Successor Practices
A significant part of our practice as solicitors involves advising other professional firms on mergers and partnership issues. Successor practice issues under the Law Society’s Minimum Terms and Conditions of insurance for solicitors in England and Wales represent about a fifth of our practice – advising insurers, brokers and firms and resolving disputes.
Our Top 100 Professional Indemnity Survey 2007 and previous surveys have shown that checks on lateral hire partners have increased over the past four years - reflecting a raised awareness of the insurance, risk management and reputational issues which can arise - but even large firms can get caught out for failure to check on successor practice liability and have found themselves almost uninsurable in consequence. Click here for the full survey results or email us to request a copy. Further information and resources on the rules appear below.
We provide solutions to many successor practice issues and have helped several firms avoid taking on such liabilities. We may even be able to assist in cases where firms are proposing to acquire the practice of a sole practitioner. Prevention is better than cure, but we also help firms who discover problems after the acquisition of a practice.
We advise on both strategic planning and claims-related problems with a Plain English, problem-solving approach. We also provide training for insurers and brokers - including a 2 hour workshop - contact Frank Maher for further information.
About the rules
The aim of the rules is to ensure, as far as possible, that there will be insurance in place to cover claims against firms which no longer exist. The aim is laudable, but it can strike where least expected. The events creating the liability may have occurred years before the demise of Solicitors Indemnity Fund was even contemplated.
Partners in a successor firm are liable to meet insurance excesses and pay increased premiums arising from claims even though, in law, they may not be liable to the claimant.
Successor practice liability is not invariably to be avoided, but a business risk to be considered carefully when considering mergers, acquisitions and lateral hires. It is easy to be caught out - as firms large and small have found out.
There are many traps for the unwary. Even when a firm intends to accept successor practice liability, for example on merger, there are opportunities for cost saving and issues to consider carefully, including notification issues, what to do about top up insurance and double insurance problems with unforeseen twists.
Further information contact frank.maher@legalrisk.co.uk Tel: 0845 330 6791
Resources
n Introductory slide show (revised August 2010)
n Plain English Guide - request a free copy here
n Definition of ‘successor practice’ - see
- Minimum Terms (in force 1 October 2010)
- Minimum Terms 2009
- Minimum Terms 2008
- Minimum Terms 2007
- Minimum Terms 2006 clause 8.2 and
- Minimum Terms 2005 clause 8.20, page 46
n Solicitors' Indemnity Insurance Rules 2010 (changes in force from 1 October 2010)
n Solicitors Indemnity Insurance Rules 2009 (in force 1 Oct 2009)
n Solicitors Indemnity Insurance Rules 2008 (in force 1 Oct 2008, amended 31 Mar 2009)
n Solicitors Indemnity Insurance Rules 2007
n Solicitors Indemnity Insurance Rules 2006
n Law Society guidance - practice note 8 June 2010
Outlines the current market, applying for PII and dealing with related issues
n Law Society guidance note on run-off cover 8 June 2010
Provides notes on indemnity insurance run off cover when setting up in practice. Note: this
is now subject to the changes to successor practice provisions effective from 1 Oct 2010.
n Indemnity Insurance Disclosure Guidelines
Obligations under the Solicitors Indemnity Insurance Rules (9 Dec 2008)
Articles
Some of the issues are highlighted in the following articles by partner Frank Maher:
To be or not to be ... a successor practice
Much blood has been spilt by overlooking insurance implications which should be addressed in advance, arising from the successor practice provisions in the Minimum Terms and Conditions. Frank Maher explains how to protect your firm. First published by the Law Society in "Insurance Matters", April 2010 - www.lawsociety.org.uk/new/documents/2010/insurancematters2.pdf
Picking up the pieces
Successor practice implications when law firms downsize, split or even fold (FD Legal, July 2009).
Growing Pains
Insurance implications of mergers and lateral hires (The Lawyer 26 Jun 2006).
The changing risks that spell dangers for brokers
Brokers are exposed to professional liability claims if they advise client law firms that have merged or taken on new teams without a full understanding of their changed profile. Successor practice provisions under the Law Society's Minimum Terms and Conditions - Article by Frank Maher (Insurance Times, 27 September 2007).
Secrets of Succession
Mergers can leave a sting in the tail; problems arising from successor practice provisions(Insurance Times, April 2006).
Hiring & Firing: how recruitment can damage your wealth
(Managing Partner magazine, November 2004). The same article appeared in the Australian Law Practice Bulletin for December 2004-January 2005 with additional articles on law firm risk management - click here to download.
Marry in Haste, Repent at Leisure
(Managing Partner magazine, December 2004). The same article appears in the Australian Law Practice Bulletin for February 2005 with additional articles on law firm risk management - click here to download.
Pass the Bomb - The Successor Practice Nightmare in Action
(Association of Partnership Practitioners newsletter, November 2004).
There have been no reported cases on the successor practice provisions, which is unsurprising as disputes will generally be resolved by arbitration. There have however been three cases reported on the Minimum Terms and Conditions, the first of these as yet only reported on Lawtel. For the Lawtel summaries click here. Lawtel subscribers can access them and the full text of the first case by clicking on the following links -
- Jones v St Paul International >
- Qualified Insurers subscribing to the ARP v Graham Ross >
- Law Society and others v Dixit Shah and others >