Some common misconceptions

The Master Policy Guide provides a great deal of information on all aspects of the Master Policy, from cover issues to claims, from renewal process to premiums. For many in the profession, personal interaction with the Master Policy is a rare occurrence and it is not surprising that, even in the Master Policy’s 37th year, there continue to be misconceptions about aspects of its operation. This article aims to address some of those misconceptions:

Claimants are entitled to intimate their claims direct to the insurers

The Master Policy is a policy of professional indemnity insurance, not a compensation scheme. That being the case, only the insured practice or its insured solicitors may intimate claims and circumstances, through Marsh to the insurers, and request the protection of the Master Policy in respect of a claim against the practice or any of its personnel.

In certain limited situations set out in the Master Policy certificate of insurance – for example, if all principals of the practice are deceased and there is no personal representative – the Society may intimate a claim and request indemnity in place of an insured practice/solicitor.

The Master Policy does not cover a Scottish practice for foreign work/foreign advice

There is an extension to Master Policy cover which means there is cover for foreign work and foreign advice, provided the person carrying out the work is “appropriately qualified” to do so. Suppose that a practice is dealing with a Scottish executry in which one of the assets of the estate is a Spanish property. To the extent that advice on Spanish law is required, the Scottish practice could satisfy the proviso and therefore have the benefit of Master Policy cover in respect of the “foreign advice” if it could demonstrate that the advice was provided by (a) a colleague “appropriately qualified” in Spanish law, or (b) by a firm of “appropriately qualified” Spanish lawyers.

Only the “classic” form of letter of obligation is covered by the Master Policy

Sometimes the team at Marsh receives enquiries which provide a detailed description of a current property transaction, and conclude with the question: “Can we grant this letter of obligation?” These enquiries very often raise issues of professional practice, risk assessment and commercial negotiation. Often the question assumes that any undertaking which is not a “classic” is not covered by the Master Policy at all.

In reality, all undertakings and letters of obligation (unless amounting to personal financial guarantees) made/granted in connection with the professional business of the practice are within the scope of Master Policy cover. However, crucially, it is only if the “classic” criteria set out in the Master Policy certificate of insurance are met that, in the event of a claim, no self-insured amount will be payable by the practice and the amount paid and/or reserved by insurers will have no adverse impact on the practice’s Master Policy premium.

With the introduction of advance notices under the Land Registration etc (Scotland) Act 2012, it is anticipated that letters of obligation will no longer be required in the vast majority of transactions. However, recognising the situations in which letters of obligation are still required, for the time being cover continues to apply, as before, for letters of obligation granted after the Act came into effect.

Practices which carry out civil work in breach of a criminal court undertaking are uninsured for claims arising from that work

Practices which grant criminal court undertakings commit to restricting their activities to criminal court work only. These undertakings, given to the Society (not Marsh or the insurers) entitle practices to a Master Policy premium discount. Some have assumed that, for such practices, Master Policy cover is restricted to apply to criminal court work only. The reality is that such practices have the same scope of cover under the Master Policy as any other practice. The restriction is by virtue of the undertaking given to the Society. Therefore, if an undertaking is breached by, say, carrying out civil court work, that is potentially a regulatory/disciplinary matter for the Society. Insurers would not be entitled to decline indemnity or void cover in the event of a claim arising from such civil court work.

The correct procedure if a practice wishes to undertake work outside the scope of its undertaking is to revoke the practice’s undertaking to the Society. An additional premium will then be charged on a pro rata basis to reflect the difference between the full rate of premium and the discounted rate.

A practice which ceases during the insurance year and whose Master Policy cover goes into run-off is entitled to a refund of premium

Part of this misconception may be down to an assumption by the practice that its Master Policy cover will cease/be cancelled when it ceases business. This overlooks the important fact that Master Policy cover is on a “claims made” basis. That means that the relevant cover, and relevant terms and conditions of cover, are those current at the time when a claim is intimated, not the cover (if any) in force when the work giving rise to the claim was carried out.

Unless continuing cover for the history of the ceased practice is being provided by a successor practice, the ceased practice’s Master Policy cover requires to continue, after cessation, on a “run-off” basis. This “run-off” cover applies to claims arising post-cessation from the pre-cessation activities of the practice. Otherwise there would be no cover at all for claims arising post-cessation.

Marsh are the insurers of the Master Policy

Marsh often sees letters of claim from solicitors on behalf of claimants requesting the practice concerned to intimate the claim “to your professional indemnity insurers, Marsh” or a letter which says “You, as insurers, will be interested to know that”.

Marsh is the broker and administrator, not the insurers, of the Master Policy. The insurers comprise a panel of insurance companies, each liable for the percentage of each claim which, after negotiation, they agreed to underwrite. These insurers are listed, with their agreed percentages, in each practice’s schedule of insurance.

Russell Lang and Marsh

Russell Lang is a former solicitor in private practice, who works in the FINPRO (Financial and Professional Risks) National Practice at Marsh, global leader in insurance broking and risk management. To contact Russell, email Russell.x.lang@marsh.com

The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.

Marsh Ltd is authorised and regulated by the Financial Conduct Authority.