In this publication, our Scottish team and guest contributors provide insights on issues affecting the Professional Indemnity market in Scotland.
1. Best advice?
This sounds like a cliché when I say it aloud but the best advice that I have ever received is that there is no such thing as failure – only results. As I get older, I see how true that is. Events and outcomes are neutral, it is how we decide to process them and use them that ultimately shapes and directs the path that we are on in life. I also live by the phrase "where attention goes energy flows" and so every day in the morning I visualise what I want to achieve and also, perhaps more importantly, how I want to feel. I think it is important for everyone to take some mental breathers, especially during this pandemic.
2. What advice would you give your younger self...?
I think that I would advise myself to be a bit bolder. The saying "fortune favours the bold" is true. If opportunities come your way, take them and don’t look back. When I was younger I would look to others – my friends, my parents – for assurance that I was on the right path. Now that I am older I trust my own inner voice and so far it hasn’t given me a bum steer!
3. What are you most proud of in your work at DWF?
In 2015, DWF established an independent charitable foundation with the aim of supporting good causes local to our offices in the UK and across the globe. I was delighted to be appointed as a trustee of the DWF Foundation in 2015 and to this day I sit on the board of trustees with a fantastic group of individuals from within and outwith DWF. The DWF Foundation has donated more than £500,000 in grants to local charities so far and I have had the opportunity to see up close the difference that this money makes to people who are really struggling, now more so than ever. My role as a trustee has allowed me to meet different people from all over the business. It never ceases to amaze me the lengths that some people will go to raise money for charity. My personal favourite was the "Pie the Partner" event that we held in our Glasgow office. That was an enjoyable afternoon!
4. What have you enjoyed/hated most about lockdown
I miss being in the office! The Glasgow office is a really upbeat, sociable place to work and I miss seeing everyone. I know that this pandemic will not last for ever – everything passes if you hold it lightly (according to Oprah!)
5. Best work achievement?
I qualified as a lawyer 15 years ago but I think my best work achievement to date has to be the very first Proof that I ran- and won - in 2004. I was a trainee at the time and it was a nerve-wracking experience with surprise witnesses appearing on the day. I was elated when the Sheriff found in my client's favour and awarded us an uplift in expenses. I was on a high the whole way home (which took three trains and a taxi!).
Rachael Bicknell is a mediator and founder of dispute resolution business Squaring Circles. She is accredited as a specialist in professional negligence law by the Law Society of Scotland and on the mediation panel for the Professional Negligence Lawyers Association.
With COVID-19 related delays hampering already slow and expensive court processes, online or remote mediation is an efficient, convenient and cost-effective solution for insurers pursuing or defending business, liability and negligence claims.
John F Kennedy famously stated in 1959: “When written in Chinese, the word 'crisis' is composed of two characters – one represents danger and one represents opportunity.” (The quote has been described, more recently, as a linguistic faux pas.) The danger he was referring to became the Cuban Missile Crisis.
Sixty one years later, a very different crisis is changing the world. Social distancing has forced the universal use of technology across all sectors. Probably for the first time, the global dispute resolution community is widely promoting online mediation as the most effective and appropriate way of managing the huge surge in litigation, and the court backlogs, generated or worsened by the COVID crisis.
Whilst at the beginning of the year it would have been almost unthinkable to mediate commercial disputes online, we are now seeing multi-million pound claims being resolved remotely. And importantly, feedback from mediators, lawyers and clients is overwhelmingly positive. The estimated £5 billion in business interruption payouts is undoubtedly the “danger” for the insurance industry. But there is also an “opportunity” for insurers involved in disputes.
First, online mediation is an opportunity to resolve disputes more efficiently and therefore more cost-effectively. Research from one provider of alternative dispute resolution services in the US reports that by using online ADR parties can save as much as 80% of the costs of litigation in as little as 20% of the time. An online mediation can start almost immediately as there is no need to bring everyone together in the same venue at the same time. This means parties have an opportunity to engage in mediation at a far earlier stage in the dispute, for example, before positions become very entrenched or they escalate into formal intractable disputes.
Secondly, it enables insurers to engage with their customers or counterparts in a constructive way and in a more relaxed environment. It is now well documented that participants to online mediation often report feeling more at ease when mediating by video conference from the comfort of their own home or office. This is an important factor which is thought to significantly increase the likelihood of the parties agreeing a settlement.
Thirdly, it allows the mediation process to be adapted to the needs of the parties. Whilst it can follow the traditional face-to-face approach of having a “mediation day”, parties may be encouraged by the increased flexibly offered by online mediation. It is now common for a mediation to be split across two or three consecutive days which can create space for better decision making or to fit around other commitments such as those of expert witnesses or busy clients.
Insurers with growing caseloads will undoubtedly be considering online mediation as a way of achieving quicker, commercially driven and/or better net financial outcomes, in a private and confidential setting, all whilst avoiding the inescapable backlog and usual delays inherent in the court system.
Brian previously worked as an Underwriter with Aviva and Pinpoint Underwriting and has therefore unrivalled experience when it comes to the professional indemnity insurance market.
1. How would you describe the challenges currently facing the Professional Indemnity market?
The market is very challenging, as we have seen a transition from a soft market to a hard market. A soft market is where there are high levels of capacity and insurers (e.g. Lloyds Syndicate / MGAs) are able to write policies for £5m - £10m for 100% i.e. no co-insurers. In a soft market the cover is as wide as it can be and there are many insurers competing against each other for the business. The professional indemnity market has now entered the hard market where there is far less capacity and much more co-insurance and subscription writing. Cover has reduced significantly particularly in respect of construction PI while the rates are "sky high".
For example, you might see 2 insurers share a primary £2M limit 50% with another 2 insurers sharing the remainder £3M excess £2M to complete the primary £5M or 3 insurers sharing a primary £5M limit 33% each. For higher limit programmes, i.e. you might see 5 or 6 insurers on the programme sharing a £10M limit.
2. What do you think has been the trigger for the transition to the "hard market"?
We last experienced a hard market just after the tragic events of 9/11. In my opinion, we have re-entered a hard market due to unsustainable pricing.
A measure of general insurance underwriting profitability, the Combined Operation Ration (COR) compares claims, costs and expenses to premiums. If the costs are higher than the premiums (i.e. the ratio is more than 100%) then the underwriting is unprofitable. The company may still be profitable if investment income covers the shortfall. If the costs are lower than the premiums then the underwriting is profitable without having to rely on investment income. It is called the COR because it combines the loss ratio (claims as a % of premiums) and expense ratio (expenses, as a % of whatever is left at the end of that calculation needs to be less than 100% for the Insurers to make a profit).
In 2017, Lloyds undertook a peer review which involved 10 different syndicates. Lloyds sought the peer review after it was established that non-US Professional Indemnity Insurance was the second worst performing market just behind the US Property market, which had suffered considerably due to hurricane season. Lloyds requested the 10 syndicates to prepare a report each with a view to rectifying their professional indemnity book. These reports were submitted in September 2018 and subsequently Lloyds "shut up shop" on 1 January 2019. For many years previously, overcapacity in the PI construction market resulted in very broad coverage and premium reductions; consequently insurers and brokers had to battle to turn a profit.
Since the market has moved, those insurers who haven’t completely exited these lines have instead reduced appetite, increased premiums and excesses or looked to focus on larger layered programmes, whilst brokers have struggled to place certain risks. As a result, we witnessed insurance rates going through the roof and the PI construction market was the first to be significantly affected as a result.
3. What effect did the Grenfell Tower tragedy have on the professional indemnity insurance market?
There is a common misconception that Grenfell is to blame for the hard market which is currently being faced by the PI construction market. However, as I have already set out, we had already entered the hard market pre-Grenfell. Prior to Grenfell, brokers were already facing great difficulties in trying to obtain an insurance quote for professionals such as architects and engineers. This is because the number of markets / Insurers we could approach had diminished significantly (e.g. 20/25 markets cut to 5/10).
Following the tragic events of Grenfell, we then faced a further challenge in respect of insurance cover. We received a significant number of notifications from our clients post-Grenfell, particularly in relation to cladding and fire safety. As a result, Insurers started to specifically exclude cladding claims from may cover which was provided. Fire safety exclusions were also introduced by many insurers. Unfortunately, this has now become the market standard.
4. Are you optimistic for the future and do you think we will soon start to see changes for the better?
I remain optimistic that we will eventually see a change back to a soft market. A hard market is always shorter than a soft market. The last soft market for the professional indemnity market lasted for around 15 years. I believe that we have now reached the peak of the hard market. It is important to note, however, that COVID-19 has also had a significant impact on the professional indemnity market and has, as a result, prolonged the current hard market.
I remain confident that the market will return to a soft market and matters will soon improve as we start to see more capacity from Lloyds. I also believe that the current exclusions being written into PI insurance policies will start to relax over time. There are various external factors which will give some comfort to Insurers going forward such as the following:
As a result of the above factors, we will see a more relaxed stance being taken by PI Insurers particularly in relation to onerous endorsements in PI policies. This will inevitably lead to rates reducing and an increase in cover.
Our Solicitor Advocate Graham Weatherston is an integral part of the Scottish team and has worked in civil litigation throughout his legal career with experience in most areas of contentious civil work.
Graham provides some insight into legal professional privilege.
'To refuse to answer a competent and relevant question…in any Court of Law for whatever motive, is a challenge to the rule of law which can only be regarded as serious contempt meriting in ordinary circumstances severe penalty.' (HM Advocate v. Airs 1975 JC 64).
Legal professional privilege ('LPP') provides an exception to the courts' general powers to override an entitlement to confidentiality of communications between parties. Communications between legal advisors and their clients are privileged in so far as the communication relates to information provided where the client is consulting the lawyer in their professional capacity. It subsists not only during the period when the lawyer is formally acting for the client but after their business relationship is at an end. Even the death of one or other of the parties to the lawyer-client communication may not necessarily remove the privilege attaching to it. LPP is considered fundamental to the administration of justice rather than an ordinary rule of evidence limited in scope to the specific facts of a case:
'…a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent.' (R v. Derby Magistrates Court ex parte B  1 AC 487.)
Does it apply to other professions?
One might think similar considerations should apply to the communications which might otherwise be made in confidence to parties traditionally expected to keep one's secrets, such as clergymen, doctors, financial institutions, and journalists, say, but the right to retain such information confidential from disclosure is not recognised in Scotland to the same extent in any of these cases.
'…the private promise of confidentiality must, except in special circumstances, yield to the public interest that in the administration of justice the truth should be established.' (Santa Fe International Corporation v. Napier Shipping SA 1985 SLT 430)
The right to insist upon confidentiality for information covered by LPP is that of the client (only – the lawyer could not plead LPP as a basis for refusing disclosure if the client chooses to waive the privilege attaching to the information). The extent to which the courts are unwilling to interfere in the protection that LPP may best be illustrated by a case from New Zealand determined by the Privy Council:
B v. Auckland District Law Council  2 AC 736.
There are certain (but comparatively few) statutory provisions which affect LPP, in some cases extending it, and others restricting it. Otherwise, it should be noted that there is no confidentiality in communications made for the purpose of carrying out a criminal act or illegal transaction in which the legal advisor is directly involved or concerned. Similarly where questions arise in disputes between the client and their legal advisor the client might not necessarily be able to plead LPP as a means of avoiding disclosure of certain communications between them, such as the existence of their legal relationship or the extent of authority provided. LPP extends to communications with lawyers' staff, and probably to any intermediaries transmitting the information, besides legally qualified practitioners.
Get in touch
Should you or your clients have any queries relating to legal professional privilege please don’t hesitate to get in touch with Graham who can be contacted on firstname.lastname@example.org.
We share our thoughts on the potential impact of this Government review and the proposal to make professional indemnity insurance compulsory for all tax advisers. Read a comprehensive review, and the view of our corporate tax partner, Caroline Colliston.Read more
Newly qualified solicitor, Rebecca Gowans, provides some insight into the recent case of Stoffel & Co v Grondona.
The Supreme Court have ruled on the defence of illegality in Stoffel & Co v Grondona. This case arose out of a solicitors negligence claim made by Ms Grondona. The claim was brought on the basis that Stoffel & Co had negligently failed to register documents relating Ms Grondona's property transaction. It transpired that the mortgage in this transaction had in fact been acquired fraudulently by Ms Grondona. On this basis, Stoffel and Co argued that they were entitled to rely on the defence of illegality. The High Court and Court of Appeal were not persuaded by this argument, and Stoffel and Co appealed to the Supreme Court. The Supreme Court have now confirmed that the illegality defence cannot be relied upon in these circumstances.
Takeaways from the judgment:
For more information and a detailed analysis of the Supreme Court judgement, please click below.Read more