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Professional negligence: claims, times and insurance

The effects of negligent legal advice can be long-running, subtle and hard to identify. It is important to fully investigate them within a reasonable period to be able to maximise your chances of a claim. Normally, a claim will be handled by a firm’s insurer, providing a level of certainty for a claimant that any judgment debt will be satisfied. However, any insurer will usually only remain open to new claims for up to six years after a firm’s closure (often referred to as “run off cover”).

If the firm run off cover has expired, the Solicitors’ Indemnity Fund (“SIF”) may step in to defend and/or settle the claim. However, the SIF will close to new claims in September 2022. It is therefore vitally important to identify and investigate any potential claims before that date.

Limitation – introduction

Ensuring any claim is brought in time, or within limitation, is essential – otherwise the defendant will have an absolute defence to the claim regardless of its merits. Professional negligence claims can fall under a number of grounds, with the most common being breach of contract and breach of duty (negligence).

The general rule for breach of contract and negligence claims is that limitation runs for a period of six years, i.e. that a claim form must be delivered to the court within that time, or there is a formal written agreement in place with the potential defendant to suspend or extend that period (known as a standstill agreement).

Breach of Contract

For breach of contract claims, the six year period will be from when a breach of contract has occurred. This will be when advice was given or relevant action done/not done such that that services were not provided with reasonable care and skill. For example, this might be when advice was given about how to comply with a break clause, or a failure to issue a claim within the limitation period.

Negligence

For negligence claims, the six year period starts when the damage occurred – for example the point at which a lease is not terminated due to an incorrect break clause, or the limitation period expires and any claim brought thereafter would be statute barred. In negligence there may be an additional three year period, if you are not aware of the negligence. Time starts to run on this period at the point you had the requisite knowledge to bring a claim (requisite knowledge in this context includes knowledge you might reasonably be expected to acquire). That rule is subject to an ultimate longstop date of fifteen years. 

Fraud

Where a claim brought is based on fraud committed by the defendant, the six year period starts running from the point at which the claimant became aware of, or could reasonably have discovered, the breach.  However where the claim is based on fraudulent breach of trust (for example misappropriating client funds from the client account) no limitation period applies. Unfortunately a firm’s insurance policy will not apply to situations of dishonesty which can leave the claimant in a difficult position. If the limitation period has expired in respect of a “normal” breach of duty claim you might technically be able to rely on the longer period for a breach of trust claim but only against the solicitor who committed the breach. Very often that solicitor will be bankrupt, unobtainable or otherwise a poor prospect for recovery. The insurer will be entitled to rely on its dishonesty exemption.

Claims after closure of a firm

A firm’s insurance policy will generally remain in place for six years after a firm’s closure. Where a partnership has broken up, a claim will be brought against the former partners. Where a limited liability partnership has been dissolved, a claim can only be brought against a former partner who was the cause of the claim.

SIF

Where a claim is brought against a firm after the run-off period, the SIF will consider the claim and potentially compromise it. The SIF is a fund managed and funded by the legal sector. If a claim would have been covered by insurance but for the fact that the claim was brought after the run-off period, the SIF will step into the role of insurer. It will investigate the claim, and settle it if it deems that appropriate; the SIF will provide “cover” on the same terms as the prior insurance policy. Please note that the SIF will close to new claims in September 2022 – any new claims must be notified to the SIF before then. Therefore if you are considering bringing a claim against a firm of solicitors, you should not delay in speaking with specialist professional negligence lawyers.

For further assistance on professional negligence matters, or any other dispute resolution matters, contact Rory Mac Neice, Partner and Head of Commercial Litigation, at r.macneice@ashfords.co.uk.

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