Lawcovernotes March 2020

9. Doyouneed TopUp insurance? Extra protection for less thanyoumight expect. The primary limit of indemnity under Lawcover’s Professional Indemnity Insurance (PII) policy is $2 million. If a claim is made which exceeds that amount, and the practice does not have an appropriate level of Top Up insurance (cover in excess of the $2 million limit), then the partners may face potential personal exposure against which they are not insured. While most claims do not exceed $2 million, there have been several instances where larger claims have been made. One recent example involved a two-partner law practice acting on the sale of a commercial property for $28 million. The transaction proceeded uneventfully until the purchaser was not ready to settle on the appointed date. The vendor client gave instructions to issue a notice to complete, but it was defective, and settlement was delayed by several weeks. The vendor client was unable to rely on non-compliance with the notice to complete to terminate the contract. The vendor client made a subsequent claim against the law practice and calculated the loss suffered to be more than $4 million. The law practice did not have Top Up insurance and the partners were confronted with personal liability to the extent that the claim exceeded the $2 million limit. The evidence indicated that the law practice would be found liable if the matter proceeded to hearing and Lawcover recommended settling the claim. Initial settlement attempts were unsuccessful, but a compromise was reached during mediation where the vendor client agreed to accept an amount just under $2 million inclusive of costs. Given the real possibility that the claim could not be settled under $2 million, the partners of the law practice were very stressed throughout the entire process. They were relieved by the settlement outcome but, not wanting to endure a similar experience again, they decided to purchase Top Up insurance from that point on. In evaluating the need for Top Up insurance in your law practice, you should consider whether the nature of the work you do carries a risk of claims exceeding $2 million. For example: ^ Do you do transactional work where you are dealing in high value assets? ^ Are you advising high net worth clients? ^ Do you act for clients with potentially large value claims in building matters, personal injury or family provision, for example? Independent advice from an insurance broker or adviser may be helpful to assess your risk and determine the right level of cover for your practice. Top Up insurance provides protection for your law practice, and your clients, above the primary limit of $2 million – often for less than you might expect. Jen McMillan Legal Practice Consultant