The Court has held that, in the absence of any express contractual term, a partner in a solicitors’ practice, which operated as a limited liability partnership, was not liable for the practice’s unpaid professional indemnity insurance premiums. The Solicitors Indemnity Insurance Rules 2009 could not be relied on to imply a contractual term into the insurance contract.
The Assigned Risk Pool (APR) operated by the Solicitors Regulation Authority (SRA) provides insurance cover for firms which cannot get cover from qualifying insurers or cannot reasonably afford the terms available to them.
The SRA has taken steps to abolish the APR from October 2013, in part due to the failure of firms and their respective partners for paying their premiums. However, a recent High Court ruling over who can be held liable for a firm’s indemnity insurance premiums, once the LLP is in the ARP, has come to many as a surprise.
In the case of Ariel Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd (2012), the Appellant solicitor (Z) successfully set aside a Statutory Demand served on him by the Respondent APR Manager (R) for unpaid insurance premiums of the Appellant’s law firm. Z was a member of a solicitors’ practice which operated as a limited liability partnership.
Z argued that, as a limited partner, he was not personally liable for the debt of the practice. At first instance, the Registrar upheld the Statutory Demand holding that the Solicitors’ Indemnity Insurance Rules 2009 (Rule 10.3) were sufficient as a matter of professional conduct to create an obligation on Z himself to pay the premiums.
On appeal the court held that professional rules would not normally be incorporated into a contract unless the contract expressly said so. In this instance there was no evidence of any such contractual provision.
However, the judge accepted that it was arguable, even in the absence of any express contractual term, that there was an implied contract between the principals of the firm and R, and it was also arguable that such a contract was imposed by the combined effect of the Solicitors Act 1974 and the indemnity rules. However, the judge was far from convinced that either argument was correct.
Therefore, as there was a genuine dispute as to the existence of the debt, the Statutory Demand ought to be aside.
The SRA are currently considering an appeal against the decision. However, the outcome of this case will almost certainly lead to a review of the contractual terms of indemnity insurance providers to ensure that members of a LLP are personally liable for payment of the premiums.