Master Policy coverage: What you need to know including coverage, exclusions and limits of indemnity

Anne Kentish, partner and professional negligence specialist at Kennedys Law, takes us through some of the key features of the Law Society of Scotland’s Master Policy.

In Scotland, solicitors must, by virtue of the Solicitors (Scotland) Act 1980, have professional indemnity insurance. Save for some very limited exceptions, all solicitor private practice units are required to secure cover under the Master Policy, which is the compulsory professional indemnity policy for solicitors in private practice in Scotland.

Many solicitors will never require to call on their insurance, but what can they expect if they do?

What follows is a quick run through some of the terms of the policy. All insured solicitors should carefully read the terms of the policy and, if they are in any doubt about anything, should contact Lockton, which is appointed by the Law Society of Scotland to broker and administer the Master Policy. Its dedicated Master Policy team will be happy to help.

Coverage

The Master Policy is a comprehensive professional indemnity policy. In very broad terms, it will indemnify an insured firm against any civil liability incurred in connection with the practice, subject to specific special conditions and exclusions, all of which are specified in the policy wording.

Coverage includes service complaints before the Scottish Legal Complaints Commission. It also includes cover for a civil liability resulting from a dishonest, fraudulent or criminal act or omission involving client funds on the part of a partner or employee of a firm. This is subject to there being at least one innocent principal in the firm ­— that is, at least one principal who did not know about and did not condone the act in question — and will not cover any individual liability for the person who committed the act. Remember that loss of firm funds through fraud is not covered under the Master Policy. This can be covered by alternative insurances.

The Master Policy provides cover on a ‘claims made’ basis. This means that the terms of cover will be those in place under the insured’s schedule of insurance and current policy wording at the date of intimation of a claim, not at the date the error or omission occurred.

Exclusions

As with all insurance policies, there are exclusions, which include, to name a few examples: employee claims against a firm, either in respect of employment law or as a result of illness or injury sustained at work; fines or penalties issued by the Information Commissioner’s Office; and cyber extortion payments.

There are other exclusions, and it is important that firms and practitioners read the Master Policy wording carefully in order to be aware of and understand the circumstances that are excluded from cover.

Self-insured amounts

The policy provides cover up to the limit of indemnity and, again like most insurance policies, is subject to a self-insured amount (the policy ‘excess’). The insured solicitor or firm is responsible for payment of the self-insured amount.

Limit of indemnity

The current limit of indemnity available under the master policy is £2 million for any one claim. All claims attributable to the same act, error or omission (or series of acts errors or omissions attributable to the same original cause or source) will be regarded as one claim with one limit of indemnity. What that means in practice is that only one limit of indemnity is available if a firm is facing a number of claims that all arise through the same error or have the same originating cause.

In the event of payment under the policy, any sum up to the limit of indemnity is paid in respect of the principal damages sum and the claimant’s legal costs. The defence costs are covered in addition to the limit of indemnity.

Any sum due over and above the limit of indemnity is the responsibility of the insured. Firms must therefore think carefully if they are handling transactions with a value of more than £2 million, and consider whether they should obtain top-up (also referred to as ‘excess layer’) insurance cover in addition to their Master Policy cover. 

Key terms

The policy is subject to certain terms and conditions, and again the policy wording should be referred to in order to understand those, but as a brief summary it is appropriate to highlight the following:

• The insurer has full discretion in the conduct of any proceedings and in the settlement of any claim.
• The insured may not be required to contest or pursue any legal proceedings unless a King’s Counsel or similar authority advises that proceedings could be contested or pursued with the probability of success.
• In some situations the insurer may pay the insured the limit of indemnity or any lesser amount that the claim can be settled for, and in such cases the insurer then relinquishes control of the claim and will have no further liability in connection with it.

Intimating a claim or circumstance

Solicitors must give written notice to the broker, Lockton, as soon as they become aware of a claim or circumstances that might give rise to a claim. Even if you think there is no merit in the claim, you must intimate the matter to the broker. 

Lockton will then inform the insurer and the insurer will decide whether any action is required and whether a panel solicitor should be appointed. The benefit of early intimation is therefore that the firm gains support from the insurer’s claims team at an early stage.

Any letter of claim or court proceedings must be intimated as soon as it is received or served; apart from being a requirement of the policy, it also allows the insurer sufficient time to instruct panel solicitors in what can be tight deadlines.

No admission should be made without the prior permission of the insurer. Sometimes a solicitor will feel responsible for the client but it is important that no admission is made as that can prejudice the insurer’s position.

The insured has an obligation to give the insurer all the assistance that it requires in order to deal with a claim. By extension, the insured must assist the panel solicitors in the same way. Usually that means providing the files, background information and precognitions. Solicitors should provide all assistance when asked to do so.

Lockton’s guide to the Master Policy 

For further information see Lockton’s interactive guide to the Master Policy, which covers all aspects, including the renewal process, premium calculations, notifying circumstances and changes to practices. You can also contact the Master Policy team directly at masterpolicyteam@uk.lockton.com or on 0131 345 5599.

This is an article provided by Lockton, the official insurance broker responsible for placing and administer the Master Policy of the Law Society of Scotland. Lockton is the direct point of contact for anything related to the Master Policy, including claims, practice changes and general enquiries.