The case of SRA v Leigh Day has been a wake-up call to the profession, most of whom will not previously have had any inkling of the costs involved in defending regulatory investigations and proceedings.
The costs on both sides in that case were said to have been seven figure sums, but fortunately Leigh Day had a D&O policy that responded to the costs of the defence.
As the firm itself pointed out, without that policy, the losses would have been potentially devastating.
Solicitors' professional indemnity policies are written on a claims made basis. This means that by the time the solicitors are told by the SRA of its intention to investigate, it is always too late to obtain cover. Furthermore, unless the investigation is connected with a civil claim, there will be no cover under a basic solicitors' PI policy for the defence costs and certainly no cover in respect of the SRA's costs or any penalty.
Extensions to solicitors' policies which cover these eventualities are relatively inexpensive, as are the sort of D&O policies that Leigh Day had fortunately purchased.
It is imperative that when arranging insurance cover that these issues are considered carefully, and, given the fact that the cost of cover is not prohibitive and the instance of SRA investigations seems to be on the increase, particularly in respect of larger firms, that consideration is always given to incepting such policies.