Due to hard market conditions and the ongoing impact of Covid-19, some practices may be facing very difficult decisions during their upcoming professional indemnity insurance (PII) renewal period. The unfortunate reality is that some firms may struggle to obtain cover and could fall into the extended indemnity period as a result.

Thankfully, during the most recent October renewal season saw very few enter the extended policy period (EPP), and Lockton was able to obtain an extension of cover for the majority of these. The few firms that were unable to secure insurance were already facing difficulties before the market turned.

If you are getting close to your renewal date and struggling to obtain cover, it is important to understand how your practice will be affected by entering the extended policy period.

The SRA stipulates that all law firms must have professional indemnity insurance in place. If your firm is unable to obtain insurance before their policy expires, your incumbent insurer is obligated to extend the policy for 90 days, which is separated into two periods:

• Extended policy period (30 days from renewal date)
• Cessation period (60 days from end of extended policy period)

The extension of cover is to allow firms who have been unable to obtain insurance the opportunity to source appropriate qualifying cover.

Entering the extended policy period

• You will need to notify the SRA within five days that you have entered the EPP
• You may continue to take on new instructions
• If you secure new qualifying insurance cover, the new insurer will be obligated to backdate the policy to the beginning of the EPP
• You must notify the SRA of the new cover providing the insurer name and policy number

If at the end of the 30 days of extended policy period you are unable to source appropriate cover, you will enter the cessation period.

Entering the cessation period

• You must not accept any new instructions but you may continue to work on existing matters in order to conclude them
• If you are able to secure qualifying insurance cover, the new insurer will be obliged to backdate the policy to the beginning of the EPP
• If you are unable to secure cover by the end of the additional 60 day period, your firm must close
• Your incumbent insurer will need to provide you with six years run-off cover which will be backdated to the beginning of the EPP

Extensions to the EPP and CP in light of Covid-19

Given the ongoing situation with Covid-19 and current economic uncertainty, many firms may experience difficulties in securing their insurances. This could be due to practical obstacles e.g. staff unable to deal with renewal due to illness/care responsibilities, or due to financial pressures where more time is required to get the necessary funding.

The SRA has recognised the impact of Covid-19 on firms and, as a response, has now made provisions to extend the extended policy period and cessation period where necessary. This must be negotiated and agreed with the incumbent insurer and is at their discretion.

As articulated in our article 'Extended indemnity period – dispelling the myth' the key message is communication with your broker and insurer. We would urge any firm facing challenges to make contact with your broker as early as possible so that any potential issues can be addressed.