The SRA minimum terms policy purchased by all England and Wales law firms, unusually for PII policies includes cover for client money protection. Because a law firm is expected to replace any missing client money as soon as possible, the policy does not rely on proof of liability, rather than it will react to a law firm demonstrating the loss of funds and replace them quickly, provided there are no extenuating circumstances.

Not many firms understand the very important nuances of the cover however, and the case of Axiom Ince is a good example.

Law firms co mingle client money and in most cases do not (unless there is a specific reason such as those driven by probate or power of attorney) establish separate accounts for each client. That means that when a firm loses client funds, the Insurer will take the view that it may have to deal with “sideways losses”, that is, multiple losses from the same cause, but incurred by different claimants.

This is important because in the conveyancing sector for example, even small firms generally hold significant amounts of their clients funds during spring and summer peak seasons, and so there is a consideration of what would happen in the event of a catastrophic loss caused by a breakdown in security.

In addition, the aggregate clauses within the minimum terms wording (designed to ensure that multiple losses from one cause are treated as one claim, thus capping Insurers liabilities) may not apply in the way that you may assume that it might.  For insurers faced with multiple losses from a single source it may be in the insurer’s interest to try to aggregate all of the losses as one to try to cap their exposure.

Crucially (and what a lot of Insurance brokers will not tell you because they don’t understand the technicalities), excess layer policies (providing increased limits above the £2m and £3m minimums) generally will not include client money cover, so if you buy this protection, you should ask your broker about the scope of cover afforded by it.

QPI – quality, professionalism and integrity.