'A crucial part of managing risk': IBA takes global view of professional indemnity insurance

New report from International Bar Association asks whether indemnity insurance should be mandatory for lawyers in every jurisdiction

James Steidl

The International Bar Association's Bar Issues Commission has issued a report that highlights the differing approaches to lawyers' professional indemnity insurance (PII) requirements across the world and offers a best-practice framework for bars to follow.

The report, published jointly by the commission – which represents law societies and bar associations on the IBA – and the IBA's Legal Policy & Research Unit, examined whether PII should be mandatory for lawyers globally and, if so, how. It also considered whether PII should be mandatorily disclosed and, if so, to clients or regulators.  

Paul Castellani, a partner at Kennedys, called the report "an impressive cross-jurisdictional digest of the professional indemnity requirements for law firms, including the requirement for disclosure of insurance arrangements to clients." 

The IBA report found little global uniformity regarding lawyers holding PII. Where a requirement to do so existed, there was minimal consistency in the extent or scope of the coverage. 

The last survey to assess PII was a European one undertaken by the Council of Bars and Law Societies of Europe, which found most European countries have mandatory professional indemnity insurance. 

Within the United States, only two states (Idaho and Oregon) require lawyers to hold professional indemnity insurance. Malpractice insurance is mandatory in Canadian and Australian provinces, states and territories but far less common across Africa, Asia and South America. PII is compulsory in England & Wales, Scotland and Northern Ireland.  

Richard Harrison, head of law firm liability at Clyde & Co, said: "It is not just good practice for law firms to ensure that they protect clients' interests by buying sufficient professional liability insurance cover, it is a crucial part of managing enterprise risk and running your firm responsibly. 

"As global firms with deep pockets and insurance cover enter new jurisdictions, the likelihood of a culture of claims developing in those jurisdictions goes only one way. Claims might start against the global firms, but the risk will spread to local firms, which would be well advised to protect themselves [through buying PII]," he added. 

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Ross Baker, a member of the Forum of Insurance Lawyers' professional indemnity sector focus team and partner at Beale & Co, called the guidelines "a very balanced assessment of the myriad issues that dictate whether mandatory or non-mandatory PII cover provides the best solution in any one jurisdiction." 

The IBA report outlined eight principles that bar associations and regulatory bodies should focus on when assessing such issues. These were: independence; competence; integrity; risk; responsibility; communication; confidentiality; and maintaining public confidence.   

Baker said the principles "[provided] an excellent framework that should be followed whatever PII regime is in place." 

Former Law Society of Ireland director-general, Ken Murphy, the chair of the Bar Issues Commission, commented: [PII] is highly consequential for everyone involved with the legal profession. There is comparatively little awareness of the framework or concept at a global level." 

He hoped the principles in the IBA's report would guide the issues involved while acknowledging that the IBA itself did not offer a conclusion in favour of or against mandatory insurance or disclosure. 

US lawyer Steven Richman, the co-chair of the working group, said individual bar associations and regulatory bodies were best placed to assess the needs of their jurisdictions. However, the working group's core principles would provide a framework for evaluating issues surrounding PII, including for regulators.  

Paul Bennett of Bennett Briegel said the IBA's work was welcome for his client base of US firms in London and global firms.

"Many clients internationally are sophisticated buyers of legal services and demand the highest quality of representation and insurance. The practical challenge of international coverage is a concern for the firms we advise as they need to have coverage confidence to take on the work and serve that client base," he said.   

The IBA report, added Bennett, was "a major step forward, as regulators need to address the issue consistently, which should be easier through the prism of the eight principles on a cross-jurisdictional basis."   

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