Major professional indemnity insurer goes bustApril 2, 2010
Quinn Insurance Limited, a major underwriter of solicitor’s professional indemnity insurance (PII) policies, has gone into administration this week.
A statement released by the Irish Financial Regulator (Quinn is an Irish company) says that the reason for the administration is to prevent further financial losses being suffered in the UK business, which is currently unprofitable. Whilst the business is continuing to trade as a going concern the insurer will not be writing any new business in the UK.
2,911 UK firms have PII policies with Quinn. At present, existing UK policyholders are said not to be affected, as their policies will remain valid and claims can be made in the normal way. The Solicitors Regulation Authority (SRA) is seeking confirmation of the position for existing policy holders and advising firms to take no action at present.
The SRA sets the professional indemnity insurance rules that insurers and solicitors must follow. In order to obtain a valid practicing certificate every solicitor must provide details of the PII policy that they are covered by, which can only be provided by a qualifying insurer.
To become a qualifying insurer, an insurer must be authorised to conduct insurance business in the UK and sign an agreement confirming that they meet certain requirements. The SRA maintains a list of qualifying insurers for each indemnity year. However the SRA does not approve, vet or regulate qualifying insurers as this is the role of the financial regulator.
The regulator is conducting an investigation into Quinn centring on guarantees provided by certain subsidiaries of Quinn which the regulator views as inappropriate. Quinn have hit back releasing their own statement about how “deeply disappointing” they find this. Quinn are working with the regulator and provisional administrators to resolve all outstanding matters and are in the process of negotiating a refinancing which would address the concerns of the regulator.
This news will be the cause of great worry for those solicitors whose PII cover is provided by Quinn as they rely on them to indemnify professional negligence claims. Whilst the statement released says that existing UK policyholders will not be affected, there may be consequences in the long term.
PII provides cover for any negligence carried out during the term of the policy. A client has 6 years from the date of breach to bring a claim for negligence or breach of contract in court (the limitation period). PII cover extends to any negligence claims, or other claims, made within the limitation period if the breaches giving rise to the compensation claim arose during the time the policy was in place.
If Quinn is wound up then who will provide cover for the claims which could be made in the next 6 years? Solicitors firms are primarily responsible for settlement of claims arising out of their negligence. If insurance is not in place then responsibility for payment of claims will fall to the firm or its partners. This could jeopardise both the claimant’s prospects of recovering compensation, and the reputation of the profession – a bleak prospect for practitioners and claimants alike.
Furthermore, the removal of a major player in this field will result in less competition in the market, less choice in policy provider and higher premiums. PII has already increased in cost in recent years leading to smaller firms struggling to pay premiums or merging to ensure financial viability.
The administration of Quinn is bad news for all concerned – solicitors, clients and the economic climate. A swift resolution is needed to restore confidence to the profession and their clients.