Reports have estimated that 1,300 UK law firms have been put at risk after Latvian insurer Balva was put into liquidation. Initially Latvian Board of Financial and Capital Market Commission (FCMC) insisted there was no cause for concern as all Balva’s insurance policies would remain effective and be transferred to its replacement underwriter, Berliner. However, when Berliner pulled the pin, declining to cover the Balva policies, panic hit the UK legal market. Berliner's exit was described by one broker as the “biggest hand grenade into [the] bottom end of the market for many years.”
Under Solicitors Regulation Authority (SRA) rules, law firms will be forced to find alternative insurance cover within 28 days or be forced into the assigned risks pool (ARP), where policy rates are charged at a premium. If the firms are still unable to find affordable cover within three months they will be forced to cease trading because they do not carry adequate professional indemnity insurance. While Balva was unrated, it was on the SRA’s Qualified Insurer list, making it an attractive option for firms looking for a cheaper policy. At first glance, Balva's liquidation seems more likely to affect higher risk firms who are unable to obtain cover elsewhere. However, the problem is in fact much more widespread with approximately 12.5% of the profession’s total insurance premiums being paid to unrated insurers. All in all, it seems that things have gone from bad to worse for the troubled UK legal market.
British midlands firm, Challinors has finally gone into administration after being issued with a statutory demand in late August.
Meanwhile, after Cobbetts went into administration earlier this year, its solicitors thought they had landed a "get out of jail free" card when DWF took over the defunct firm. However, they are now left questioning their luck. It has been reported that DWF now pay experienced ex-Cobbetts associates less than £34,000, a figure which is significantly less than it pays its legal graduates, despite the fact that many of these Cobbetts' survivors now supervise their more junior better-paid colleagues. To add insult to injury, when the associates queried the discrepancy, they were allegedly told that DWF could get away with paying them less precisely because they come from the dregs of Cobbetts. Employed or not, it seems that currently there is no end to the tribulations of legal practice in the UK.
In the news this week is Cornish law firm, Follett Stock, which is facing liquidation next week for unpaid tax debts.