The SRA minimum terms policy purchased by all England and Wales law firms, includes cover for client money protection – this is unusual for PII policies. 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, especially as the SRA report on the chaos that ensued, is due imminently.

Aggregation clauses are contained within the minimum terms wording (designed to ensure that multiple losses from one cause are treated as one claim, thus capping Insurers liabilities)  They are designed to ensure that insurers faced with multiple losses from a single source can avoid paying what are sometimes open ended losses.

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.

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.

This assumes that the SRA don’t force the client account issue and have it taken out of law firms hands.

QPI – quality, professionalism and integrity