PII, PSS, Top-ups and other curly questions

This article contains general information and should not be construed as specific advice.  Legal Practitioners should always consult their regulator and/or professional indemnity insurer and in the event of concerns, take appropriate advice rather than relying on the information in this article.  The views expressed are mine and should not be taken as indicative of the views of any legal profession regulator or insurer or any of my past employers.

Recently, a number of my clients have asked me about the interaction between our standard Professional Indemnity Insurance policies, the Professional Standards Scheme and why then we might need top-up insurance.

We know we are all obliged to get the standard professional indemnity insurance appropriate to our law practice and practising certificate.  PII must be a policy approved by your local regulatory authority and sourced from an approved insurer (e.g. LPLC in Victoria, LawCover in NSW etc.). The standard PII covers us for up to $2m per claim, including costs: refer to your local insurer for more detail.  Many law practices then also subscribe to one of the Professional Standards Schemes (also known as the Limitation of Liability Scheme) offered by our local law associations, which limits our liability to the amount covered under the PII Policy.

The Professional Standards Council promotes different versions of the Professional Standard Schemes for a number of professions, including for surveyors, accountants and others as well as lawyers.  Each jurisdiction has its own version of a Professional Standards Act (for example the Professional Standards Act 2006 (Vic)).  The purpose of the legislation is to ensure professionals engage in proper risk management and adherence to professional standards, in return for which liability is limited to the amount covered by your PII.  This keeps the premiums for PII affordable and allows insurers to offer a product that might otherwise not be sustainable.

Under the NSW and Victorian schemes offered respectively by the NSW Law Society and Law Institute of Victoria, the limitation of liability depends on the size of the practice and its total fee income.  If your total annual fee income is less than $10m, this means that your liability is capped at the same amount in your PII policy ($2m inc. costs). If you do generate more than $10m in total fee income or your practice has 20+ principals, your liability is limited to $10m.  Therefore, you would need top-up insurance up to that amount.

This leads to the question of other circumstances where you might get top-up insurance. Some astute clients understand what the limitation of liability scheme means and choose not to go with solicitors whose liability is limited, as they may be at risk of potential losses that may exceed the ceiling. This is likely to be the case where a solicitor acts for more sophisticated or commercial clients in higher value transactions. In this case, you can get top-up insurance for a higher amount and apply for a discretionary higher cap to the limit of liability, in accordance with the PSS operated by your local law association.

Check whether everything is covered.

There are some liabilities that are excluded from the PSS, including any personal injury claims matters and certain liabilities relating to land titles, as described in your jurisdictional legislation and your law association’s scheme guide. Practitioners in these areas should definitely consider a top-up policy.

While there is very little judicial consideration of the legislation, it should be noted that the court will be concerned to ensure that the solicitor (or other relevant professional) complied with the scheme, giving the right notifications to the client, etc., in order that the limitation of liability apply (as in Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502 at paras 910 – 912, where the scheme did not apply as the proper notifications were not given to the client).

Currently, the regulations require printing the standard notice ‘Liability limited by a scheme approved under Professional Standards Legislation’ in print no smaller than 8 point Times New Roman on all your documents (except business cards) – and that’s it. A lot of solicitors will make sure the statement is in the footer of all their documents. However, the ‘wallpaper’ nature of the statement is concerning so it may be prudent to give a bit more information about what it means for the client, for example in a clause in your costs agreement.

To recap:

You need to get a top-up when:

• You act in transactions where the client’s potential loss is likely to exceed the coverage of your PII – and don’t forget to apply for a discretionary increase in your PSS limits to match
• You have a large practice – $10M + in fees and/or 20+ principals
• You act in areas of law (particularly personal injury matters) that are excluded from the PSS and where liability could exceed the limit of your basic PII policy.

Contact your local PII provider for more details.

Note however, we didn’t look at insurance for non-legal services, which isn’t generally covered by your PII.  That’s a topic for another post.

Do you have a curly question about your regulatory obligations and managing your law practice? Do you want to find out more about your insurance and PSS?

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