitor s negligence will be paid even if the solicitor s practice has ceased to exist and the solicitor is unable to pay the claim, the premium or the policy excess. Claims Handling Philosophy Where the insurers of the Master Policy are involved in handling claims, they are required to adhere to a claims handling philosophy which is effectively a statement of fair dealing with claimants. Monitoring of insurers There are various ways in which the conduct and performance of the insurers of the Master Policy in relation to the handling of claims is monitored. Level of satisfaction with insurers conduct/ performance There is a track record of very low levels of notified dissatisfaction with the conduct or performance of insurers of the Master Policy in relation to their handling of claims. Lay representation on Committee There is soon to be lay representation on the Insurance Committee of the Council of The Law Society of Scotland, the Committee charged with responsibility for the compulsory Professional Indemnity Insurance arrangements for solicitors (currently and formerly) in private practice. 2

5 Response to Consultation Paper Response to Question 20 Do you think that the professional bodies should be able to investigate small negligence claims? 20.1 Preliminary comments We have confined our response to claims against Scottish solicitors and the possibility of such claims being investigated by The Law Society of Scotland. Before commenting on this question we make the following preliminary comments. It is not clear what is envisaged by the term small negligence claims. Is small to be determined purely by reference to the amount claimed? Is negligence intended to refer to the entire range of claims arising out of breach of professional duty which are currently within the scope of Master Policy cover? Is it intended that claims arising out of dishonesty, for example, would be included in or excluded from the scope of small negligence claims? Nor is it clear what is intended by the term investigate. Is it envisaged by the term investigate that the Society would have power not only to investigate but also to adjudicate and determine such claims? Is it in fact the case, as stated in para 7.9 of the Consultation Paper, that legal professional bodies in England and Wales are able to investigate small negligence claims? 20.2 Subject to clarification of these points, there appear to be various potential objections to the principle of the Society being able to investigate small negligence claims. It appears to us that the principal objections include: Conflict with principle of impartiality in relation to individual claims The Society has maintained a stance of complete impartiality in relation to individual claims. That impartiality is assured by virtue of the separation of functions in the claims handling arrangements. While the Society concerns itself with the structures and the principles for the handling of claims dealt with under the Master Policy, the Society has been clear to avoid involvement in the handling of individual claims. An investigatory role would seem to imply some form of final adjudication, which would seem to detract from, if not to undermine, the Society s ability to demonstrate impartiality. To the extent that determinations by the Society fall to be met by the Master Policy insurers, there could be a perception that the role of the Society, as a party to the Master Policy, is akin to auctor in rem suam Potential adverse impact on solicitors Depending on how small negligence claims are defined and determined, it may be that the changes envisaged would involve a change to the standard test of negligence or reversing the onus of proof which would currently apply. In either event, solicitors could be disadvantaged. In addition, there is a potential adverse cost impact on the profession or individual solicitors (see comments on Question 21 (below)). 3

6 Potential adverse impact on Professional Indemnity Insurance See comments on Question 21 (below). There is at least the potential for adverse impact in terms of cost of Professional Indemnity Insurance and, in certain circumstances, the extent of public protection provided by the insurance arrangements Creates fragmented approach to claims resolution and potential for confusion There already exists the potential for negligence (or equivalent) claims to be handled by: The practice itself (claims within the Self Insured Amount or where the practice elects not to seek indemnity under the Master Policy) Insurers and/ or panel solicitors appointed by the Master Policy insurers Complaint of Inadequate Professional Service, handled by the Society. The Society currently has power to investigate certain matters by virtue of its statutory role in relation to complaints of Inadequate Professional Service ( IPS ). There is the possibility of a compensatory award of (for IPS occurring after 1 April 2005) up to 5,000. It may well be that this already provides the facility for resolution of some small negligence claims. Depending on the definition of small negligence claims, there is the possibility of four routes for the investigation of claims: Claims within the small negligence threshold/ definition investigated by the Society Claims outwith the small negligence threshold/ definition but not exceeding the applicable Self Insured Amount dealt with by the practice itself Claims exceeding the Self Insured Amount dealt with by the Master Policy insurers and/ or panel solicitor (unless the practice elects not to seek indemnity from the insurers) Complaint of Inadequate Professional Service, handled by the Society Is it considered desirable that there should be so many different means of resolving claims? That would certainly present challenges in terms of communication to the public of the profession s consumer protections Absence of justification for altering status quo It is not clear what objective(s) the envisaged changes are aimed at achieving, however comments in the Consultation Paper indicate that at least one of the objectives is addressing delay or the perception of delay in the claims resolution process. Delays in progress of claims will not necessarily be resolved by creating a new forum for resolution. Some claims are delayed because liability, causation or quantum is disputed. This will be the case regardless of forum. The system for compensation for negligence is not no fault. If liability, causation or quantum, is in dispute, that dispute requires resolution prior to any claim being settled, whatever the mechanism for resolution. The Master Policy claims handling philosophy is aimed at claims being resolved by negotiation. Mediation is preferred to litigation. The vast majority of claims are resolved in this way without the requirement for court proceedings. Note: There is currently no way of requiring claimants or their agents to agree to mediation. 4

7 Having claims resolved quickly continues to be one of the principal objectives in the process of continuous review of the claims handling process and, subject to the inevitable limitations on the conclusions that can ever be drawn from statistics in this particular context (see para ), arguably, the approach to claims handling adopted by the Master Policy insurers can be shown to be providing a sufficient fast track system for investigation and resolution of claims, including small claims Potential complexity of negligence claims The question presupposes that small negligence claims, being small are thereby capable of straightforward resolution. That is not necessarily the case. Many smaller claims (by monetary value) are amongst the most complex. Issues of duty of care, causation and quantification are all capable of complexity, irrespective of the amount of the claim. 5

8 Response to Question 21 What implications, if any, might this have for Professional Indemnity Insurance? 21.1 The response to this question depends on a number of factors, including: What constitutes a small negligence claim? If, for example, small negligence claims refers to claims for damages and claimants costs not exceeding 5,000, many of those claims would currently fall within the practice s Self Insured Amount. For example: The minimum Self Insured Amount applicable to a 2 partner firm is currently 6,000 In the event of a claim against a 2 partner firm for damages and claimants costs of say 4,000, the Master Policy insurers would not currently: Take an active part in handling the defence/ negotiation of the claim Be required (barring insolvency of the practice see Appendix 6.3) to meet any part of the claim The practice itself would typically handle the defence/ negotiation of such a claim itself without any active involvement of the insurers. Such a claim would therefore appear to have no impact at all on the current Professional Indemnity Insurance arrangements What is the level of Self Insured Amount under the Professional Indemnity Insurance ( PII )? As demonstrated by the example at , the higher the Master Policy Self Insured Amount applicable to a particular practice, the more likely a small negligence claim is to fall wholly within the practice s Self Insured Amount. The current Master Policy Self Insured Amounts are effectively 3,000 per principal (subject to a 15 partner cap) so that the Self Insured Amount applicable to a sole practitioner s Master Policy cover is 3,000; a two partner practice 6,000 etc What aggregate limit applies to the Self Insured Amount under the Professional Indemnity Insurance? Under the current Master Policy arrangements, there is an aggregate limit on the Self Insured Amounts for any year of insurance (1 November to 31 October). This is the maximum amount a practice may be required to contribute towards the settlement of claims intimated in any one year of insurance. Subject to various qualifications, this is broadly equivalent to the total of Self Insured Amount contributions payable in respect of four claims What process would be applied in determining these claims? What evidence would be considered? By whom? Would there be binding timescales for the submission of information, evidence or representations? What would be the consequences, if any, of failure to comply with those timescales? Who would have the onus of proof? What test would be applied in determining these claims? Is the standard test of negligence applied? If not, would the test be more or less demanding than the standard test of negligence? 6

9 Whether insurers would be in a position to participate in/ defend such claims? The procedure may conflict with the insurers right of conduct and control of claims (see para ) Whether determinations could be appealed (or judicially reviewed)? Or would the Society s determination be final and binding? 21.2 Subject to clarification of these points, the following appear to us to be relevant factors: Insurers conduct and control of claims where indemnity being provided If insurers are providing indemnity to an insured solicitor in respect of such a claim by meeting the awards/determinations, they would generally expect to have conduct and control of the claim. Having the claim determined under the envisaged small negligence claim procedure in this way potentially deprives the insurers of conduct and control of claims for which they are providing indemnity. The potential responses of insurers include: insurers exclude cover for such claims insurers increase the Self Insured Amount (excess) in respect of such claims so that such claims are effectively largely excluded from cover unless the aggregate Self Insured Amount has been reached (Note: The Master Policy insurers increased the Self Insured Amount applicable to Inadequate Professional Service ( IPS ) awards on account of the increase in the maximum level of award with effect from 1 April 2005) insurers apply an inner limit (limit of indemnity) in respect of such claims The impact of such policy conditions could be that solicitors are substantially self insured for such claims or, potentially, uninsured. In the latter event, there is a potential public protection issue (no certainty that a valid claim will be met) which could undermine public confidence in the profession Timescales The time taken to resolve claims dealt with as small negligence claims may be affected. Without knowing which claims would be affected and in the absence of more information about the process etc., it is not possible to comment on whether the claims affected would be likely to be resolved more or less quickly than at present. Reference is made to para The cost to insurers of handling claims Depending on what constitutes a small negligence claim (see para ), one of the possible impacts of introducing the changes envisaged is that there will be a reduction in the number of claims in which the insurers have an active claims handling role. That would potentially impact on the cost to insurers in terms of claims handling costs, per claim and overall. Clearly there would be costs involved in having small negligence claims investigated by the Society. It is not clear how those costs might compare with the costs under the current arrangements. Nor is it clear how responsibility for those costs would be allocated and funded. To the extent that some part of those costs could form part of the insured solicitors claim for indemnity from insurers, that would clearly impact on the cost of Professional Indemnity Insurance. 7

10 Otherwise, is it envisaged that the cost of the arrangements would require to be met by the solicitors concerned and/or the profession as a whole? In that event, how would payment of claims against ceased/insolvent practices be funded/assured? 8

11 Response to Question 28 Do you agree that the oversight role envisaged for the Scottish Legal Services Ombudsman would be a good way to address concerns about the operation of the Law Society of Scotland s Guarantee Fund and Master Policy? 28.1 We have confined our response to the Master Policy only and have not commented on the Guarantee Fund position. It is not known whether these matters fall within the powers of the Scottish Parliament. Beyond this, no comment is made in relation to the competence of the proposal. It is not known whether, as stated at para 10.2 of the Consultation Paper, the Legal Services Commissioner in New South Wales has similar powers to those envisaged in Chapter 10 of the Consultation Paper. We understand that, under new legislation, the New South Wales Commissioner will have power to audit law firms, however the informal enquiries we have made suggest that the Legal Services Commissioner does not have the oversight powers envisaged in Chapter 10 of the Consultation Paper Preliminary comments Before commenting on the oversight role envisaged for the Ombudsman ( SLSO ), we make the following preliminary comments. The Consultation Paper uses the word concerns without providing any description or evidence beyond merely alluding to: The former Justice 1 Committee being aware that lengthy delays in receiving settlements had caused distress to a number of individuals (paragraph 142). The Office of Fair Trading ( OFT ) having noted the existence of consumer disquiet about the operation of the Master Policy. As far as the Justice 1 Committee inquiry is concerned, while Marsh provided written submissions to the Committee and attended to give oral evidence, the Committee called for, and received, no evidence or information from Marsh concerning the timescale within which Master Policy claims as a whole are concluded. To the best of Marsh s knowledge and belief the Committee received no evidence with regard to timescales other than, apparently, anecdotal evidence from individuals with claims against solicitors. No evidence was sought from, or provided by, the insurers who underwrite the Master Policy and handle Master Policy claims. As far as the OFT s reference to consumer disquiet is concerned, it is important to note that the OFT acknowledged that these matters went beyond the scope of its remit and that the nature of the perceived disquiet was not specified by the OFT. Suffice to say, before a reasoned response can be given to this question in the Consultation Paper, it would be necessary to establish the precise nature of the concerns to which the Scottish Executive is referring and the evidence supporting those concerns. If it is the case that the proposals in the Consultation Paper are aimed at addressing concerns about delays in the current claims handling processes, rather than relying on informal anecdotal evidence, it would be essential to assemble a reliable and comprehensive evidence base in relation to delay, actual and perceived, and the various factors responsible therefor (see para ). 9

12 28.3 Oversight role envisaged for the SLSO Overseeing the appropriateness of the professional indemnity insurance. in the interest of consumer protection The words overseeing the appropriateness of are vague to the point of being meaningless. Would oversight of appropriateness mean that the SLSO could competently comment on: The way in which PII cover is arranged (Qualifying Insurers arrangement as opposed to a Master Policy, for example)? The insurers providing the PII cover? The extent and scope of cover to be provided? The way claims are handled? The handling of individual claims? With the exception of matters concerning the handling of individual claims (which is the responsibility of the Master Policy insurers, monitored by the Brokers), these are all matters currently the responsibility of the Society in accordance with its statutory duty in terms of Section 44 of the 1980 Act on advice from the brokers appointed by the Society for the time being monitoring turnaround times reported by the Law Society of Scotland.and drawing poor performance, if any to attention. Such an approach to oversight is overly simplistic. Such an approach may be, potentially, appropriate to other types of redress arrangement however claims dealt with under the Master Policy are diverse and potentially complex. In addition, the time claims take to resolve is impacted by numerous factors beyond the control of the insurers/panel solicitors handling Master Policy claims including: Poor presentation of claims by/on behalf of claimants Delay in insurers being provided with files/information Unreasonable expectations of claimants Claim dependent on outcome of other litigation/proceedings Delays in the court system Note: There is no equivalent to the regime of pre action protocols that exist in England and Wales regulating the conduct of parties (e.g. early exchange of information) to claims with the objective of encouraging earlier resolution of claims. The range of timescales, and averages, are capable of being skewed by virtue of delays, in some cases, extreme delays caused by determined reluctance of some claimants to adopt a reasonable approach to their claims. The Justice 1 Committee made reference to a case where a claim remained unresolved after a period of several years however no details were provided in the Committee s report. There are instances of claims where, on an objective view, the claimant s expectations are wholly unreasonable and there is no inclination on the claimant s part to reach an agreement. 10

13 Currently, Master Policy claims handling, including compliance with the Master Policy claims handling philosophy, is monitored in a number of ways. In summary: Insurers are regulated by the FSA and monitored by the Brokers The Brokers are regulated by the FSA and monitored by the Society 28.4 Conclusion The Society delegates to the Insurance Committee responsibility for operational supervision of the Master Policy arrangements and of the Brokers. The Insurance Committee is soon to have lay members. The Brokers are required by the Society to monitor insurers performance including claims handling performance. Non performance by the Brokers could lead to termination of their appointment. The monitoring of claims handling is undertaken in a number of ways: Auditing of the insurers and panel solicitors files Investigating criticisms made by insured practices and claimants/claimants agents Issuing satisfaction surveys to insured practices and to claimants agents It is not clear how the oversight role envisaged for the SLSO would improve the current oversight regime. As far as improving consumer confidence is concerned, lay involvement in the Insurance Committee may be a positive factor in this regard and, depending on the true nature of any concerns about the operation of the Master Policy, a communications strategy could address the concerns. The Society is currently considering its communications strategy in relation to the Professional Indemnity Insurance arrangements and arguably part of the process of devising that strategy ought to include identifying concerns, misconceptions and barriers to satisfaction with the claims handling process. 11

14 Appendix 1. Concept of professional negligence In any claim for (alleged) professional negligence, the party asserting the claim will require to establish: Whether a duty of care was owed Whether the duty has been breached, and how What loss has arisen as a direct result of the breach 2. Making a claim for (alleged) professional negligence The onus of proof is on the party alleging professional negligence. Those pursuing claims are generally advised to seek legal representation in pursuing claims. If a claim cannot be resolved by negotiation, the claimant will require to raise court proceedings. Only the courts can order a party to pay compensation (damages) for professional negligence. Nothing in the operation of a policy of Professional Indemnity Insurance alters the test of negligence or the onus of proof. 3. Professional Indemnity Insurance The general purpose of a policy of Professional Indemnity Insurance is to protect the professional person against legal liability to pay damages to persons who have sustained financial loss arising from his own professional negligence or that of his employees in the conduct of the professional practice. Policies offer indemnity strictly on a legal liability basis and moral liability is not covered. 4. Compulsory Professional Indemnity Insurance for Scottish solicitors 4.1 Since 1978, all solicitors in private practice have been required to have cover under a Professional Indemnity Insurance arrangement, the Master Policy. This ensures that all solicitors in private practice in Scotland have insurance against losses arising out of their negligence. Section 5 of this Appendix describes the Master Policy framework. 4.2 The automatic and continuous availability of cover on an annual basis guarantees that any claim validly established against a solicitor arising from that solicitor s negligence will be paid even if the solicitor s practice has ceased to exist and the solicitor is unable to pay a claim or premium or excess. 4.3 Cover is currently provided under the Master Policy to a Limit of Indemnity of 1,250,000 each and every claim. 12

15 4.4 The claims handling procedure is outlined within the description of the role of Insurers in Section 5.6 of this Appendix. Claims are handled by the Master Policy Insurers in accordance with a claims handling philosophy (Section 8 of this Appendix) which has the approval of the Law Society of Scotland ( the Society ). The Society is not involved in the handling/ resolution of individual claims. 5. Master Policy Framework 5.1 In accordance with S.44 (1) of the Solicitors (Scotland) Act 1980 and the Solicitors (Scotland) Professional Indemnity Insurance Rules 2005 the Society maintains a Master Policy on behalf of Solicitors in private practice. The relevant provisions are reproduced at section 7 of this Appendix. 5.2 As agents to the Society, the Brokers act, under instruction, to place the Master Policy for the entire profession with a common set of Insurers and with a common set of terms and conditions. 5.3 The respective roles of the Society, the Brokers and the Insurers are briefly described, as follows: 5.4 The role of the Society: Establish the terms and conditions of cover to be provided by the Master Policy insurers on behalf of all Solicitors practices Appoint a broker to the Master Policy Whilst the Society has no involvement in the conduct of individual claims it does approve: the Claims Handling Philosophy to be complied with by the Insurers in the conduct of claims under the Master Policy the criteria for appointment of panel solicitors by the insurers the Guidelines to be complied with by the Panel Solicitors in the conduct of claims under the Master Policy 5.5 The primary role of the Brokers to the Master Policy: Arrange for the Master Policy to be underwritten by appropriate insurers Monitor the performance of insurers Accept notification of claims in accordance with the terms of the Master Policy Refer claims to the Master Policy insurers. The Brokers do not become directly involved in the conduct of individual claims Investigate complaints concerning the insurers conduct of claims. The Brokers attend to other matters on an ad hoc basis. 5.6 The role of insurers: Assume agreed proportion of risk Handle claims Operate in accordance with the Master Policy Claims Handling Philosophy (text reproduced at section 8 of this Appendix). 13

16 5.6.4 Establish panel of solicitors in accordance with criteria agreed with Society and appoint a panel solicitor in cases of complex or high value claims or those in which proceedings are raised against a solicitor/practice Ensure panel solicitors compliance with the Claims Handling Philosophy. Check progress reports submitted by panel solicitors to instructing insurers and conduct random audit of files Address complaints in accordance with formal complaints procedure in the event that an insured solicitor or claimant or claimant s agent has a grievance in respect of the handling of a claim by insurers or panel solicitors. In the latter case, if a matter of client service or conduct is concerned it is understood that there is recourse to the Law Society of Scotland in accordance with the Society s standard complaints procedures. Note: Since inception of the Master Policy Scheme the Master Policy has been co insured. Therefore no single insurer underwrites 100% of risk or pays 100% of claims. Moreover the various insurers have no liability for the proportion underwritten by their fellow coinsurers in any circumstances. Claims are handled by the insurer with the largest percentage participation the lead insurer. In the event of conflict of interest, claim will be handled by one of the co insurers. 5.7 This division of roles and responsibilities clearly establishes responsibility and accountability for delivery of a Master Policy to solicitors in private practice and for the protection of their clients. Section 6 of this Appendix briefly describes the basic parameters of cover under the Master Policy. 6. Master Policy Cover This section is intended to highlight facts which are considered pertinent to the consultation. It is not intended as a précis of policy cover. 6.1 The Master Policy is a policy of Professional Indemnity Insurance. See the description of Professional Indemnity Insurance at section 3 of this Appendix. 6.2 The scope of cover under the Master Policy is wider than the cover provided under standard Professional Indemnity Insurance policies. Extensions are designed specifically to respond to the types of claim that may arise out of the conduct of solicitors practices. 6.3 For the further protection of members of the profession and of the profession s clients, the Master Policy incorporates the following features: Automatic run off cover this is continuing cover under the Master Policy (as long as the Master Policy continues on its current terms) on broadly the same terms and conditions as those applicable to a current/ active solicitor s practice. Note: Professional Indemnity Insurance operates on a claims made basis which means that there is cover only for claims first made during the period of the policy. If a professional practice ceases on account of e.g. retiral or insolvency, ordinarily there is no continuing professional indemnity insurance protection unless the principals of the practice or their representatives arrange run off cover on an ongoing basis. The Master Policy provides automatic run off' cover. No right to avoid or repudiate under the policy terms and conditions, insurers waive their rights to avoid providing cover for non disclosure or misrepresentation. 14

17 Note: Policies of Professional Indemnity Insurance make it a condition precedent to cover that claims are notified within strict time limits and failure to comply entitles the insurers to repudiate and avoid providing cover for the claim. The terms of the Master Policy prevent the insurers from taking such punitive action. Waiver of the excess (self insured contribution) in the event an insured solicitor is insolvent at the time a claim against the solicitor is settled. Note: Policies of Professional Indemnity Insurance are normally subject to an excess and the excess requires to be paid by the insured party at the stage the insurers have agreed settlement with the claimant and are actually paying the claim. In the event that the insured party has become insolvent prior to settlement of the claim, ordinarily that part of the claim will not be met by the insurers. The claimant may be unable to recover payment of that amount depending, for instance, on the funds available in the insured party s sequestration. The Master Policy prevents claimants finding themselves in that position by requiring the insurers to pay/ waive the excess in the event of a solicitor s insolvency. 6.4 The Master Policy operates as a protection for members of the public by guaranteeing that any claim validly established against a solicitor arising from that solicitor s negligence will be paid even if the solicitor s practice has ceased to exist and the solicitor is unable to pay. The level of cover is currently 1,250,000 for all solicitors practices. 6.5 The majority of claims dealt with under the Master Policy are settled or otherwise resolved by negotiation and/ or mediation without court proceedings. 15

18 7. Extracts from relevant statutory provisions and Rules The Solicitors (Scotland) Act 1980, Section 44 (1) The Council may make rules with the concurrence of the Lord President concerning indemnity for solicitors and incorporated practices and former solicitors against any class of professional liability, and the rules may for the purpose of providing such indemnity do all or any of the following things, namely (a) authorise or require the Society to establish and maintain a fund or funds; (b) authorise or require the Society to take out and maintain insurance with any person permitted under the Insurance Companies Act 1974 to carry on liability insurance business or pecuniary loss insurance business; (c) require solicitors or any specified class of solicitors and incorporated practices or any specified class thereof to take out and maintain insurance with any person permitted under the Insurance Companies Act 1974 to carry on liability insurance business or pecuniary loss insurance business. Solicitors (Scotland) Professional Indemnity Insurance Rules 2005 (Extracts) The Society to take out and maintain with authorised insurers to be determined from time to time by the Council a master policy in terms to be approved by the Council to provide indemnity against such classes of professional liability as the Council may decide. The Council at its discretion may amend the terms of the master policy from time to time. Every solicitor in private practice to be insured under the master policy and: (a) to comply with the terms of the master policy and of any certificate of insurance issued to him thereunder; and (b) to produce along with each application for a practising certificate a certificate from the brokers certifying that the solicitor in question is insured under the master policy for the practice year then commencing or the part thereof still to run as the case may be, or such other evidence as may be acceptable to the Council. 16

19 8. The Master Policy Claims Handling Philosophy Claims Handling Our (i.e. insurers ) standards of integrity and service must be clearly demonstrated through: Speed of action. Sound and clear advice to the Insured Practice. Promptly and expertly establishing the circumstances and amount of the claim. Providing a clear and early response to the Third Party claim i.e. pay, reject, compromise. Keeping the Insured Practice continuously advised of progress. Pro active positive claims handling. The litigation process to be a last resort and should only be followed after exhausting all other options to resolve the claim amicably including mediation. The Positive Approach: We (i.e. insurers) perceive this as: An attitude of mind committed to timely and cost effective resolution of claims by : Identifying the desired result at the outset and at every key stage re examining strategies and actions. Being pro active in forcing the pace towards a satisfactory conclusion. Clearly setting out quantum and causation points to Claimants Solicitors where the claim is presented on an incorrect basis. Considering and evaluating the financial implications of litigation costs. Keeping files continually under review. Properly and fairly balancing the respective interests of Insurers, the Insured Practice and the Claimant. Actively promoting mediation where appropriate. 17

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